The following is a translation of an article published by People’s Daily Online (人民网) on September 18, 2012.
Links within blockquotes were added during translation.
The article focuses on two levels of sanctions: government-level (with a very cautious attitude) and “non-governmental boycotts” (with an “understanding” attitude). In terms of business, the article addresses losses that China would incur in terms of technological progress if it took comprehensive “countermeasures” against Japan. Further down, the article suggests that rare-earth sanctions against Japan had basically backfired, in or since 2010.
Rather than expressing an editorial stance of its own, the article quotes a number of academics. The subtitles within the following translation are not part of the original article.
Economic Sanctions: Not while Japan maintains its Technological Edge
[...] Vice Minister of Commerce Jiang Zengwei said recently that the so-called “islands purchase” by Japan (Diaoyu Islands) made it hard to avoid negative impacts on Sino-Japanese trade relations.
In Chinese public opinion, voices sympathetic to terrorizing Japan by economic sanctions have emerged, which say with certainty that Japan’s economy was more dependent on China than vice versa. Even if economic and trade confrontation had the killing power of weapons on both sides, China’s ability to bear that was far stronger than Japan’s. However, to “play the economic card needed to be done cautiously, and the two countries’ abilities to bear this be judged by seeking the truth in the facts, and this issue be dealt with rationally and objectively”. Recently, a scholar with a good knowledge of Sino-Japanese economic and trade issues talked with this People’s Daily Online reporter.
Japan’s economy entered a long-term depression in the 1980s, with exports as the main driving force in economic development. Although European and American markets were the main factors in influencing Japan’s economy, China’s influence was no insignificant factor either.
China is currently Japan’s biggest trading partner and its biggest export market. According to Japan’s Ministry of Finance statistics, Japan’s trade with and its exports to China stand at 19.7 percent and 20.6 percent respectively, in its total amount of foreign trade. After the European Union, America, and ASEAN, Japan is China’s fourth-largest trading partner.
Analysts have pointed out that Japan’s economy is more dependent on China than vice versa. Even if economic and trade confrontation had the killing power of weapons on both sides, China’s ability to bear that was far stronger than Japan’s. Once China started economic and trade sanctions against Japan, this could lead to a Japanese economic crisis.
Feng Zhaokui, a researcher with the National Japanese Economic Research Institute, told this People’s Daily Online reporter that taking economic countermeasures against Japan’s economy could have a greater than on China in theory. “However, the so-called ability to bear” is no mere matter of numbers.
Feng Zhaokui says that since 2002, in Sino-Japanese trade, China has always recorded a trade deficit, mainly because much of the trade was in the field of production. The levels of bilateral import and export differed, and the weight of technological content differed. In the industry chain, Japan stood at the high end, and China mainly imported key core technological components from Japan, with high technological content, much added value, and if these imports were affected, the industrial chain would see disrupture, which would damage China’s production. Even as Sino-Japanese trade was gradually transforming from a vertical division of labor to a horizontal pattern, Japan generally was the side with goods of high technological content, high added value and maintained an edge there.
According to surveys, Japanese foreign direct investment (FDI) in China in 2011 was at 6.35 billion US dollars, an increase of 49.7 percent compared with the previous year. This was abut 40 percentage points more than the increase in what China attracted in overall FDI (9.72 percent). Japanese investment in China supported Japan’s economic recovery and growth; it also contributed to China’s economic development. Hasty economic sanctions against Japan could lead to Japanese companies withdrawal from China.
“China’s economic growth this year is voluntarily restricted to eight percent, which is to say that we are approaching the lower limit”, says Feng, as China adds twenty million new workforce annually. Our country has entered a period of accelerated promotion of economic transformation, it faces growing pressures from the global economy which complicate the external environment, with growing uncertain factors such as if the economy can maintain needed growth, and the job market may suffer blows. “Therefore, the economic card must be played cautiously, and the two countries’ ability to bear this be judged by seeking the truth in the facts, and this issue be dealt with rationally and objectively”.
The Rare-Earths Card
Among the economic-sanction measures discussed recently, limiting exports of rare earths to Japan has been most frequent. Many people say that when it comes to rare-earths resources, Japan will continue to depend heavily on China in the near future, and therefore, China should play the “rare-earth card”.
According to the Nihon Kezai Shimbun, Japan’s imports of rare earths frm China have fallen by 3007 tons during the first six months of 2012, i. e. 49.3 percent of Japan’s total imports. These imports were reduced by fifty percent within half a year. Before 2009, 90 percent of Japan’s rare-earths imports came from China.
China got a lesson, in terms of economic sanctions”, Feng believes. In 2010, Japan had illegally detained the captain of a Chinese trawler. Although China hadn’t openly acknowledged the use of economic sanctions, practically, China temporarily halted rare-earths exports and created temporary difficulties for Japan at the time. “But in fact, Japan mainly cried out, and had already got prepared. Their inventories were ample.
China holds only one-third of the global rare-earth reserves, but currently supplies some 90 percent of the worldwide quantity. “There are countries rich in rare earths, too, and their technological ability to produce them has increased” Feng Zhaokui says. After China had restricted imports of rare earths in 2010, Japan resumed research of resources policies, and especially decided that it couldn’t depend on only one country for rare minerals and rare metals. These days, Australia, Malaysia and other countries rare-earth projects are developing very smoothly.
“As far as our talk about having a monopoly position on rare earths, other countries have caught up, and we haven’t increased our technological content, and we haven’t upgraded the industrial change. Our competitiveness in the field of rare earths has been greatly affected.”
Feng believes that rare earths won’t restrain Japan anymore, and that they are no longer a card that could be played. If one wanted to impose economic sanctions, one had to take the rare-earths lessons into account.
In the wake of the heightened temperatures from the Diaoyu Islands’ issue, another popular surge in “boycotting Japanese goods” and even a low in travels to Japan are inevitable. Information from all travel agencies say that since September, the number of group travels to Japan had gone down drastically, and some travel agencies have stopped Japan travel services altogether. Numbers released by the Chinese automotive industry on September 10 show that compared with last year’s same period, August sales of Japanese cars had dropped by two percent. From August, Japanese goods such as household appliances had also gone down in China.
Vice Minister of Commerce Jiang Zengwei said on a press conference that given Japanese violations of Chinese territory, Chinese consumers had a right to express their position in reasonable manners, and that we should express understanding for that.
“Reach for the wine when friends arrive, and reach for the gun when enemies arrive”, China Academy of Social Science Japan Institute director Gao Hong told People’s Daily Online reporter in an interview. The Chinese people have shown patriotic enthusiasm, and spontaneous boycotts of Japanese goods was a right which gave no cause for criticism. “However, we need to distinguish between the non-governmental and the governmental level when it comes to the economic card. At the government level, more economic policies need to be adjusted to each other.”
Liu Gang, professor at the Okinawa University, pointed out in a number of media that to sanction a country, other countries’ support was frequently required. To mobilize international sanctions against Japan, these needed to be adopted by the United Nations. That’s how so-called sanctions would be legitimate. If one country high-handedly reached for the big stick of economic sanctions, this didn’t only deviate from WTO principles, but also give rise to gossip and a series of other side effects.
“As for economic sanctions, I believe that generally-speaking, it isn’t China’s position that they should be a tool in handling international relations”, Qu Xing, director of the China Institute of International Studies, clearly points out.
Gao Hong also told the People’s Daily Online reporter that as far as countermeasures were concerned, these were meant to subdue the other side. Countermeasures needed to correspond with the other side’s provocation. If Japan didn’t continuously act provocatively on the economic level, countermeasures on a governmental level could usually not be carried out. After Japan’s so-called “nationalization” [of three of the Senkaku islands - JR], China had announced its points about the Diaoyu territorial seas, institutionalized the dispatch of naval patrol boats, and submitted material and cartography to the United Nations, etc.. These “combined punches” had already hit Japan where it was vulnerable.
Liu Gang believes that Japan’s established policy of swallowing the Diaoyu Islands is an international problem, and China didn’t need to oblique references to that. The best approach would be tit-for-tat, to confine oneself to the facts, to make representations when needed, and to let strength and actions speak – to learn from Russia meant to use strength as a backup, with less talk and more action.
The Diaoyu issue is inherited from history, as many experts say. The struggle for the Diaoyu Islands is a long-term one and can’t be done overnight. This is only the first round of the struggle, and the struggle needed long-term preparation. China’s departments in charge also state clearly that they reserve the right to all kinds of action. Since a long-term struggle was needed, strategies needed to be made, orders [of approaches], and sequences of goals. Nothing should be done on the spur of sentiments, and not in a way that would “hurt friends and please the enemies”.