Political and Economic Influences in Japan’s Relations with China since 1978

Abstract

Political and economic relations are inextricably intertwined. This axiomatic proposition represents a core concern in international political economy¹ and provides a useful basis from which to examine the nature and structure of China’s economic relationship with Japan. Since the conclusion of the Long-Term Trade Agreement (LTTA) in 1978, Sino-Japanese economic relations have expanded rapidly, from a value of $5 billion to a high of $18.8 billion in 1985, greatly exceeding expectations on both sides. Sino-Japanese relations are now characterised by an intricate interplay of political and economic considerations. Japan’s initial euphoria over the China market has been replaced by more sober attitudes. The Chinese, on the other hand, are increasingly fearful of economic dependence on Japan. China lists trade imbalances, Japanese restrictions on technology transfer and lack of Japanese investment as major problems in Sino-Japanese economic relations. Together with China’s perceived economic dependence on Japan, these problems remain as pressing public policy issues for the PRC. The trade between the two countries makes up approximately 20 per cent of China’s foreign trade but less than 3 per cent of Japan’s. Japanese foreign direct investment (FDI) in China is only US $1.7 billion, or 1.2 per cent of Japan’s world-wide aggregate FDI in 1987. Today, two of the most salient tasks of China’s foreign economic policy remain contradictory: to diminish trade dependence on Japan and, at the same time, to increase Japanese investment in China.