Japan and China Economic Ties Growth

Japan and China economic ties are at the forefront as Chinese Premier Wen Jiabao meets Japanese Prime Minister Yukio Hatoyama in Tokyo. They meet in the backdrop of the European economic crisis and the European trillion dollar bailout. There is also the Korean peninsula situation following North Korea’s torpedoing of a South Korean vessel last month. There is thousand’s of years of distrust between Asia's two most powerful nations.

Japan and China economic ties are crucial to how the global economy functions. Behind the United States of America economy Japan’s economy ranks second and China’s economy ranks third. The combined economic output of Japan and China is 15 percent of the total global output. The two nations are increasingly interdependent economically and financially. With recent concerns of European economic growth on top of already nervousness on the U.S. economy this interdependence is likely to increase. Chinese and Japanese ties in terms of economic growth, trade and business are expected to grow significantly.

China replaced the United States as Japan's number trading partner in 2009. The international trade between the two nations in 2009 amounted to 21.7 trillion yen (US $238.7 billion). This has been a natural trend as China’s economy has taken off in the past decade. The close proximity of the two nations allowed for huge growth potential with Japan’s value added export sector. 

Japan’s economy has been increasingly saddled with two burdens.

• Firstly they still face massive deflationary pressures from the huge bailouts of years gone by. 
• Secondly Japan’s population is ageing, thus limiting it’s economic potential and magnifying it’s potential social burden. 

It is inevitable that Japan will increasingly rely on China, the Asian tiger economies and Australia. The Chinese economic powerhouse managed to power ahead through the global economic crisis. Japan looks most towards China for expanding it’s own economic power and future growth. 

Many of the older Japanese business community have been reluctant to jump on board the China bandwagon. This has much to do with Japanese pride than economic reality. China is expected to overtake Japan as the No.2 economy in the world sometime this year. Japanese business leaders have increasingly looked to ink deals with Chinese bodies to capture some of that potential Chinese demand. 

In what have been understandably testy periods given the history between the two nations changes in policy have been slow in coming. Japan just recently eased visa rules for Chinese nationals. From July Chinese nationals will be able to travel more freely to Japan. The hope is this will lead to greater tourism and greater trading opportunities.

China looks towards Japan for guidance in developing economic ties. Japan can also look at China as a second chance in some ways. Japan’s economy came to a grinding halt after successive bubbles burst. Japan had stockmarket and property bubbles burst that to this day hinder the Japanese economy. Japan chose to absorb these huge losses rather than allow market forces to perform. Economists worry about the US having performed huge bailouts of US banks, insurance companies and car companies. For Japan having being burnt themselves they certainly don’t want to hitch their wagon too tightly to America going forward, 

Japan wants to provide a valuable lesson to Beijing with its overheating property market. China stock market has already fallen to its lowest level in a year. It is important for Japan that China’s bubbles do not burst catastrophically like it’s own did. The amounts are not insignificant, Japan's technology and direct investment totaled US$4.1 billion in 2009. China needs this continuing investment in knowledge and capital for it’s own future economic development. 

The U.S. has been very vocal about China’s managed Yuan policy. Though in reality it has been nothing but hot air from Washington in fear of upsetting Beijing. Tokyo has been relatively quiet about a more flexible Yuan policy. Indeed Japan maintains that pressuring Beijing makes it even harder politically for China to reform its currency. This makes perfect sense, as China policy has been not to bow to international pressure. That is at least not to be seen to be. Japan and China economic ties continue to tighten and grow, as do their political ties and cultural understanding. One wonder where Europe and America fit into this growing relationship between the Asian behemoths?