Until the pandemic hit, Japanese firms operating supply chains in China were uncertain about what to expect and took a wait-and-see attitude. But by February 2020, prospects for the Phase One trade deal signed with the United States in January were already in doubt when the pandemic’s enormous negative impact became apparent. A February survey of 2,600 Japanese firms in China found that 37 per cent were looking outside China for suppliers. A Japan Chamber of Commerce and Industry survey published in April found that of 8,852 Japanese firms in China, 7.1 per cent wanted to scale down or withdraw.

Nevertheless, Abe’s US$2.2 billion initiative by no means meant that corporate Japan had an intention to decouple from the Chinese economy. The above-mentioned survey also found that 40.1 per cent of Japanese firms were willing to expand their Chinese operations. China had become Japan’s largest trade partner, and Japanese investment in China no longer used it primarily as an export platform. Most Japanese firms were now geared to serve China’s growing need for industrial and consumer goods, especially in areas like software, telecoms, wholesale and food. According to the Japanese government, the average proportion of Japanese factory production in China that was sold as exports in 2019 was only 32.5 per cent (JETRO). And as Chinese consumers gained disposable income, Japanese retailers and service industries stood to join Japanese manufacturers doing good business in China.

But reconciling corporate Japan’s interests with Japan’s broader geopolitical and political interests in an era of rising strategic tension is proving to be a vexing issue.

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IMPACT ON THE BROADER BILATERAL RELATIONSHIP

Meanwhile, China’s political and strategic animosity directed against Japan due to historical grievances and Japan’s alliance with the United States continues unabated as evidenced by increasing military manoeuvring in and around the Japanese islands.

A ‘NEW ERA’ OF BILATERAL COLLABORATION?

Abe visited Beijing in October 2018 where he met President Xi Jinping and offered him a state visit to Japan. Abe vowed to work for a “new era” of “collaboration not competition” in bilateral ties that was to be inaugurated by agreements signed during Xi’s visit to Tokyo in April 2020. Abe also “raised pending problems directly with President Xi”, a reference to Japanese citizens recently arrested for espionage in China as well as continuing intrusions by Chinese vessels into waters surrounding the Senkaku/Diaoyu Islands.

After returning to Tokyo, Abe was eager to make the impending Xi state visit a success and ignored escalating Chinese intrusions into waters immediately surrounding the Senkaku/Diaoyu Islands. Japan’s coastguard reported that from January to mid-December 2019, Chinese government vessels intruded 1,021 times – far exceeding the previous record of 819 set in 2013 – and entered the Japanese-administered islands’ territorial waters a record-setting 112 times.

To register this rising geopolitical risk, Japanese Defence Minister Taro Kono said that Japan “cannot overlook” the frequent violations of Japanese territorial waters, and that China needed to “work hard” to improve the situation “otherwise we may find a difficult environment for the visit”.

To curry favour with China, Abe continued to allow visitors from China (except those originating in Wuhan) to enter Japan without quarantine restrictions after China began lockdown measures on January 23. This policy elicited mounting domestic criticism for the risk this posed to public health in Japan. Despite calls as early as February 2020 by his own Liberal Democratic Party’s members and by opposition parties (including the Japanese Communist Party) to postpone Xi’s visit due to the coronavirus, Abe remained optimistic about Xi’s state visit.

Abe’s attitude was also out of step with changing Japanese perceptions of China. According to the 2019 Genron poll on mutual public perceptions, Japanese opinion toward China deteriorated with 44.8 per cent saying relations were “bad”, a 6 per cent increase from 2018; while 31.8 per cent thought that relations had worsened, an increase of 13 per cent. Overall, 84.7 per cent had an “unfavourable” impression of China; only 15 per cent had a “favourable” impression.

Covid-19 and US tensions cloud hopes for ‘new era’ in China-Japan ties

Abe’s effort to curry China’s favour despite mounting problems, continued until March 5, 2020 when Japan unveiled a trifecta of China-related initiatives. The government announced a delay in Xi’s visit due to the coronavirus pandemic. It also said that a 14-day quarantine for all visitors from China would now be required. Finally, as discussed above, Abe announced subsidies to help Japanese firms relocate supply chains out of China.

Yet another economic de-risking move that was perceived to distance China and Japan happened on May 11, when a new law was passed to require advance notice from foreign investors that wanted more than a 1 per cent stake in designated Japanese firms, which included over half of Japan’s listed companies. The intent was to limit foreign acquisitions of strategically significant Japanese firms that became distressed or undervalued due to the economic fallout of the pandemic. It did not specifically target China, but efforts by Chinese state-owned and state-backed enterprises and investment funds to acquire ownership in strategically important Japanese firms would likely be affected by it.

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XI VISIT AND A ‘NEW ERA’ POSTPONED

From March into April 2020, the world responded politically to China’s flawed early handling of the coronavirus and its use of the World Health Organisation (WHO) to manage perceptions during the global spread of the disease. The WHO came under widespread criticism, including in Japan where Deputy Prime Minister Taro Aso said that it should be called the “Chinese Health Organisation”. China’s reliance on “wolf warrior” diplomacy to create a praiseworthy image of Beijing’s role during the pandemic led the Japan Times on May 26 to publish an op-ed entitled, ‘China is its own worst enemy.’

On May 28, China’s National People’s Congress called on its Standing Committee to draft national security legislation for Hong Kong that would “outlaw acts of secession, subversion, terrorism and conspiracy with external forces in Hong Kong”, and would allow mainland security agencies to operate as necessary to enforce the law. The next day, two LDP policy forums devoted to foreign affairs sent letters to Abe asking him to cancel Xi’s visit and resist China’s proposed national security legislation for Hong Kong.

Geopolitically, the focus was also on China as it moved aggressively around its contested South Asian and East Asian peripheries.

China sank a Vietnamese fishing vessel on April 8; operated an ocean survey vessel from mid-April to mid-May inside Malaysia’s EEZ; on April 18-19, it claimed the Paracel and Spratly Islands as administrative districts and named some 80 contested land features in the Spratly Islands. Along the Sino-Indian border, Indian and Chinese soldiers engaged in physical fighting in Ladakh on May 5 and 9, which culminated in extended hand-to-hand combat on June 15 that led to the death of 20 Indian troops. On May 10, two Chinese coastguard ships entered Japanese-administered territorial waters of the Senkaku (Diaoyu) Islands and ordered a Japanese fishing vessel to leave the area. In mid-May, China began large-scale naval military exercises that reportedly will involve both of China’s aircraft carriers and include a simulated takeover of Taiwan-administered Pratas Island. And on May 29, Li Zuocheng, chief of the Joint Staff Department and member of the Central Military Commission, said that China would “take all necessary steps to resolutely smash any separatist plots or actions” in Taiwan.

Japan places military on standby for ‘intrusions’ by dozens of Chinese fishing boats

On June 4, a date pregnant with meaning for those engaged with China, the Japanese government reported that it had ceased preparations for Xi’s state visit. Then days later, on June 10, Abe announced that, in light of the need to uphold democracy and human rights as well as lead global opinion, he would draft a statement to be issued by the G7 nations asking China to reconsider its proposed Hong Kong national security legislation. The G7 issued the statement on June 17, which expressed “grave concern regarding China’s decision to impose a national security law on Hong Kong” because it “would curtail and threaten the fundamental rights and freedoms of all the population protected by the rule of law and the existence of an independent justice system”. With over 1,400 Japanese firms operating in Hong Kong, Japan also has a substantial economic stake in preserving the status quo there.

On June 30, the day that China’s Standing Committee of the National People’s Congress passed the National Security Law for Hong Kong, Japanese Defence Minister Taro Kono warned China that “it will significantly affect President Xi Jinping’s state visit to Japan”, preparations for which had been suspended although the trip itself had not been officially called off.

Hong Kong national security law and Covid-19 strain China-Japan ties

Abe likely was reluctant to voice criticisms that China would almost certainly view as insults. But political and geopolitical developments concerning China greatly changed the domestic and international political atmosphere to make it difficult for Abe to sustain his attempted bilateral rapprochement with China.

Unfortunately, as desirable and beneficial to both sides as better bilateral relations may be, the Japan-China relationship is entangled with wider economic, political, and social circumstances that condition Japan’s economic engagement with China. Japan and China are discovering that, despite their best efforts, deepening their bilateral economic engagement is difficult to realise in a world of worsening geopolitical, ideological, economic, and societal divisions.

IMPLICATIONS FOR SOUTHEAST ASIA

As Japan becomes more proactive in looking for ways to reduce overdependence on the Chinese economy and maintain the status quo in regional and global governance, it will naturally look to enhance engagement and cooperation with Asean members that share these concerns. Certainly, with respect to supply chain diversification out of China, Japan can be expected to look favourably upon Asean member plans to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or to initiate infrastructure investment-focused Asean-Japan discussions to enhance Asean’s attractiveness as an integrated platform for Indo-Pacific supply chains.

In the area of maritime security and regional governance under the rules-based order, Japan undoubtedly welcomed the Chairman’s Statement of the 36th Asean Summit held in late June, which reaffirmed Asean’s commitment to “the peaceful resolution of disputes, including full respect for legal and diplomatic processes, without resorting to the threat or use of force, in accordance with the universally recognised principles of international law, including the 1982 United Nations Convention on the Law of the Sea (UNCLOS)”; and, “stressed the importance of maintaining and promoting peace, security, stability, safety and freedom of navigation in and overflight above the South China Sea”.

It would be in Japan’s interest to support and enhance Asean leadership in these areas.

Finally, in the post-Covid-19 world, enhanced Asean-Japan non-traditional security cooperation to prevent and manage future epidemics could and should be an important new initiative.

David Arase, is Resident Professor of International Politics at the John Hopkins University-Nanjing University Centre for Chinese and American Studies, Nanjing, China.

This article was first published by the ISEAS-Yusof Ishak Institute in its Perspective Issue: 2020 No. 83, on August 5, 2020 and titled The Covid-19 Pandemic Complicates Japan-China Relations: Will This Benefit Asean?