Fishing for trouble

Sino-Japanese relations are simmering again, and this time Japan may get outplayed. The catalyst has been the seizure of a Chinese fishing boat that collided with Japanese coast guard vessels off the disputed Diaoyu/Senkaku islands. Tokyo returned the ship and its crew, but at press time still held the ship’s captain, Zhan Qixiong. Japan says Zhan was uncooperative when hailed by the coast guard and that he deliberately rammed their vessels. True or not, Japan and China have signed a joint fisheries agreement covering other areas and it seems silly to play hardball over tuna.

Either Tokyo is trying to send a message, or somebody lost their temper – possibly Foreign Minister Katsuya Okada, who has vocally criticized China in recent months – but more likely hotheads in the coast guard itself. Political volatility around recent Japanese elections doubtless played a role as well. Unfortunately, now that Prime Minister Naoto Kan has fended off challenges, he has moved Okada out of the Foreign Ministry, making the outlook for future negotiations even more unpredictable. Okada has criticized China, but he met with Chinese counterparts seven times this year, and warned publicly that his replacement will have to spend time to establish his own relationships.

If Beijing’s goal was to goad Tokyo into losing its temper, it has done a masterful job. The prodding has been constant: Chinese helicopters buzzed Japanese naval vessels south of Okinawa in April and again in May after Japanese protests, and followed up with large naval exercises in the area.

On top of this, Japan’s China business strategy is going slowly sour. Ten years ago, the two nations’ economies were complementary: Only 16% of China’s export products competed with Japanese exports, even as China’s demand for Japanese products surged. But today Chinese companies are increasingly competing for share with Japanese high tech exports, the country’s major point of comparative advantage – in many cases with overt policy support.

For example, China’s official policy of hoarding and limiting production of rare earths, allegedly for environmental reasons, is starving Japan’s alternative energy industries. Beijing’s purchases of Japanese bonds have also punished Japanese exporters by driving up the value of the yen, provoking protests from Tokyo – which China ignored – and forcing the Finance Ministry to conduct its first currency intervention in six years. For a country still trying to pull itself out of more than a decade of economic stagnation amid an economic crisis, these are existential threats.

Even so, using an irritable fisherman as a stick with which to poke back at Beijing is a sign of ill-considered desperation. Japan’s control over the islands dates back to 1895 – it does not occupy anything like a moral high ground. And despite the rhetoric, China has actually compromised on many territorial issues, including natural gas exploration near the Diaoyu/Senkaku islands: There is no reason to believe all its territorial ambitions are non-negotiable.

The decision to hold Captain Zhan is costing Japan on multiple fronts without much return. Not only is it putting diplomatic relations with Beijing back in the freezer, it is also angering Taiwan and Hong Kong residents, who tend to be more sympathetic to Japan than mainlanders are. At the same time, the unilateral currency intervention irritated the US and the EU.

Tokyo may feel that it has few other tools with which to retaliate. The country can’t prevent Beijing’s purchase of freely tradable Japanese bonds, or buy Chinese bonds in response. There is no feasible way to force China to export more rare earths. And as an aging and export-oriented economy, Japan has plenty to lose from a trade war, a reality not lost on Beijing.

This doesn’t mean that Tokyo has no better options. Japan is not alone in being irritated by China’s new assertiveness. Unfortunately, reactions by China’s neighbors have largely been regionally uncoordinated and militaristic – witness Vietnam’s startling decision to conduct exercises with the US navy. Multilateralism is not a cure-all, but more coordination will help more than manufactured territorial incidents, much less a widening Asian arms race. Japan will negotiate best with China when it negotiates as part of a larger crowd, and lets the fishermen fish.