Corporate Japan resigned to kowtowing for trade
In 1988, exasperated after another lecture on the war from officials at China's foreign ministry, a Japanese diplomat in Beijing finally snapped: 'This is enough. We will pay them anything, US$10 billion if they want, on condition that they do not raise the issue of the war again.'
Sixteen years on and nothing has changed. The mainland media is as full as ever of angry reports of Japanese cabinet ministers going to the Yasukuni shrine. Television stations run war films featuring ugly Japanese officers, with Hitler-like moustaches, beating captured partisans or lusting after Chinese women.
The diplomat expressed a view then shared by the Japanese business elite, that China was a country to export to but too hostile and unstable to invest in.
'If we had a plant in Mexico or France, we could close it,' said an official at one of Japan's major carmakers. 'Imagine trying to close a factory in China.'
Now it is 2004. Political relations are as bad as ever but the economic world is unrecognisable. China has become the 'workshop of the world', with labour costs 10 per cent of those in Japan, and an enormous domestic market.
This has left Japanese firms with no choice but to join the scramble, late in the game. Last year, funds from Japan overtook those from the United States and South Korea to become the biggest 'foreign' investment in China, if we consider money from Hong Kong and the Virgin Islands, the first two, as money from Hong Kong, Taiwan and the mainland.
Global giants such as Matsushita Electric Industrial, Toshiba, NEC, Sony and Fujitsu are building factories and research and development centres on the mainland to supply China, Japan and export markets. They are transferring a level of technology that would have been unthinkable in the 1990s.
The carmakers are hastening to make up for lost time. In the 1980s, Toyota and Nissan sent countless delegations to China where they were invited to set up joint ventures. They declined and lost the market to Volkswagen, General Motors and Citroen.
Since 2002, the two have been investing with the same determination and energy that they devoted to factories in the United States and Europe.
But the market remains as hostile as ever. The media eagerly jumps on complaints by consumers against Japanese products, such as Toshiba laptops and Mitsubishi Pajeros, and turns them into a nationalist campaign. Japanese firms have lost high-profile lawsuits against mainland companies over copyright and brands. Most Japanese firms believe that they have lost the case before it begins.
Last November, a judge in Beijing ruled against Toyota, which was asking for 14 million yuan in compensation against a private carmaker, the Geely Group, for infringement of the logo at the front of its vehicles, which it registered in China in 1990.
Toyota's lawyer, Shi Yusheng, held up for photographers the two logos side by side. Since the two are almost indistinguishable, it is hard to know what was in the mind of the judge.
'This is not good for the protection of intellectual property rights in China,' said Katsumi Nakamura, president of Nissan's joint venture in China.
But despite their unease over such injustice and widespread prejudice against all things Japanese, the companies have no choice but to invest in China.
Chinese competitors are challenging them fiercely in export markets in products in which Japanese firms have been traditionally dominant, such as colour televisions and audio systems, and plan a similar attack in a wide range of goods. Only by utilising the same low production costs in China can Japanese companies fight back.
Despite this commercial war, Japan continues to provide China with low-interest, long-term loans, a form of compensation for the damage it inflicted in the second world war, but in diminishing amounts.
One of the projects the money went on was the Sino-Japanese Friendship Hospital, among the best equipped in Beijing. Local wits call it the 'Sino-Japanese Hostility Hospital'.
