Tensions Between China and Japan Jude Wanniski April 18, 2005

In September 1983, I spent several days in China, in Beijing and Shanghai, on a "People to People" tour arranged by a client, the Independent Petroleum Association of America. I traveled with 24 "wildcatters" mainly from Texas, Oklahoma and Louisiana meeting with oil ministers and sightseeing, including Tiananmen Square. On our departure, our tour bus took us to Beijing Airport for a mid-morning flight to San Francisco. We arrived shortly before 9 a.m., when the airport doors would be opened, and found perhaps 200 Chinese waiting in line along the side of the terminal for the doors to open. We got on the back of the line and soon noticed two buses pull up near the front of the line, disgorging 40 or 50 Japanese businessmen who ensconced themselves at the front of the line, preparing to be the first to enter the ramshackle building. The wildcatters, several of WWII vintage, immediately huddled, with several dispatched to the front of the line, where they solemnly pointed to the back of the line which now stretched further back. There was a bit of heated words exchanged, but the Japanese finally turned and went to the rear with nothing physical required. 

I`ve been thinking about the significance of that episode in recent days, as the political tensions between China and Japan have risen to a point where they have to be taken seriously. In September 1983, remember, Japan was already in the mid-stages of an economic boom in the process of making it one of the wealthiest nations on earth. At one point an economist figured that the real estate in downtown Tokyo was worth as much as all of Canada!! At the same time, China was just creeping out of poverty, although I did note in my October 4, 1983 client letter: "China is surprisingly further along a 'capitalist road' than I`d thought, and while political reforms lag economic reforms, there is exciting promise for the future."

How things have changed. Japan`s boom hit a brick wall in January 1990 when the Nikkei topped out at 38,000. It is now under 11,000. And China, fulfilling that "exciting promise" I saw back then, will sooner or later have the biggest economy in the world, with a nuclear arsenal, a blue-water navy, and its permanent seat on the UN Security Council. It was just about time for China to put itself in the front of the line in Asia, and it would be Japan looking to the United States for assistance – even offering to beef up its military and naval presence in the East China Sea and Indian Ocean. The staged demonstrations in China this past week, with police looking on while angry citizens broke windows at the Japanese embassy and threw rocks at Japanese restaurants, stores and autos, are still the equivalent of the harsh words spoken at the Beijing Airport, with no serious conflict. 

In other words, what is going on is a readjustment of the Asian order of things. When China was weak and Japan strong, China was in no position to insist on Japanese apologies for the bad things the Japanese army did in China. Indeed, for several years until very recently, Japan was sending foreign aid to China for infrastructure development, a billion or two dollars a year. Last November, Japan`s Prime Minister Junichiro Koizumi decided that China was big enough to do without such aid. In a sense, China was taking the funds in lieu of an apology. 

In any event, Japan is caught in the switches of a major geopolitical event, being pulled every day closer to China through cross-country trade, and at the same time being whacked by Beijing for getting cozier with the United States on issues sensitive to the Middle Kingdom, i.e., Taiwan. In other words China is now in a position to insist that its neighbors kowtow, recognizing China`s dominance in the region. The new Japanese history books that China complains about because they expunge details of the 1941-45 occupation are a relatively minor matter. More serious has been Koizumi`s regular visits to the Yasukuni Shrine, dedicated to the 2.5 million Japanese war dead over the last 150 years. It includes Class-A war criminals that participated in the WWII atrocities. Koizumi is said to have almost never visited the shrine, but now shows up every time he needs a boost in the polls, as there is lots of support in Japan for sticking it to China in this symbolic fashion. 

On the other hand, commercial relations between the two countries continue to soar on a second track. As long as this continues there will come a point where Japanese business interests will force Koizumi, or the prime minister du jour, to stop visiting the Shrine and to refrain from inviting Taiwanese politicians to Tokyo for tea. Greater China is now Japan`s biggest trading partner, surpassing its trade with the U.S. Similarly, the number of wealthy Chinese businessmen continues to grow by leaps and bounds, and they are exerting greater influence on the "communist" government. The political press corps in China is still censored, but the business and financial press has lots of elbowroom; the private sector needs truth and transparency in order to do business. Eventually, this relative press freedom will spill over into the political and cultural realms. 

How long will this "Cold Peace" continue, as some in Japan are calling the relationship? More than months, certainly, and less than decades. But at the end of the process, Japan will be a tributary of the Middle Kingdom. We can already see this in the travel by top officials in both countries to the other, with three or four trips by top Chinese political leaders to Tokyo and almost 20 from Japan to Beijing. This is the essence of the "kowtow," and is to be expected when China`s economic power and population come to dwarf Japan's. 

Is this something we should worry about? It is rather something we should understand, history playing itself out before our eyes. Our policymakers in Washington have an inkling of what`s going on, but I don't see much more than that. There will have to be an accommodation to China as the regional power, not part of the American Empire the warhawks in Washington have had in mind. The good news is that China has never been an expansionist nation, having all the land and people it can handle without looking to conquer new ones. There are, as yet, no signs of a military/industrial complex promoting conflict for imperial objectives.