[ Keidanren ] [ Policy ]



( Tentative Translation )

February 20, 2001

(Japan Federation of Economic Organizations)

Chinese Version

Introduction: Why the spotlight on Japan-China relations now?
I. China: an economic assessment
II. Japan-China relations: a review
III. Recommendations: Deepen mutual trust and broaden economic contacts
Conclusion: Japan-China ties in a multilateral setting

Introduction: Why the spotlight on Japan-China relations now?

A new century is now upon us. Looking back on the relationship between Japan and China, we see a long history of contact and interaction between the two neighboring countries, particularly so in the economic sphere, where there have been dramatic developments after China adopted reform and opening-up policies in the late 1970s. Today, the economies of Japan and China have become highly complementary to each other.

Nevertheless, distrust lingers. Although mutual misgivings lie primarily in the political area, in issues such as "understanding history" and national security, on many occasions the lack of trust between the two countries has turned into barriers for advancing economic ties.

We must realize that the relationship between Japan and China has become one of the most important in bilateral relations for both countries, in the political sense as well as in economic and many other ways. As China prepares for membership in the World Trade Organization, the Chinese leadership must tackle many issues that come with the globalization of the world economy. As two countries have strong economic bonds, Japan must work with China to resolve these issues so that the benefits of a globalized economy can be fully enjoyed and both countries become more prosperous. To achieve these goals, we must strengthen mutual trust and remove the barriers that have impeded the development of our economic relations.

The Japanese and the Chinese economy are the two largest in Asia, and the shape of their relations has strong repercussions on the prosperity and stability of the region as a whole. With a new century now upon us, we take this opportunity to review our past ties and present a series of recommendations on ways to strengthen mutual trust and further develop our economic relations.

I. China: an economic assessment

  1. China's remarkable economic development and problems
  2. After the People's Republic of China was established in 1949, China embarked on a development strategy that gave priority to heavy industries. The Chinese leadership, however, made radical changes in the economic strategy in late 1978, introduced market principles by adopting a series of reform and opening-up policies. Over the next 20 years, China became one of the fastest growing economies in the world, with the GDP growing at an average annual rate of 9.8%. According to the World Bank, China's GDP totaled 991.2 billion dollars in 1999 and its economy is now the seventh largest in the world. The Chinese government has announced plans to maintain the annual pace of economic growth at 7% on average in the next decade and double the size of the GDP, using 2000 as the base, by the year 2010.

    Although the Chinese economy has been growing at a phenomenal pace, per capita GDP in China stood only at 791 dollars in 1999. With this level of income, China has, according to World Bank standards, just made it to the ranks of a low middle-income country. What is more, there is vast income discrepancy between coastal and inland regions, and between urban and rural areas. The per-capita income of Shanghai, for instance, is more than 12 times that of Guizhou, the lowest among China's inland provinces. The country also faces a plethora of other problems: Widespread bribery and corruption, rising crime rates, unemployment, delays in structural reforms, and environmental degradation, as symbolized by creeping desertification and the drying up of the Yellow River.

  3. China in the international setting
    1. China and Asia
    2. In 1999, Asia accounted for 56.6% of China's external trade, and the total amount of accumulated direct investment from the region, mainly from Hong Kong/Macao and Japan, accounted for nearly 80% of its inbound investment at the end of 1999. In this regard, the role played by the overseas Chinese must not be ignored. They are economically very active throughout the region and, through the vast business network they have built, exercise a strong economic pull in Asian countries.

      In terms of regional economic cooperation, Asia has two major frameworks: the Asia-Pacific Economic Cooperation forum and the ASEAN Free Trade Area. However, compared with other regional groupings, such as the European Union and the North American Free Trade Agreement, Asian economic institutions are relatively loose in character. After the 1997 Asian economic crisis, many Asian countries felt they need to bolster regional cooperation, and APEC and ASEAN-plus-three (Japan, China and South Korea) are in the process of becoming principal fora for regional policy consultation. In the May 2000 ASEAN-plus-three meeting of finance ministers, China closed ranks with other member countries and the conference was able to adopt the Chiang Mai Initiative (see note) for foreign exchange stabilization in the region. This is a clear example of how China demonstrated its readiness to participate in the regional decision-making process and help stabilize and develop the Asian economy.

      In the military sphere, as a country with nuclear weapons, China has a big presence in Asia. China's participation in the regional security dialogue through the ASEAN Regional Forum has great meaning for countries and territories in Asia. China also has strong influence in the stability and economic cooperation in Northeast Asia, from the Korean Peninsula to Russia Far East. China's participation would be essential for the establishment of a six-nation framework in northern Pacific encompassing Japan, the United States, China, Russia, North and South Korea. If we shift the focus to the entire Asia-Pacific region, needless to say, the relations of Japan, China and the United States are of paramount importance.

      The economic development of Asia has created acute environmental problems in the region. We are all aware that environmental pollution cannot be confined within national borders; pollution in one country can affect the entire region and perhaps the world as a whole. Thus, we need to create a regional framework of cooperation on environment issues. In the future, it is vital that we have an effective regional mechanism to tap energy resources, to make sure that there are adequate supplies of energy vital for economic growth.

      The Chiang Mai Initiative was agreed at the ASEAN-plus-three meeting of finance ministers held on May 6, 2000 in Chiang Mai, Thailand. The initiative involves extending the existing ASEAN currency swap arrangement to all ASEAN-plus-three member countries, thus adding Japan, China and South Korea to the currency swap network. The initiative is intended to complement emergency lending by the International Monetary Fund and other international arrangements, and to serve as an intra-regional financial backup mechanism to prevent the occurrence or the aggravation of a currency crisis triggered by abrupt movements of short-term capital or other causes.
    3. China and the world
    4. In 1971, China took over Taiwan's right to represent China at the United Nations and became a permanent member of the U.N. Security Council, giving it great influence in the international political arena. In 1980, China also became a full member of the international financial system with membership in the International Monetary Fund and the World Bank. In addition, its long-cherished wish to join the World Trade Organization is now close to reality, thanks in no small part to the support from Japan and other developed countries. To China, WTO membership represents an important milestone in its aspiration to become a full member of the international society, a clear sign that it is ready to accept common global standards.

      As market mechanism works and national income rises, China has become the focus of world attention for investment and business. When U.S. President Bill Clinton paid a visit to China in September 1998, he took with him 1,500 American business executives. As in the case with the United States, the governments in Europe an countries also join hands with the private sector to expand bilateral relations with China and develop the Chinese market.

      In fostering cooperative ties with the international community, it is essential that China keeps its relations with the United States in good order. The U.S. government changed its containment policy toward China long ago; instead, Washington is trying to get China actively engaged in the international society, However, that U.S. policy comes with an explicit understanding that China must follow international norms and rules and behave as a country that is aware of its responsibilities in the world. We hope China would respond positively to these expectations.

  4. Japanese views on China, Chinese views on Japan
  5. As contacts and a sense of interdependence advance between the two countries and as bilateral relations grow with increasing importance, not a few Chinese now view Japan as a partner, not a rival. In Japan, there are people who have a strong admiration and respect toward China and see it as a country that has a high level of civilization from ancient times and has long had a big influence on the Japanese culture. In addition, there are also people in Japan who feel they should help China develop its economy as a gesture of atonement for Japanese wartime behavior. Nevertheless, it is also true that, perhaps because Japan and China are neighbors, a number of people in each country have complex feelings toward each other. The criticism of "Japanese militarism" in China, the clamor of "Chinese threat" in Japan, and more recently an outburst of public criticism in Japan on the Japanese ODA (Official Assistance Development) program to China -- all such commotion undoubtedly stems from such complex national feelings.

    According to opinion surveys conducted by Japan's Prime Minister's Office on Japanese public sentiments toward China, the results show that the number of the people surveyed said they "feel intimate" or "somewhat intimate" toward China plunged after the 1989 Tiananmen Incident, hovering around 50% since then. As for Chinese views on the Japanese people, a survey conducted by the Asahi Shimbun newspaper in 1997 shows that 41% of the Chinese said they "dislike" Japan, 37% said have no opinion one way or the other, and only 10% said they "like" Japan.

II. Japan-China relations: a review

  1. Japan-China relations in the 20th century
    1. Relations before and during the war
    2. With respect to the pre-World War II and wartime phase of Japan-China relations, on Aug. 15, 1995, the Japanese government issued a statement by Prime Minister Tomiichi Murayama on the occasion of the 50th anniversary of the end of World War II. "During a certain period in the not too distant past, Japan, following a mistaken national policy, advanced along the road to war, only to ensnare the Japanese people in a fateful crisis, and, through its colonial rule and aggression, caused tremendous damage and suffering to the people of many countries, particularly to those of Asian nations. In the hope that no such mistake be made in the future, I regard, in a spirit of humility, these irrefutable facts of history, and express here once again my feelings of deep remorse and state my heartfelt apology," the statement said. This is also our stand: We must not dismiss the "problem of history," an issue which permeates our bilateral relations, as a problem of the past. This is an issue which confronts everyone in Japan and China. We must face up to our own history in looking toward the future and always talk to the Chinese people in good faith in order to promote mutual understanding.

    3. Japan-China relations after the war
    4. After World War II, the world plunged into the Cold War, and until 1972 Japan and China had no diplomatic relations. Even so, there were exchanges between the two countries in a number of fields, thanks to efforts by non-governmental representatives.

      The two countries, overcoming the harsh political realities of the time, concluded the first postwar, non-governmental trade accord in 1952. However, six years later, in 1958, Japan-China trade came to a complete stop after the "flag incident" in Nagasaki. In 1962, the two countries signed a semi-governmental trade memorandum, and after 1964 bilateral trade grew rapidly through the so-called L-T Trade channel, named after the initials of the two men, Liao Chengzhi and Tatsunosuke Takasaki, who set up the mechanism.

      The two countries normalized their diplomatic relations in September 1972 when Prime Minister Kakuei Tanaka visited China, and concluded a long-term trade agreement in February 1978 and a treaty of peace and friendship in August that year. The present state-to-state relationship between Japan and China is based on two documents: the 1972 Joint Communique, which formed the basis of diplomatic relations between the two countries, and the 1978 Treaty of Peace and Friendship, which committed the signatories "to develop relations of perpetual peace and friendship between the two countries on the basis of the principles of mutual respect for sovereignty and territorial integrity, mutual non-aggression, non-interference in each other's internal affairs, equality and mutual benefit and peaceful coexistence." In retrospect, we can say that it was due to the enthusiasm and hard work of the people involved in Japan-China relations that the two countries were able to normalize their diplomatic relations and conclude a treaty of peace and friendship.

  2. Current Japan-China relations
  3. When China's President Jiang Zemin paid an official visit to Japan in November 1998, the two countries issued a "Japan-China Joint Declaration on Building a Partnership of Friendship and Cooperation for Peace and Development" and a 33-article "Joint Press Announcement on Strengthening Cooperation between Japan and China toward the 21st Century." The two documents spelled out the action program for the two countries to achieve their common objectives, including an agreement that every year a leader of each country would alternately visit the other country. Based on that agreement, Prime Minister Keizo Obuchi visited China officially in July 1999 and Chinese Premier Zhu Rongji paid a visit to Japan in October 2000. Prime Minister Yoshiro Mori is scheduled to visit China in 2001.

    In the economic arena, the amount of bilateral trade rose to an all-time high of over 85 billion dollars in 2000. From China's perspective, Japan has been its largest trade partner for eight years in a row, and from Japan's viewpoint, China became its second largest trade partner after the United States. Japan's direct investment in China soared after 1990, with the amount of investment already implemented totaling 24.88 billion dollars at the end of 1999. Not counting the combined investment of Hong Kong and Macao, Japan became China's second largest source of investment after the United States. At present, as many as 20,000 Japanese businesses are said to be operating in China, providing job opportunities to more than 1 million people. Apart from expanding bilateral trade, Japanese investments have also played a role in transferring high-tech industries to China.

    With respect to Japan's Official Development Assistance program to China, the Japanese government extended a total of 14.5 billion dollars to China from fiscal 1979 through the end of fiscal 1999. The amount consists of 10.7 billion dollars in Yen Loans, 800 million dollars in grants, and 2.9 billion dollars in technical cooperation. Japan is now the largest aid donor country to China, far ahead of any other country, while China is the second largest recipient of Japanese ODA after Indonesia in terms of the accumulated amount of aid. In addition to the ODA program, China has also obtained approximately 21 billion dollars in untying government-financed loan from the Import-Export Bank of Japan (now the Japan Bank for International Cooperation).

    The number of visitors between the two countries has increased year by year. According to figures released by the Ministry of Justice, the number of Japanese visitors to China topped the 1 million mark in 1996, and the level was sustained through 1999. The number of Chinese visitors to Japan (including those from Taiwan and Hong Kong but excluding those who traveled to Japan on reentry permits) reached 150,000 in 1998. From September 2000, Japan started issuing tourist visas to Chinese group tours from Beijing, Shanghai and Guangdong Province. Although there are still certain restrictions, it is now possible for the Chinese people to visit Japan as tourists, and their number is expected to increase in the years ahead. Also, there are approximately 32,000 Chinese studying in Japan, accounting for 54% of the total number of foreign students. More than 250 Japanese cities have established formal friendship ties with their counterparts in China, while academic exchanges between the two countries have expanded every year.

  4. Changes in Japan-China economic relations
  5. In a sharp departure from past economic strategy, China adopted reform and opening-up policies in December 1978 at the third plenum of the Chinese Communist Party's 11th Central Committee. Following that policy shift, China began to pattern its development strategy on Japan's priority production model -- an industrial policy that has largely been credited for Japan's successful postwar economic reconstruction, and has laid the foundation for high economic growth afterwards. The result is amply evident in today's vibrant Chinese economy.

    However, as the U.S. economy keeps on blooming and as Americans successfully create de-facto standards in information technology and other high-tech fields, there are signs that Chinese technocrats, the backbone of the Chinese government today, are showing increasing interest in the American economic model as they push for a swift transformation of China into a market economy with membership in the World Trade Organization. Such trends are already evident in the marketplace: Western automakers like Volkswagen and General Motors have made major inroads in the Chinese auto market, while Motorola, Nokia and Ericksson brands have become top sellers in the Chinese mobile phone market. In China today, IT equipment production is expanding at the rate of 30%-40% a year, while the software industry is growing by 40%.

    There is no economic development model in the world today that can exactly fit a large country with a population of 1.2 billion and a big landmass of diverse regional characteristics. China will probably develop its own economic model by taking Japanese, European and American economies as reference. For now, the Japanese economic and technological presence appears to be waning in China as Chinese interest in the American economic model grows. We must bear these changing realities in mind when we take stock of our strategy of cooperation with China.

III. Recommendations: Deepen mutual trust and broaden economic contacts

  1. Toward deeper mutual trust
  2. Building mutual trust is indispensable for better relations between Japan and China and strengthening economic ties in the new century. To eradicate misgivings stemmed from the political sphere, and strengthen mutual trust, we must address the following issues:

    (1) Understanding history

    The issue of "understanding history" has constantly cast a shadow on Japan-China ties. Japan has carried out profound soul-searching on the mistaken national policy and behavior of the past, as reflected by the statement Prime Minister Murayama issued in 1995. Today, most Japanese support the fundamental principle that Japan must not repeat the mistakes of history and must not turn itself into a military power. During his visit to Japan in October 2000, Chinese Premier Zhu Rongji stated that "the Chinese side has no intention of provoking the Japanese people over historical issues. It is important that the Japanese side also must not forget that phase of history." We appreciate Premier Zhu's remarks. We think both sides should try not to harm each other's feelings over this matter by making inappropriate remarks.

    (2) Dialogue on history textbooks

    One reason why the people in Japan and China have such divergent views on history perhaps lies in the differences in their history education and history textbooks. It is, of course, impossible for the two countries to have an identical view of history. However, it would be encouraging for the two countries to share common historical facts, by carrying out joint research projects. To that end, it is considered necessary for the both governments to create an environment that is conducive for history scholars from both countries to meet and conduct a dialogue on history textbooks.

    (3) The Taiwan issue

    With respect to Taiwan, our position is that we respect the commitments Japan made in the 1972 Joint Communique and in the 1978 Treaty of Peace and Friendship. Basically, we regard relations between China and Taiwan as a Chinese internal affair. Both sides already have strong economic relations and we hope that they take these economic realities into account and resolve their differences peacefully through talks.

    (4) More people-to-people contacts

    Not just in the relations between Japan and China, generally speaking, the most effective way to deepen mutual understanding and promote friendly ties among countries is to have more people-to-people contacts. Japan and China must, therefore, broaden the channels of contact and exchange in all fields, among intellectuals, in the arts and culture, between various regions, and among the young people.
    Japan and China have already decided that every year a leader of each country would alternately visit the other country. Not only at the top level, it is vital that the various levels of government maintain channels of communication and talk often to each other in order to deepen mutual understanding. We must intensify the level of contacts in the non-government sector as well, such as contacts between citizens and regional groups, between business communities, exchange of students, and activities among non-governmental organizations. In the business sector, Japanese companies should offer training programs to young people from China. This will help train young professionals who will become the future mainstay of China; also, this is a good way to help the Chinese people better understand Japan. Scholars from the two countries should also increase their professional exchanges.

  3. Toward broader economic exchange
  4. (1) Tenets and norms for international business

    The basic tenets governing economic exchange between two countries are: mutual understanding, mutual trust, equality and mutual benefit, long-term perspective, and a global vision. We hope all Japanese companies that have business dealings with China, particularly those with business operations there, would abide by the Keidanren Charter for Good Corporate Behavior and the Keidanren Global Environment Charter, and strive to become a good corporate citizen in China. At the same time, we hope the government, the private sector and the public in China would appreciate the efforts Japanese companies are making in promoting economic cooperation with China and are tackling the problems that confront them.

    (2) Japan-China business relations: issues and recommendations
    1. Trade and investment
    2. The rapid pace of economic growth in China over the past 20 years is due in large part to a phenomenal expansion of external trade and direct foreign investment brought about by the reform and opening-up policies. With its admission to the World Trade Organization in sight, China has been making a lot of effort to liberalize trade and investment and to conform with the requirements of a global economy. While the Chinese economy now is definitely more deregulated and more transparent than before, there is still much room for improvement. Examples follow:

      1. Extend national treatment to foreign businesses in China.

      2. Make the process of regulatory changes more transparent.
        Many foreign businesses operating in China have difficulty coping with abrupt changes in statutes and government regulations, particularly those that are not promulgated in official bulletins. China should set up a system of prior notice for changes in laws and government regulations and institute a formal process for filing objections.

      3. Carry out thorough inspection and supervision in the protection of intellectual property rights.
        China should crack down on fake goods and copy-cat products with the same intensity as in the campaign against smuggling. The practice of multiple inspection in standard and certification procedures for imports must be improved as early as possible.

      4. Speed up the recovery of receivables from sales.
        The biggest headache faced by foreign businesses in China is how to recover money owed by their Chinese customers. There have even been cases of non-enforcement of court orders on the collection of receivables. Reform is badly needed here.

      5. Increase efficiency in distribution.
        Distribution is a major bottleneck for foreign companies operating in China. China should tap advanced information technology and set up integrated management systems in shipping and storage businesses. This should enhance efficiency and avoid losses.

    3. Finance
    4. Under Premier Zhu Rongji's initiative, the Chinese government started reforming the nation's financial system in 1998. While there has been progress, China still has a lot to catch up before it can make financial institutions sounder, modernize the financial system, and smooth the flow of foreign capital into the country. Here are some examples:

      1. Settle non-performing debts and follow internationally accepted financial rules.
        The four major state-owned banks in China are said to have piled up 2 trillion yuan (approximately 28 trillion yen) in non-performing debts. This is double the amount of annual state budget. It is vital that China takes prompt action to settle the problem of non-performing debts. The lack of transparency in handling the bankruptcies of a number of regional Chinese financial institutions has also left a bad image with many international financial houses and foreign-affiliated lease companies. As a result, the credit of some local Chinese governments has suffered in the international financial market. We strongly hope that Chinese financial institutions follow internationally recognized business rules.

      2. Allow Japanese insurance companies to operate in China.
        After joining the World Trade Organization, China is expected to gradually open the financial market to foreign competition and ease or abolish restrictions on foreign banking, both in conducting business in the Chinese currency and opening local branches. A similar easing of restrictions would also apply to insurance business. At present, however, China has imposed stricter restrictions on Japan than on the U.S. or European countries in insurance business. The Chinese government should abolish such unequal treatment and issue licenses to Japanese insurance companies that wish to operate in China.

      3. Develop a capital market.
        The Chinese market for government and corporate bonds is very small. The government should, therefore, take steps to develop an efficient capital market with high liquidity. At present, the issuance of corporate bonds is subject to government approval, and the country does not have a reliable credit rating system. China should allow foreign companies to issue corporate bonds so that they can broaden their capital-raising capabilities. China's stock exchanges do not play an adequate role for raising capital since there are no institutional investors and shares are issued primarily through government guidance. China should remove government interference in the capital market and allow market principles to work.

    5. Infrastructural development and development of western China
      1. Infrastructural development
        Developing an infrastructure both in terms of visible and non-visible such as institutional improvement is vital for industrial development. In China, the infrastructure is relatively advanced in the economically developed regions. This is particularly so in the coastal areas, where the government has erected international airports, built roads and expressways, introduced electric-powered trains and developed telecommunications networks. As the infrastructure gets better, more foreign capital has poured into China, creating a favorable cycle that will in turn lead to further development.
        To attract foreign investment to inland China and facilitate the operation of foreign businesses, it is crucial that China invests heavily in infrastructure projects and improves investment climate. It is particularly important to develop the services sector, communications, shipment of goods between coastal and inland regions, and energy supply.

      2. Overall development of western China
        The Chinese government considers development of the western regions as the top national priority, a project that is likely to determine the development of China's overall economy. The 12 provinces, municipalities and autonomous regions that constitute what China calls its Western regions account for more than 70% of the country's land area. They are home to most of China's 55 ethnic minorities, accounting for about 30% of the country's population and around 20% of the GDP.
        One concern in developing the western regions is how to prevent further degradation of the land. The region already has large tracts of desert land, and desertification is creeping on with a gradual loss of vegetation. How to conserve the green land and protect the habitat, therefore, has become an acute issue. At the same time, however, it is important that China develops the abundant underground resources in the west. As industrialization advances, China will have a huge demand for oil, natural gas, electricity and other sources of energy. It is in the western regions that China has abundant and untapped natural resources, such as non-ferrous metals and rare metals. Developing these resources is directly tied to China's industrialization plans.
        Agriculture is another major focus in the western development project. The Chinese population is projected to grow to 1.6 billion by mid-21st century. To secure food supply for the entire nation, developing food production in the western regions will be as vital as modernizing China's overall agricultural sector.
        Reforming state enterprises in the western regions is also an important issue. The state enterprises that were moved to inland China under Mao Zedong's "three-front-line policy" (see note) have been languishing under the pressure of a market economy. The government must find ways to salvage and rebuild these enterprises.
        China must come to grips with all these problems in the course of developing the western regions. While the Chinese government has put vast amounts of state resources to stimulate the economy in the western regions by building roads, railways, hydropower dams and other infrastructure projects, it is also trying to lure foreign capital to finance the project. As development of the western regions is a huge project and will probably take three to five decades to complete, Japan should examine the details of the project carefully and formulate cooperation policies with a long-term vision.

        From the early 1960s, with its Soviet ties deteriorating and the Vietnam War escalating, China became concerned of a possible nuclear attack. As a result, Mao Zedong ordered an evacuation of military and other key state enterprises away from Shanghai and other coastal areas and from the northeastern frontier region bordering the Soviet Union and started moving them in 1964 to the interior in Sichuan, Guizhou, Yunnan and other inland provinces. In those days, the coastal and the northeastern frontier regions were known as the "first front line" and the inland regions in the southwest as the "third front line," while all the land area in between was designated as the "second front line."
    6. IT revolution
    7. In China, the number of people with access to the Internet is said to have reached 16.9 million at the end of June 2000. By 2003, the country is expected to become the world's second largest Internet user after the United States. The Chinese government has already targeted IT industry as driving force behind economic development in the 10th five-year plan, which gets under way this year. The plan calls for the development of communications networks and more telephones in China. It projects an annual 25% growth in the output of IT products over the next five years.
      The revolution in information technology is likely to cause radical transformation to the social, economic, political and other traditional institutions of a country. China must, therefore, adopt an international stance in tapping the IT revolution. A lot of IT-related issues, such as protection of intellectual property rights, protection of privacy, the crackdown of high-tech crimes, and regulations on electronic commerce, require international coordination. China should make sure that its rules and regulations are compatible with international standards.
      The Japanese government plans to send a delegation to China in the current fiscal year for talks on IT policies. It is crucial that Japan cooperate with China in tackling the various IT issues and take the lead in Asia in coping with the IT revolution.
      The IT revolution has actually highlighted some problems in Japan, such as the employment of Chinese IT engineers at Japanese companies. Japanese companies say they have trouble getting visas for talented Chinese IT engineers to work in Japan. The Japanese government should remove such obstacles, giving priority to Chinese IT engineers in issuing visas and speed up the visa issuing process.

    8. Energy and environment issues
    9. Even now, nearly 70% of China's energy supply comes from coal. Although the share of coal as a source of energy has been declining somewhat as a result of government policy to burn less coal, coal remains by far the most important source of energy in China. Apart from emitting a larger amount of carbon dioxide than natural gas or petroleum, burning coal also generates sulfuric acid, gives rise to acid rain, produces soot, and creates a host of other environmental problems. China should introduce advanced coal-burning technologies that would help increase energy efficiency and protect the environment.
      These are areas where Japan can play a role. For instance, Japan has advanced clean-coal technology such as coal dressing and desulfurization, and sophisticated fluidized bed boiler technology. We could transfer these technologies to China for extensive use in coal-burning facilities. Furthermore, Japan has developed the world's most state-of-the-art energy-saving technologies. We can also cooperate with China in new energy technologies such as wind power, solar energy and fuel cell.
      China must also tackle environment issues that arise in the manufacturing cycle and promote environment-friendly products and services. The problem here is that China does not have enough experience and know-how to design, build and operate environment-friendly factories. It is crucial that China develops industries that have total engineering capabilities and the Chinese government should provide incentives for Chinese industries to acquire ISO14001 certification. (
      See note)
      While technology transfer is an area where private businesses should play the leading role, past experience indicates that technology transfer from the private sector has not gone as smoothly as expected. China should take the opportunity of its imminent membership in the World Trade Organization to make sweeping changes in the licensing system, tighten technology transfer regulations, and step up the protection of intellectual property rights. In short, it should create an climate whereby Japanese businesses could put their advanced technologies and industrial experience to good use in China.

      ISO14001 is the code for an environmental management system created by the International Organization for Standardization. ISO14001 certification is a symbol of guarantee that a particular business concern has instituted environment management procedures to address environment issues in a systematic and sustained manner.
    10. Reforestation for environment conservation
    11. The flooding of the Yangtze River and the Songhua River in the summer of 1998 is still fresh in our memory. China has a total land area of 9.6 million square kilometers but only 14% is forest land, versus 67% in Japan. The loss of topsoil is particularly severe in the middle and upper reaches of major Chinese river systems. Desertification is also serious in inland China.
      During the two meetings held between Chinese President Jiang Zemin and Keidanren Chairman Takashi Imai in August and November 1998, it was agreed that as part of long-term cooperation between the two countries, Keidanren would promote reforestation projects in China for the conservation of the environment. The Keidanren policy is twofold in this respect: getting directly involved in tree planting activities, and sponsoring fora and other activities in order to raise public awareness in Japan to promote reforestation in China. At present, we are preparing a tree planting project in Chongqing for the spring of 2001.
      As part of future environment protection strategy, the Chinese government is contemplating the introduction of a clean development mechanism and promote "model reforestation" projects -- a system through which Japan would promote greenhouse gas reduction projects in China and use the amount of greenhouse gas thus reduced to add on to its own greenhouse gas reduction commitment. The introduction of such a mechanism to exchange greenhouse gas reduction targets would perhaps encourage Japanese businesses to get more involved in reforestation projects in China.

    12. Japan's ODA policy
    13. Japan launched its Official Development Assistance program to China in fiscal 1979, along with the introduction of reform and opening-up policies in China. The aid program has three major components: Yen loan mainly to finance China's infrastructure projects, grant-aid for education, medical, environment protection and other projects, and technical cooperation. So far, the total amount of ODA extended to China stands at 14.5 billion dollars. One symbolic example of Japan's ODA program to China is the China-Japan Friendship Hospital in Beijing, which was built through grant-aid and technical cooperation. The hospital has since been greatly appreciated by Chinese and Japanese residents alike.
      China begins its 10th five-year plan in 2001, which marks the start of a new economic development strategy for the 21st century as symbolized by the project to develop the western regions. The Chinese government is said to be mapping out policies on how to position and use foreign aid money, particularly aid from Japan, in the new five-year plan. The Chinese move comes at a time of changing Japanese aid policy toward China. The Japanese government plans to introduce a new, year-by-year formula on yen loans to China beginning in fiscal 2001 and has said it would draw up a new aid policy during the current fiscal year. However, policy deliberation now has to take into account recent criticism of the ODA program. It is perhaps time for us to review Japan's economic assistance policy toward China. Since foreign direct investment has increased in China, the need for ODA money should have eased to a certain extent. Under the circumstances, perhaps we can raise the effectiveness of ODA resources by focusing the ODA program on those areas that cannot be financed by private capital. Conservation and recovery of the habitat, education and vocational training are prime examples. We should determine the actual funding needs in China before we formulate a new aid policy, and once the government decides to make changes in the ODA policy it should fully explain its stand to the public in Japan and China.

    14. Fora on Japan-China economic exchanges
    15. In order to make economic exchanges between the two countries more substantial, there should be fora where Japanese businesses and their Chinese counterparts, both state businesses and private firms, can talk to each other without constraint, freely and candidly. Also, contacts should not be limited to top executives. There ought to be fora where experts can talk about practical issues and follow up on decisions made at the top level. In Japan, there are various economic organizations dedicated to Japan-China relations. Some member companies in these organizations argue that since the times have changed, these organizations too should change and restructure themselves, so that they can operate more effectively. These proposals are undoubtedly worth looking into in the future.
      In this connection, as China is such a vast and diverse country, it is crucial that research on China and the Chinese society is conducted in an organized manner. The Japanese government and the Japanese private sector should join hands in this effort so as to increase the effectiveness of research work.

Conclusion: Japan-China ties in a multilateral setting

In the relationship between Japan and China, from time to time, partly because of historical circumstances, there is a tendency to regard it as a special relationship. Even in business relations, there is a tendency to give China special consideration, on grounds that China is a socialist country and has one-party rule.

However, in today's globalized economy, there is increasing pressure for international cooperation in a multilateral setting. China too is actively taking part in world economic affairs on a global basis, as witnessed by its effort to join the World Trade Organization. In a WTO-guided global economy, China has to abide by global standards and increase the transparency of its domestic laws and business practices. This is a challenging job. To enlarge the world economy, Japan and other major developed countries should continue to back up China's efforts and smooth its way into WTO membership.

In terms of the regional economy, cooperation between Japan and China, both major economies in Asia, will promote stability and prosperity in the region. In this sense, cooperation between Japan and China in APEC, the ASEAN-plus-three forum and the ASEAN Regional Forum will be good for the stability and prosperity in East Asia. Over the long run, Japan and China could perhaps explore the possibility of setting up an East Asia free trade area and broaden the sphere of economic cooperation in the region. One possibility is to form a cooperative framework among countries adjoining the Sea of Japan, which, one day, could even encompass a unified Korea and Russia's Far Eastern Region.

During his visit to Japan in October 2000, Chinese Premier Zhu Rongji, in a meeting with Japanese business leaders, said he wishes Japan would seek to play a larger role in the world and in regional affairs. "China attaches importance to the influence Japan has in the Asian economy and the economic role it plays in the region. We would like to work more closely with the Japanese side under the framework of East Asia cooperation so that it could embark on projects of importance to our region. This is the kind of role we can play to promote economic development in Asia," he said. These remarks, in a departure from the past, suggest that China also hopes Japan would take a leading role to promote regional economic cooperation in East Asia.

Japan and China, therefore, should avoid binding themselves to the narrow confines of a bilateral relationship. The two countries should map out a broad-based strategy of cooperation and build a bilateral relationship in a multilateral setting encompassing Asia and the world as a whole. At international fora such as the United Nations, the International Monetary Fund and the World Trade Organization, the time has come for the two countries to stop jostling for position against each other; they should work together and serve as the voice for Asia. Japan and China must cement their friendship by working together on various fronts in the world stage and move forward in a new century of trust and hope.

This report, the result of extensive and earnest debates on major items on the agenda of Japan-China relations, was compiled with the hope that the people of the two countries can work together and participate in the common cause of building a bright future. The report, however, is not intended as an exhaustive study of the overall relationship between Japan and China, which is a broad subject and allows for a wide range of opinions and views.

Japan-China relations, for instance, have a direct bearing on how Japan's own industry and its diplomatic policy should be. One subject that was not covered in this study is the implication of China's industrial development. If, for instance, the Chinese manufacturing industry keeps on growing and sharpen its competitive edge in the world market, it would have a strong impact on Japan's manufacturing industry. It would also radically transform the current pattern of economic relationship Japan maintains with Southeast Asia and with China itself. We should give a serious consideration to the proactive steps to be taken to these changes.

All in all, we would be pleased if this study will be served as food for thought to further discussions Japan-China relations in the 21st century and their implications on Japan's own future.

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