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  • China and Japan: Commercial Allies or Strategic Rivals?

    Robert Lee: China and Japan economies depend on each other but nationalist forces play on historic antagonisms -   October 16, 2012
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    Robert Lee is a graduate of University of Toronto with a Masters in Japanese literature. After graduating from the University of Texas Law School, he worked as a lawyer with Baker & McKenzie. In 1984, he founded his my own firm with offices in Tokyo, Shanghai and Hong Kong. His clients are mainly Japanese and Chinese companies doing business in the region.


    China and Japan: Commercial Allies or Strategic Rivals?PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

    On October 10, Bloomberg reports that China may surpass Japan as the world's second most wealthy country by 2017. According to this Bloomberg report and a report by Credit Suisse Group AG, China will add $18 trillion in household wealth by 2017, taking its total to $38 trillion, according to the bank's global wealth report today. That would surpass Japan's $35 trillion and be less than half the U.S.'s $89 trillion. China, which is embroiled in a territorial dispute with Japan over islands in the East China Sea, surpassed its Asian rival to become the world's second-largest economy in the second quarter of 2010. It had an annual gross domestic product of $7.3 trillion at the end of last year, compared with Japan's $5.9 trillion. And that's really a question in terms of Japanese-Chinese relations. Bloomberg calls them rivals, but are they more natural allies? Or are they in fact natural rivals? And how significant is this dispute over the islands in the East China Sea?

    Now joining us to talk about all of this is Robert Lee. He's a graduate of the University of Toronto with a masters in Japanese literature. In 1984 he founded his own law firm with offices in Tokyo, Shanghai, and Hong Kong, and his clients are mainly Japanese and Chinese companies doing business in the region. And Robert is also a member of the Real News board. Thanks very much for joining us, Robert.


    JAY: So, Robert, can you recap the arguments from both sides about who owns the islands?

    LEE: Okay. Well, from China's point of view, they have records going back to the 14th century showing that the islands existed and they named them first and so on. But the islands have always been uninhabited. The Japanese first come on the scene, really, in the 1880s, when they did some geological surveys of the area around Okinawa and those islands in the South China Sea. So they then—as you know, there was a war between China and Japan in 1894 to 1895, and that was when Taiwan was ceded to Japan, and also some islands near these particular islands called the Pescadores, with the Japanese claim that they had actually put a flag on the islands separate and apart from that war. Because they were uninhabited, it didn't glom to Taiwan. There was no evidence of Chinese control. So they just claimed them more or less as explorers.

    And then we come to the Second World War and the San Francisco Peace Treaty, at which time Japan, of course, had to renounce ownership of all of the lands, all of the territories that it took through aggression not only in the Second World War but prior to that—Korea, Taiwan, and the Pescadores Islands and some other islands in the South China Sea. But the Senkaku Islands were not included in that renunciation, because the Japanese position was they'd been claimed separate and apart from that war and they were not taken as a result of illegal aggression.

    JAY: And the Chinese don't agree with this interpretation. They say they were taken during the course of this 1890s war. And that's, I guess, the hub of or nub of the disagreement, is it?

    LEE: Yes, I think so. And they also claim, of course, that long before that, they were known to the Chinese and recorded in their maps and so on. So they probably have the longer claim than Japan, without question.

    JAY: So without getting into the right or wrong of this, what's the actual value of these islands? There are apparently some energy resources around the islands. Is that significant? Or is this more the islands a symbol of a broader tension or contention?

    LEE: Well, my understanding is that the resources are significant. It's not anything like the Middle East or—. But there are significant resources in terms of gas and oil. And that's really the reason why the dispute arose, because it was only in the 1970s, subsequent to some United Nations survey, that these resources were first discovered. So—and it was only from that time that Taiwan and China started to make claims. They hadn't made any claim at the time of the San Francisco treaty in 1952.

    JAY: And if I understand correctly, that [dZoUn'laI] had made a deal, after the Chinese Revolution, with the Japanese which essentially was, you know, let's just both forget the claim and just see what we can do in terms of cooperation. And that was done more, even, under Deng Xiaoping, that they agreed—there was some kind of agreement, I think, for a joint energy development of some kind, but not really much happened. And then recently tell us what happened, because there's some kind of nationalist forces on both sides, but in Japan some of the kind of really nationalist forces were—I think they'd made a trip to the islands and planted a Japanese flag there and such. But they were also privately owned. It's a little confusing.

    LEE: Yeah. It really first came to my attention recently in Hong Kong when a boat manned by Hong Kong residents decided to make a trip there and assert Chinese sovereignty. This has happened before. And because these trips often lead to tensions rising, the previous administration of Hong Kong prevented boats from leaving Hong Kong to go to those islands. But this didn't happen recently. We've had a change of chief executive, as you know, and the new chief executive is regarded as more pro-Beijing.

    JAY: And I should—Robert, I should tell people—I think I didn't do this in the introduction—that you are based in Hong Kong, and that's where you are at the moment.

    LEE: That's right. So there is some suspicion that Beijing was able to put pressure on or allow the new chief executive, C. Y. Leung, to permit this boat to go, knowing that it would cause a reaction. But I think prior to that there had been this sale of the islands. And I learned some background about this from a client who happens to be a longtime friend of Ishihara, the mayor of Tokyo, that started the purchase.

    Apparently, the family that owns a number of the islands and has owned them for decades was in need of money and went to Ishihara, who they knew I don't know how, but they knew of him and said, we want to sell our islands, we need the money to pay off some debts. And Ishihara, who is no great friend of China and agreed to do this, the price was about $2 million, a little less than JPY200 million.

    Well, he had to announce that, of course, because it was Tokyo City. And as soon as he did, and perhaps even before, a lot of other people showed some interest, including Chinese groups and Chinese companies. And, of course, Ishihara is not about to sell the islands to a Chinese concern. So it started to become a bit of a news item.

    And that's when the central government stepped in in Tokyo. And, again, I'm not sure whether they did it on their own or whether they were somehow manipulated by the Chinese, who would be starting to protest about this purchase by the City of Tokyo. Anyway, the central government decided to take over the transaction and agreed with the owners to buy the islands for ten times the price, $20 million.

    Now, according to my source, the family had agreed with Ishihara not to sell to anyone other than him, but this was just too big an increase, and they went to him and bowed and said, we're sorry, we're going to have to sell to the central government. And that's what happened.

    And that's when things really blew over the Chinese, because it's a little different between the city buying these islands and the national government, because of course while Japan has always claimed sovereignty, actually buying the islands is nationalization. It amounts to taking open steps to try and legally enforce your sovereignty. So that was something that the Chinese really had to respond to. I think the Japanese miscalculated in terms of the reaction.

    JAY: Now, in terms of the broader question of whether China is and Japan are naturally rivals or are they allies, you're involved in a lot of Japanese-Chinese trade, so there's a lot of interpenetration between the two economies, a lot of Japanese investment in China. Talk a bit about the extent of that. And what do you make of this question, rivals or friends?

    LEE: Yeah. Well, China is a more important trading partner than the United States with Japan now. So Japan sells its equipment, its factory equipment, its cars, its electronic products, and it manufactures a large portion of them in China. So there's no question that there's an inevitable deep economic relationship. And China has benefited from that. Both countries have benefited from it. In fact, the recent slowdown in China as a result of the financial crisis and the euro crisis was softened quite a lot by the fact that trade with Japan did not diminish as much as trade with Europe. Purchases with Europe and the States fell off, but not so much from Japan. And that was very important in maintaining China's growth and is an essential part of Chinese growth in the future.

    JAY: You'd think as the world develops more into these regional blocks that there's a potential global powerhouse with a closer Japanese-Chinese relationship. But is this history too much for that to happen?

    LEE: If they could be natural allies, there probably would be no need for the United States to have very much of a presence in Asia. And in a sense, Japan has been America's proxy for Asia ever since the Second World War, although now America is again trying to come back and play a direct role. So, yeah, it's difficult to see China and Japan fighting openly over control for Asia.

    JAY: But it sounds like you're suggesting the rivalry is in U.S. interests. It wouldn't—the United States would not like to see such a close—a closer Japanese-Chinese relationship, especially if it ever became strategic.

    LEE: Yes. It's interesting. From the Chinese point of view, the Japanese are always suspected of helping out the Americans. And, in fact, one of my close Chinese friends in Hong Kong or Hong Kong friends said quite openly that he thought America was behind Japan's actions in this dispute.

    JAY: The island dispute.

    LEE: The island dispute, yeah, which doesn't make a lot of sense when you realize that [iSi'hAr@s{n] is almost as anti-American as he is anti-Chinese. But nevertheless, the Chinese see America's hand behind any action by Japan to be more assertive.

    JAY: On a straight economic level, with the amount of trade and transactions you see between China and Japan, there's a lot of economic rivalry at the heart of all this. Does some of this push U.S. interests around? I doubt it pushes them out, but does it kind of give them a pressure they'd rather not have, especially Japan as a competitor in China?

    LEE: Yeah. I think America has been able to take Japan for granted as an ally right up to the present time, and they certainly would not be comfortable with Japan and China having too close a relationship. But it's—this particular dispute is likely to result in exactly that, I think, because [incompr.] it really isn't a Japanese-Chinese dispute.

    I think from the Japanese perspective, you'd happen to come up in this island dispute. But Japan is looking to be a little more assertive. Japanese people want to see their government take a more effective role in the international scene. That doesn't mean they want it to be militaristic. But they really do think that their government has been too weak internationally. And that is going to change, I think. And that doesn't necessarily mean that they'll—right-wing extremists are going to push for bad relations with China, but I think it's going to mean that both the United States and China are going to have to recognize that Japan does have a more assertive role and that things such as what happened here in the [s{n't{gw@] Islands are not really as serious as they think. I mean, they—.

    JAY: Well, does Japanese public opinion want to see more independence from the United States?

    LEE: Yeah, and I think you can see, because of the dispute with China and because of the natural rivalry economically, you're going to see some shift away from China to Southeast Asia. Japan has naturally more allies in Southeast Asia. The image of the Japanese is far better among Southeast Asians than the image of China, for instance. So there is definitely among my clients and Japanese business acquaintances, some of them have realized that they—while they will not abandon China and you can't ignore that market, they're looking for what they call China+1, or maybe China+2, by shifting some of their production to Southeast Asia, opening up the new markets in [crosstalk]

    JAY: But, of course, China has the same plan, and the U.S. is there and wants to expand as well. So rivalry amongst all three I guess we're going to be seeing more of.

    LEE: Yes. I think—in that rivalry, though, I think Japan and the United States will have an advantage over China, because the Chinese have always been in Southeast Asia. There are large Chinese overseas populations in most of the countries of Southeast Asia, and generally the relations are not always that good. There's already too much influence, overseas Chinese influence in a lot of Southeast Asian nations. So they're always looking to reduce that. And that will give Japan and the United States a continuing edge in Southeast Asia.

    JAY: Right. Alright. Thanks very much for joining us, Robert. We'll continue coming to you and talking about these issues.

    LEE: Okay.

    JAY: Thank you for joining us on The Real News Network.


    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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