Iron wills and irony

China and Japan form an ironic double in the pantheon of international affairs: two countries with so many simultaneous yet contradictory interests.

Whether it is contested energy reserves or North Korean nuclear issues on the agenda, the concerns of the public in both countries can ultimately be traced back to bitter memories associated with the 1931-33 Japanese occupation of Manchuria.

As a result, the media spotlight has continued to focus on whether Japanese Prime Minister Shinzo Abe will follow in his predecessor's footsteps and visit the controversial Yasukuni Shrine, Tokyo's reticent attitude toward taking responsibility for its past, and the anti-Japanese stirrings apparent in China.

Positive vibes

Behind the headlines something much more promising is taking place in the areas of trade and investment.

Japan-China two-way trade came in at US$199 billion last year and is growing at over 10%. China will surpass the US as Japan's largest trading partner before 2006 is out.

Meanwhile, Japanese direct investment in China exceeded US$6.5 billion in 2005, an increase of almost 20% from the previous year. After years of focusing on manufacturing operations in a few key industrial regions, Japanese investors are now shifting to other activities, such as services and retail. The geographic distribution of this investment is also widening.

In short, economic activity is thriving, despite apparent political frictions.

In terms of diplomacy, the past 30 years have seen China-Japan relations increasingly governed by a kind of mutually accepted pragmatism.

Within the inner circle of the Communist Party, the post Second World War Japanese economic model was, tacitly, the unofficial benchmark for Beijing's economic planners. It was only in the past decade, when the Japanese economy sank into recession, and when China's economy began its meteoric trajectory, that this changed.
After Tiananmen, Japan was the first G7 power to publicly re-engage with Beijing. In 1991, Tokyo dispatched a delegation of high level politicians, followed by the Japanese Emperor, who visited Shanghai in 1992 as part of a broader Sino-Japanese symbolic display of good will.

During the WTO negotiations in 1999, China's first bilateral agreement was with Japan – all this at a time when the West was still vigorously enforcing sanctions.

When cast in the light of the years of progress that preceded them, the tensions that have dominated Sino-Japanese relations in recent times appear puzzling.

Many China-watchers opine that rapid economic growth has spawned a host of social ills, including income disparities and the illegal enrichment of local party officials – at the expense of the environment and the less powerful.

To dampen rising levels of social unrest, the party has turned to "economic nationalism" and has increased "patriotic education". The result: rising nationalist rhetoric and Japan-bashing. In turn, Japan's current internal politics has produced its own nascent strain of nationalism.

Historically, there is no evidence that international trade and investment alone will ensure stability amongst states. The rapid rise of China's economy and the corresponding growth of its regional trading partners are eerily similar to the economic boom experienced by Europe at the beginning of the 20th century.

Just as today, the world was experiencing decades of growth in trade, banking, foreign investment, and – even more than today – the unrestricted movement of labor. It was argued that because trade and commerce bound national economies together so tightly no state would jeopardize this by acting irresponsibly.

Yet, within a decade, the forces of nationalism set in motion events that led to the First World War.

In Europe, just as in Asia today, there were numerous political establishments devoted to the promotion of trade and commerce but none that effectively addressed security frameworks. The Association of Southeast Asian Nations (ASEAN) has functioned primarily for economic matters, as has the Asia Pacific Economic Cooperation forum and the East Asian Summit.

The so-called ASEAN-plus-three (China, Japan and South Korea) have work to do if proper security frameworks are to be put in place in Asia. North Korea's aggressive nuclear posture, and its potential to turn the ASEAN-plus-three against each other, makes this task even more urgent.

Looking for leverage

The question is whether China and Japan's economic ties can be leveraged to address wider challenges. There is hope. One of Beijing's key concerns also presents a huge opportunity for increased Sino-Japanese cooperation: the environment.

China's economic growth has come at a huge environmental price. Cleaning up the air, soil and water throughout the country could cost as much as 30% of future GDP.

Japan, however, leads the world in environmental innovation – this represents a major opportunity for both countries. From automobile production to water treatment, energy efficiency and other "clean" technologies, China and Japan stand to gain immeasurably from increased trade and investment in this area.

The world will closely watch how well Beijing and Tokyo promote trade and cooperation regarding the environment. If successful, a clean up in one department could become the basis for a wider clean up involving the stability concerns facing Asia. How ironic, indeed.