With its surging population, rapid economic growth, expanding middle class and now a predicted baby boom on the cards, China is a textbook-perfect trading partner for Japan.
But there is one increasingly tricky caveat: the ongoing political tensions and historical conflicts that have defined the two nations’ postwar relationship for decades.
China and Japan are clearly important business partners, with trade between the two – the world’s second and third largest economies respectively – valued at US$147.3 billion in the first six months of 2013 alone.
Japan’s exports to China are clearly robust, with Toyota reporting last month it was on track for record levels of car deliveries to its powerful neighbour.
News of the relaxation of the one-child policy is likely to have been welcomed as another factor that will further fuel blossoming trade relations.
The political situation, however, tells a different story. Tensions flare as regularly as clockwork, in particular due to the two nations’ varying versions of events during the Second World War, with Japan regularly accused of favouring historical revisionism in its school textbooks.
More recently, the maritime row in the East China Sea over the disputed islands – known as the Senkaku in Japan and the Diaoyu in China – has become high octane in recent weeks, with China’s widely criticised expansion of its air defence zone above the region stepping up tensions.
Meanwhile, on December 26 – just days before the relaxation of the one-child policy in China was approved – Shinzo Abe, Japan’s prime minister, became the first incumbent leader in seven years to visit Yasukuni Shrine, where 14 Class A war criminals are enshrined.
Japanese leaders visiting the shrine, widely regarded as a symbol of the nation’s militaristic past, have long sparked rows with China, with Beijing immediately condemning Mr Abe’s visit.
Japanese businesses braced themselves for a potential consumer backlash in the aftermath of the rising tensions caused by the visit. But some financial experts are sceptical as to how big an impact the political hiccups between China and Japan actually inflict on trade between them, which despite such a tense backdrop has trebled over the past decade.
Testimony to this is the fact that when a former Japanese prime minister, Junichiro Koizumi, visited Yasukuni Shrine in 2005, it triggered widespread protests across China – yet trade increased more than 12 per cent that year.
Perhaps more worrying for Japan is the fact that China might attempt to use its trading powers as a political tool, as became apparent in 2010 during a row over rare-earth metals.
When Japan arrested the captain of a Chinese fishing boat that had collided with Japanese coast guards, China halted its export licences to Japan for rare-earth metals – vital components for Japan’s technology and automobile industries. The licences were resumed soon after Japan released the captain, but the trading power that China potential wields in political spats was all too apparent to vulnerable Japanese businesses.
“China is a big, big area of potential growth for Japan but it depends on relations between the two nations,” said Makoto Kikuchi, the chief executive of Myojo Asset Management in Tokyo.
“If relations improve, then more and more Japanese companies will become more aggressive in their expansion in China. But there is still a hesitancy at the moment.”
