China ‘can look to Japan for lessons in its trade war’ with the United States
- Japanese official suggests Beijing talk to Washington in US terms
- Official also warns against repeating Tokyo’s mistakes in liberalising the economy
Japan’s handling of trade conflicts with the United States in the 1980s offers lessons for China, which needs to be more transparent to address the complaints of the US and other trading partners, according to a Japanese official who was involved in trade talks more than three decades ago.
In a seminar in Beijing on Friday to mark the 40th anniversary of China’s reform and opening up, Yoshiki Takeuchi, director general of the International Bureau at Japan’s Ministry of Finance, also said China should continue to liberalise its markets and carefully manage risks.
Washington and Beijing have been locked in a trade war since the summer, with signs that the conflict will escalate further. The US has signalled that it could extend trade tariffs to all Chinese products and has already tightened investment scrutiny, making it harder for Chinese investors to acquire US companies, especially in hi-tech sectors.
Diplomatic observers and economists have suggested that Beijing should learn from Tokyo, noting that US Trade Representative Robert Lighthizer was a key player in the talks at the time.
“In the 1980s, we had a difficulty with the United States, as China now faces,” Takeuchi said, who joined the ministry in 1983 and played a role in the negotiations.
“The Japanese trade surplus with the United States expanded very much … [that] invited criticism from the US that the cause of such surplus was the level of the Japanese yen exchange rate, and [the] depreciation of the Japanese yen was the product of the closed nature of the Japanese financial markets.”
Japan sought to ease some of the discontent by setting up factories in the US and building stronger relationships with American authorities at the local level.
“In fact, Japanese businesses have expanded their business in foreign countries, and managed to keep high international competitiveness among others, acquiring foreign innovation,” Takeuchi said.
Takeuchi suggested that China speak to the US in the US’ own terms. “The key words are ‘transparency’ and a ‘level playing field’ – those are the two key concepts that the United States really believes,” he said.
Once on opposite sides of a trade conflict, Tokyo now shares Washington’s concerns over what they see as China’s unfair economic practices, such as Beijing’s heavy industrial subsidies for domestic players in advanced manufacturing and slow delivery on commitments on market openness.
That concern was apparent in September when trade officials from the US, Japan and the European Union committed to working on rules to address non-market trade and economic practices, harmful state subsidies and market distortion by state-owned companies.
“I understand the big role the government plays here in China, but if it can come up with more transparency, providing a more level playing field, I think that will ease down the pressure of the United States,” Takeuchi said.
He said the dispute with Washington would take time to resolve, adding that Japan’s process of liberalisation took decades.
“We did this liberalisation of [our] current account, capital account, and financial markets in a sequential order, and in a gradual order, and I think that is what the Chinese are trying to do right now.”
Takeuchi also warned against repeating the mistakes Japan made in its liberalisation.
“In the case of Japan, we had a bubble, and we were a bit too radical in bursting it,” he said.
“To achieve sustainable economic growth, it is important for the Chinese authorities to make continuous efforts on advancing various structural reforms, such as transforming its economy from the investment-driven [mode] to consumption-driven, and containing risks of spending from excess debt issues, non-performing loans and underperforming state companies.”
Though Japan made mistakes in the liberalisation of its financial sector, “in the long run, it’s good for you”, Takeuchi said, adding that Beijing must face its fears and recognise the benefits of change.
“Advancing liberalisation measures invites concerns that foreign enterprises destabilise employment, or weed out domestic industry, and do not bring benefit to economic growth.
“However, our experience tells that liberalisation brings various benefits such as improvement in the domestic companies’ productivity and competitiveness through competition with foreign enterprises, economic growth through the increase of capital investment and employment, and promotion of innovation in business management.
“So I hope China will continue to pursue this liberalisation, and I hope that Japan can contribute to China’s financial market to help China develop more.”