By Stephen Nagy
Deep financial cooperation within the areas of producing, know-how and finance has coexisted awkwardly with decades-long political and territorial disputes between Japan and China. This has led Japan to develop financial relations with China via a coverage that separates politics and economics or seikei bunri.
Amid intensifying US–China strategic competitors, China’s observe report of financial coercion and its long-term goals to safe its personal ‘core pursuits’, Japan has grow to be extra involved about its financial reliance on China.
The seikei bunri rules for partaking with China economically are giving approach to Japanese Prime Minister Fumio Kishida’s new ‘financial realist’ diplomacy. Coverage approaches to handle considerations concerning the affect of politics on Japan’s financial safety embrace selective diversification of provide chains away from China, reshoring, friend-shoring and nationwide technological improvement.
The drift away from seikei bunri has raised considerations in Tokyo about Japan’s vulnerability to financial coercion and the weaponisation of provide chains.
Political leaders in Japan have already dedicated important strategic and monetary assets to enhancing financial safety via selectively diversifying provide chains and lowering reliance on China. Initiatives embrace the adoption of supplementary budgets for financial safety, comparable to securing home manufacturing bases for superior semiconductors. Supplementary budgets have targeted on selling home funding to assist provide chains and encourage their diversification.
Regardless of the political and safety complexities, the mutually dependent financial relationship stays largely intact, is deepening and extremely complementary. There is no such thing as a changing China as Japan’s main marketplace for items and providers. Japanese firms have invested closely in China, significantly within the vehicle, electronics and equipment sectors. China can also be a significant supply of low-cost items and elements for Japanese firms. This position has saved costs low and enhanced the competitiveness of Japanese merchandise in international markets.
To decouple the Japan–China financial relationship would require untangling the advanced and multifaceted mutual dependency that defines it.
After taking workplace in October 2021, Kishida positioned financial safety as a significant focus of his administration primarily based on evaluation of the challenges related to China’s rise. Within the wake of Russia’s invasion of Ukraine — with its affect on downstream power and meals safety — Kishida warned that ‘East Asia might be the subsequent Ukraine’.
Tokyo is selling reshoring, urging Japanese companies emigrate their manufacturing again to Japan from China or to discover new manufacturing bases in Southeast Asia, India and different nations. The federal government has launched insurance policies to assist firms which might be contemplating reshoring, together with subsidies, tax breaks and regulatory reforms.
Tokyo has additionally highlighted the significance of diversifying provide chains, significantly for key elements and supplies comparable to uncommon earth metals. The Japanese authorities has been investing in various sources of uncommon earth metals, comparable to recycling and growing new mines in different nations. Japan can also be exploring using new supplies that may substitute uncommon earth metals.
Tokyo has inspired collaboration to reinforce financial ties and agendas underneath the umbrella of the ‘Free and Open Indo-Pacific’. The G7 International Ministers’ assertion on 18 April 2023 — which confused that ‘resilient provide chains must be inbuilt a clear, diversified, safe, sustainable, reliable and dependable method’ — exemplifies this.
Japan has additionally emphasised the significance of strengthening home industries. This contains the event of recent industries and applied sciences anticipated to lower Japanese vulnerability to China and deepen its financial safety.
A essential part for Japanese companies is semiconductor supplies. Regardless of being a significant producer of semiconductors, Japan continues to depend on imports of key supplies from different nations, together with China. To mitigate this vulnerability, Tokyo has straight courted the Taiwan Semiconductor Manufacturing Firm, amongst others, to relocate to Japan. It has additionally been investing within the improvement of next-generation semiconductors and inspiring its firms to maneuver up the worth chain to cut back their dependence on imports.
China continues to get pleasure from a monopoly over uncommon earth steel extraction and exports that makes Japan and different states susceptible to uncommon earth provide chain weaponisation. This exposes signature Japanese industries together with electronics, cars and renewable power to attainable coercion.
As with power and different mineral assets, Japan lacks home sources of uncommon earth metals and is reliant on imports. Growing new mines is tough and costly and there are few viable alternate options to China as a provider. Current initiatives with Canada stay financially unviable.
Growing various sources of uncommon earth metals requires not solely the extraction and processing of ores, but additionally the event of downstream industries that may use the metals in merchandise. Whereas Japan has a powerful high-tech business, growing new industries that use uncommon earth metals takes time and requires important funding which can not meet the calls for of the present market.
Enhancing financial safety and creating resilience in opposition to financial coercion and different types of financial instability shall be tough. It would require Kishida and future administrations to develop new mines and processing amenities for uncommon earth metals whereas assembly a variety of environmental requirements to make sure actions are performed safely and sustainably.
Growing new mines and processing amenities for uncommon earth metals would require cautious planning, session and collaboration with stakeholders, together with native communities, environmental teams and authorities businesses. The Kishida administration is beginning this course of, working with Australia and African states, comparable to Namibia, in joint ventures.
Japan’s efforts to cut back its dependence on China mirror a need to reinforce financial safety and scale back vulnerability to geopolitical dangers and uncertainties. With the shift to financial realism away from the rules of seikei bunri, the Kishida administration goals to steadiness financial alternatives with Japanese nationwide pursuits in an more and more advanced and unsure international surroundings.
Concerning the writer: Stephen Nagy is a Professor within the Division of Politics and Worldwide Research on the Worldwide Christian College, Tokyo and Visiting Fellow on the Japan Institute for Worldwide Affairs.
Supply: This text is printed by East Asia Discussion board and seems within the most up-to-date version of East Asia Discussion board Quarterly, ‘Re-defining the ASEAN–Japan Relationship’, Vol 15, No 3.