Japan is a big disappointment for China. In spite of incredible atrocities and material destructions Japan committed during its war with China between 1931 and 1945, Beijing accepted to talk about peace, friendship, trade and investments with its eastern neighbor in late 1970s.

Over the following four decades, China became Japan’s most important export market and a large manufacturing hub for its industries. Unfortunately, those good economic ties have become overshadowed by Japan’s fears of a rapidly developing China.

Tokyo’s confusion and an apparent dilemma were summed up in December 2012 by the former Prime Minister Shinzo Abe: “China is an indispensable country for the Japanese economy to keep growing ... we need to use some wisdom so that political problems will not develop and affect economic issues.”

But instead of following that policy, Japan deeply offended China. Japan paid ¥2.05 billion ($26 million) in September 2012 to a private owner of Diaoyu/Senkaku Islands in East China Sea to reaffirm its title over the piece of Chinese territory it annexed when it defeated the Qing Dynasty during the First Sino-Japanese War in 1894-1895.

By doing that, according to Chinese documents, Tokyo broke the agreement made during the negotiations of the Sino-Japanese Treaty of Peace and Friendship, signed on August 12, 1978. At that time, Beijing and Tokyo agreed that the issue of Diaoyu Islands would be set aside and dealt with at some time in the future. The Chinese leader Deng Xiaoping reiterated that view during the talks he held in Tokyo with the Japanese Prime Minister Takeo Fukuda on October 25, 1978.

Booming trade and deep hostilities

Abe was right to think that the Sino-Japanese relations were seriously damaged. Indeed, the Chinese were infuriated, while an unending flow of Japanese business and parliamentary delegations to Beijing tried to calm things down and get the bilateral ties back on track.

But the Chinese would not be swayed. The trust was lost, and the deep wounds of Japanese war crimes were still festering. Abe’s pleading for restoring neighborly ties were rebuffed. On rare photo-ops Abe managed to get, China’s President Xi Jinping looked like he was holding his nose.

At the moment, the Sino-Japanese military standoff around the Diaoyu Islands is a powder keg in Tokyo’s increasingly adversarial posture toward China.

Strangely, however, Japan’s trade with China remains surprisingly robust. In the first seven months of this year, Japanese exports to China soared to $114.7 billion, a 26% increase from the year earlier. Over the same period, Japan’s exports to the U.S. came in a distant second at $78.3 billion.

Whether the Japan’s trade income will become hostage to deteriorating relations with China remains to be seen, but, as Abe worried, that should be a matter of serious concern in an export-driven economy. With an annual increase of 14%, exports were Japan’s strongest growing GDP component in the first half of this year. As a result, over that interval, net exports contributed 60% of Japan’s economic growth.

How long that can go on is anybody’s guess, but it is clear that Japan’s buoyant trade relations with China are incompatible with military threats in the East China Sea, and with various initiatives where Japan participates in offensive power projections directed at China.

Apart from Japan, China has no such open security issues with any other neighbors, even though unpredictable tensions could arise with some countries (e.g. Philippines) contesting China’s maritime border claims along its nine-dash line.

What can China do about all that? Here are a few ideas.

Japan (much like South Korea) is an integral part of China’s problems with the U.S. by virtue of a large American military presence in Japan, and a U.S.-Japan defense treaty of 1951, updated in the 2015 Guidelines for Defense Cooperation.   

China should strengthen ASEAN ties

That clarifies China’s policy options with Japan, because the Pentagon says that any form of military confrontation with China (and Russia) would inevitably lead to a nuclear war and the end of the world.

So, with the military option out of the way, Beijing has no political instruments it can use to change Japan’s hard adversarial positions toward China.

If China needs any refresher on that, it just has to see what Fumio Kishida (the frontrunner in the leadership election of the governing Liberal Democratic Party on September 29, 2021) said yesterday (Monday, September 13) about Tokyo’s relations with Beijing: “We will pursue the stability of the Taiwan Strait, democracy in Hong Kong, and face the human rights issues in (China’s) Uyghur Autonomous Region. We will protect universal democratic values.”

All is not lost, though. China’s measures of economic warfare with Japan are wide open. Beijing gave South Korea a very bitter taste of that in 2016.

But in a broader East Asian context, China has much more space for constructive actions.

First, the completion of the Code of Conduct in the South China Sea would be an important instrument of peace and cooperation in an area that is rife with conflicts about contested maritime borders.

Second, since the ASEAN (ten countries of Southeast Asia) is China’s main trading partner, an appropriate form of a regional free-trade union with China would minimize political frictions within the world’s largest economic community.

Third, the Chinese and Singaporean foreign ministers announced yesterday (Monday, September 13) that they would scale up their cooperation and seek to enhance the effectiveness of regional arrangements, such as Lancang-Mekong Cooperation Mechanism and ASEAN Connectivity 2025.

Those are important steps China can take to support peace, trade and economic growth in East Asia.

But Beijing should know that its tireless lecturing about cooperation – instead of conflict – is readily dismissed by liberal democracies. Their economic and political warfare with China is designed as a systemic and strategic competition in defense of the Western world order.