Xi and Abe Must Learn to Live Together

By Rowan Callick
March 20, 2014

Tony Abbott is next month visiting China and Japan. Both are north Asian countries with broadly Confucian cultures and strong Buddhist influence, whose histories have constantly intersected.

Today they both have ebullient newish leaders, Xi Jinping and Shinzo Abe, who are the most powerful in 20 years or so in each country, come from political families and are reforming their economies and building their militaries.

But from there, the differences lengthen and the commonalities start to shrink. Much gets lost in translation crossing the 870km of the East China Sea between China and Japan.

For instance, the Chinese characters for hand and paper are about the same as the relevant Japanese kanji characters, but they are pronounced quite differently, and when combined mean envelope in Japanese but toilet paper in Chinese.

How are these two, the world's second and third-biggest economies, and Australia's first and second-biggest trading partners -- by a country mile -- getting along?

We know that at the levels of public rhetoric and of strategic debate, the countries have again become adversaries, with their unlikely semi-ritualistic battleground the uninhabited islands in the East China Sea known as Senkaku in Japan, by which they are administered, and Diaoyu in China, which claims them.

The countries' economic enmeshment has, however, become substantial. Trade between them reached $360 billion in 2013, about three times trade between Australia and China. But volumes were down 5.1 per cent on 2012.

Japan probably remains the foreign investor with the biggest assets in China, if one does not categorise Taiwan and Hong Kong as "foreign".

But their economic engagement is softening, underlining concerns about the outcome of tensions between the two Asian giants. Fresh Japanese investment in China sank to $10bn in 2013, two-thirds of the 2012 total, while Japan invested $25bn in the larger Southeast Asian countries last year.

As Abenomics drove the yen down, Xi's reforms -- letting the market dictate more of the yuan's value -- saw Beijing's currency rise, adding to the cost of investing in China, despite its recent fall as the government seeks to squeeze out speculators. Abe wants his banks to lend more, Xi wants to restrict credit access.

The 2012 Chinese demonstrations triggered by the Senkaku/Diaoyu islands dispute caused about $100 million in damage, and many Japanese companies began to look elsewhere for growth targets that carried less risk.

That does not mean shunning the region's biggest country. The "China plus one" strategy has been revived -- which should also be a formulation that Australian corporations might do well to consider, with the "one" almost invariably being also in Asia.


Arthur Kroeber, the Beijing-based editor of China Economic Quarterly, says this is essentially "a strategy by which they hedge the political and economic uncertainties of the China market with complementary investments elsewhere, mainly Southeast Asia".

Abe visited all 10 ASEAN countries in 2013, his first year in office, issuing a strong message that Japan is back -- economically and politically -- combined with big aid packages to help smooth the process. Vietnam, for instance, now receives more than $1bn in aid a year from Tokyo.

Kroeber adds that China is also pushing for better access to resources and markets in underdeveloped areas of Southeast Asia.

"For a region that suffered a dearth of investment for over a decade following the Asian financial crisis of 1997-98, the competition for influence between Japan and China is an economic godsend," he says.

The Liberal Democratic Party -- and the broader voting public -- of Japan opted in a big way for Abe, viewed as a strong leader, as anxiety grew about China with the Senkaku/Diaoyu falling-out.

And the ruling Chinese Communist Party has given Xi considerably enhanced power, as frustration had built under his predecessors, with a sense of drift over issues including economic reform and corruption.

Both leaders have special new inter-agency committees answering to them personally on security and reform.

Abe is politically secure until 2016, and Xi until 2022.

While Xi's reform program has impressed -- although most implementation still awaits -- Abe's has disappointed to date. Kroeber describes it as "an incoherent jumble of initiatives reliant mainly on the standard technique of Japanese planners: identifying new sectors for massive investment".

Takatoshi Ito, dean of the Graduate School of Public Policy at the University of Tokyo, told Asialink and the Australia Japan Foundation in Melbourne recently that Australia offered something of a model for political bravery and cunning in cementing reforms.

He noted that the Howard government introduced the GST a month before the Sydney Olympics, in the context of Tokyo winning the 2020 Games.

Acknowledging that the "third arrow" of Abenomics after monetary and fiscal change, the reform arrow, can appear thin and fragmented, he said it was better described as like a thousand needles, or a hundred daggers.

Ito says Abe wants a strong, competitive agriculture industry in Japan. "If Australia can fly fresh milk profitably to China, why not Japan? We can use Australia as a model for removing state restrictions," he says.

The countries need each other economically, and they -- and the rest of the region including Australia -- would benefit from detente despite the resulting loss of nationalist rallying points.

View Comments

you might also like
China’s Leaders, Obsessed With Secrecy
Rowan Callick
HONG KONG: The February 7 death of a Wuhan ophthalmologist unleashed pent-up emotions in untold millions of Chinese who expressed grief...
Popular In the Community
Load more...