Sino-Japanese Relations: Issues for U.S. Policy

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Sino-Japanese Relations: Issues for U.S. Policy

Summary

After a period of diplomatic rancor earlier this decade, Japan and China have demonstrably

improved their bilateral relationship. The emerging détente includes breakthrough agreements on

territorial disputes, various high-level exchanges, and reciprocal port calls by naval vessels. Over

the past ten years, China-Japan economic interdependence has grown as trade and investment

flows have surged. China -Japan economic ties serve as an anchor for the overall bilateral

relationship and have become the center of a robust East Asian trade and investment network. On

the other hand, military strategists on each side remain wary of each other’s motives. Beijing is

suspicious of any moves that hint at Japan developing a more active and assertive security

posture, and Japanese defense planners note with alarm China’s burgeoning military

modernization.

The durability of the recent détente could have significant implications for U.S. interests. U.S.

interests in the region are generally well served by pragmatic Sino-Japanese accommodation.

Equanimity in the Tokyo-Beijing relationship not only fosters stability and prosperity, but also

allows the United States to avoid choosing sides on delicate issues, particularly those related to

historical controversies. Multilateral efforts such as the Six-Party Talks on North Korea’s nuclear

weapons program can be complicated by acute bilateral tension among the participants.

The history of post-war Sino-Japanese relations reveals why the relationship has been so difficult

to manage for the past several decades. Japan’s conquest of large swathes of China, and

perceptions in China that Japan continues to downplay wartime atrocities committed by Japan’s

imperial forces, remain sensitive subjects. Historical grievances have framed much of the

interaction between Beijing and Tokyo, including a particularly rocky period under former Prime

Minister Junichiro Koizumi (2001-2006). The United States has also played a major role in

shaping relations between the Asian powers through its war-time involvement, post-war

occupation and reconstruction of Japan, the “Nixon Shock” of the early 1970s, and its reaction to

the events in Tiananmen Square in 1989.

Despite the promise of Sino-Japanese relations remaining strong in the short-to-medium term,

there are multiple potential complications and issues of concern for the United States. Among

these are the dynamics of economic and diplomatic rivalry in the region, the fragility of the

relationship due to historical differences and skeptical public sentiment, sensitive sovereignty

issues in territorial disputes, complications surrounding the Taiwan factor in East Asian

geopolitics, ongoing military incursions by Chinese vessels, and suspicions in both Tokyo and

Beijing.

This report will be updated as warranted by events.

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Contents

Introduction ................................................................................................................................1

China’s and Japan’s Regional Strategies ................................................................................2

China ..............................................................................................................................2

Japan ..............................................................................................................................3

Historical Background ................................................................................................................3

Brief Summary of Sino-Japan Relations ................................................................................3

The U.S. Role .......................................................................................................................4

Occupation after World War II.........................................................................................4

The “Nixon Shock”.........................................................................................................5

Sino-Japanese Post-Cold War Relations...........................................................................5

Taiwan’s Role .......................................................................................................................6

Tiananmen Sanctions ............................................................................................................7

Japan’s War History ..............................................................................................................7

Outline of Détente 2006 - Present................................................................................................7

Tokyo’s Motivations .......................................................................................................8

Beijing’s Motivations ......................................................................................................8

Yasukuni Shrine Issue Evolves ..............................................................................................8

High-Level Visits ..................................................................................................................9

Significance of East China Sea Agreement ............................................................................9

Sichuan Earthquake Relief .................................................................................................. 10

Military to Military Relations.............................................................................................. 11

Japan-China Economic Ties: The Main Anchor for the Relationship .......................................... 11

An Overview of the Bilateral Economic Relationship .......................................................... 12

China-Japan Trade Ties ....................................................................................................... 13

Foreign Direct Investment................................................................................................... 16

Multilateral and Regional Frameworks for the Relationship................................................. 18

Potential Complications and Issues for U.S. Policy.................................................................... 19

U.S. Interests and Regional Rivalry Versus Cooperation ...................................................... 19

Regional Balance of Power Issues ....................................................................................... 20

The Sino-Japan Bilateral Economic Relationship and U.S. Interests .................................... 20

Fragility of Détente and Public Sentiment ........................................................................... 21

The Taiwan Factor .............................................................................................................. 22

Territorial Disputes Remain Sensitive.................................................................................. 22

Ongoing Military Concerns ................................................................................................. 23

Timeline of Major Events in Sino-Japanese Relations, August 2001 - September 2008 .............. 24

Figures

Figure 1. Japan Merchandise Trade with China, 1980-2007 ....................................................... 14

Figure 2. Japan Trade in Services with China, 2000-2006 .......................................................... 15

Figure 3. Japanese FDI Flows into China, 1995-2007................................................................ 17

Figure 4: Map of Japan and China ............................................................................................. 28

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Tables

Table 1. Key Comparative Economic Indicators for China and Japan........................................ 12

Table 2. Japan’s Merchandise Trade with China, 1980-2007 ...................................................... 13

Table 3. Japan Trade in Services with China, 2000-2006 ........................................................... 16

Table 4. Japanese FDI Flows into China, 1995-2007.................................................................. 16

Contacts

Author Contact Information ...................................................................................................... 28

Acknowledgments .................................................................................................................... 29

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Sino-Japanese Relations: Issues for U.S. Policy

Introduction

After a period of diplomatic rancor earlier in the decade, Japan and China have demonstrably

improved their bilateral relationship since 2006. Sino-Japanese relations over the past ten years

have followed a remarkable trajectory: from a disastrous Japan visit by former Chinese President

Jiang Zemin in 1998 to Hu Jintao’s well-orchestrated and highly successful visit to Tokyo in May

2008. The emerging détente has expanded to include breakthrough agreements on territorial

disputes, various high-level exchanges, and reciprocal port calls by naval vessels.

Despite the rollercoaster of political and diplomatic ties, other aspects of the relationship have

remained relatively consistent. China-Japan economic interdependence has grown as trade and

investment flows have surged over the past decade. China-Japan economic ties serve as an anchor

for the overall bilateral relationship, and the two nations and have become the key players in a

robust East Asian trade and investment network.

On the other hand, military strategists in each country remain wary of the other’s motives. Beijing

is suspicious of any moves that hint at Japan developing a more assertive and active security

posture, and Japanese defense planners note with alarm China’s burgeoning military

modernization. Japanese defense documents have publicly declared their concern with Beijing’s

lack of transparency and apparently aggressive military spending over the past several years. In

addition, occasional incursions by Chinese vessels into Japan’s territorial waters have kept

tension high at times despite the overall improving relations.

The détente, pursued with vigor by leaders in both Beijing and Tokyo, follows an exceedingly

tense period in the relationship under former Japanese Prime Minister Junichiro Koizumi (20012006). Koizumi’s annual visits to the controversial Yasukuni Shrine, which honors Japan’s war

dead—including several convicted Class A war criminals—particularly rankled Beijing. The

visits, together with changes to Japanese history textbooks that critics claim whitewash Japan’s

wartime behavior, led to large, sometimes violent anti-Japan protests in Chinese cities that

damaged Japanese diplomatic posts.

Since 2006, political leaders on both sides—even those whose rhetoric was the most vehement—

appear to have concluded that political accommodation is the best course, at least temporarily.

The fact that this trend has survived several political transitions in Tokyo is particularly

promising. Many analysts contend that the short- to medium-term outlook is remarkably stable,

but acknowledge that fundamental distrust and disagreements over history could threaten ties in

the longer term. In short, it appears that these disputes have created a firm ceiling for ChineseJapanese relations; the question is if this recent détente points to the establishment of a new,

higher floor.

The durability of the recent détente could have significant implications for U.S. interests. U.S.

interests in the region are generally well served by pragmatic Sino-Japanese accommodation.

Equanimity in the Tokyo-Beijing relationship not only fosters stability and prosperity, but also

allows the United States to avoid choosing sides on delicate issues, particularly those related to

history. During the tension of the Koizumi years, U.S. officials voiced fears—both publicly and

privately—that the discord was harmful to regional stability. Multilateral efforts such as the SixParty Talks on North Korea’s nuclear program can be complicated by acute bilateral tension

among the participants.

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On the other hand, some U.S. officials and analysts who view China as a security threat find the

recent détente somewhat disconcerting. Although this tends to be a minority view among

influential policymakers, this school of thought advocates building up Japan’s military capability

to deter any of China’s strategic ambitions. This camp encourages Japan to move past some of

restrictions placed on its military, including Article 9, the so-called peace clause of the Japanese

constitution, authored by U.S. officials during the post-war occupation.

The chance for Japan and China to grow too close for U.S. interests appears, at this point, remote.

Historical grievances and contemporary distrust, combined with the inherent tension of two major

powers competing in the same region, seem to preclude the possibility of a more exclusive

political partnership between Tokyo and Beijing that could marginalize U.S. interests. Moreover,

despite some signs of drift in the U.S.-Japan alliance, the American security commitment to Japan

appears to remain fundamentally solid. In the event of a conflict in the Taiwan Straits, Japan

would almost definitely play a role in a U.S. military response. The presence of 47,000 U.S.

troops in Japan (65% of them stationed in Okinawa, geographically proximate to Taiwan) implies

that a U.S. counter-attack could be staged from Japan. To many security analysts, Taiwan’s status

as a potential flashpoint for conflict between China and the United States provides a fairly

reliable bulwark for the U.S.-Japan relationship despite periodic bilateral tension.

China’s and Japan’s Regional Strategies

In the post-Cold War environment and into the 21st century, both Japan and China have reassessed

their bilateral and regional strategies and likely will continue to do so in light of continuing global

changes. Each country figures as an important calculation in these ongoing strategic

reassessments, as does the United States.

China

China’s overriding primary goal is sustainable economic development at home. In pursuit of it,

Beijing has placed a high priority on maintaining a “peaceful international environment” both

regionally and globally. Smooth ties with the United States and Japan are thought to figure

prominently in Beijing’s foreign policy calculations, on the theory that even the appearance of a

more overt pursuit of its interests could prompt responses from Washington and Tokyo that would

be detrimental to its own continued development. Concern about China, for instance, could lead

the United States to strengthen its alliance with Japan, or could convince Japan to strengthen its

own defense resources.

In addition, Beijing now sees itself facing new national security challenges in the post-Cold War

environment. Among these challenges are the demise of the Soviet Union and international

communism, the surge in U.S. global power, and pro-independence activism on Taiwan. Beijing

appears suspicious about the extent of Japan’s own regional ambitions—for example, its

territorial claims in the East China Sea—and the degree to which these may adversely impact

China’s economic and political interests. Chinese leaders are especially concerned about the

potential role of Japan—both directly and as host to U.S. military forces—in the event of a

conflict involving China’s claims on Taiwan.

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Japan

Despite its status as a world economic superpower, Japan is struggling to adjust to increasingly

challenging domestic and geopolitical realities. Domestically, the economy is struggling in the

current global downturn, after an extended period of stagnation in the 1990s. In its first real

experiment with divided government, the political process is uncertain and somewhat paralyzed.

Demographically, concerns about a shrinking labor force have grown more acute, driven by

Japan’s combination of a low birth rate, strict immigration practices, and a rapidly-ageing

population. Outside its borders, Japan cannot ignore China’s skyrocketing economic growth and

political clout. Its impressive GDP per capita and admirable standard of living for its citizens

notwithstanding, Japan sees the enormous challenges ahead. Tokyo’s strategy appears to be to

maintain its close security ties with the United States, re-assert itself as a crucial trading partner

for other Asian nations, and avoid counterproductive spats with Beijing, its main regional

competitor.

Japan also would like to raise its global profile in order to be recognized for its generous

provision of foreign aid and other contributions to international development. In 2004, Japan

accelerated its longstanding efforts to become a permanent member of the United Nations

Security Council by forming a coalition with Germany, India, and Brazil (the so-called “G-4”) to

achieve non-veto membership for all four countries. Though the Bush Administration backed

Japan’s bid, it did not support the G-4 proposal, and Security Council reform efforts have stalled.

Japan is the second-largest contributor to the U.N. regular budget, paying more than 20% of the

total, more than twice the percentage paid by the third-largest contributor. Overcoming Beijing’s

traditional opposition to permanent membership for Japan is a key obstacle to realizing this

eventual goal.

Historical Background

Brief Summary of Sino-Japan Relations

China’s relationship with Japan is complex and long-standing, dating back at least to the first

century A.D. when China’s greater size, advanced achievements, and more prominent culture

served as both model and rival to its smaller neighbor. Geographic proximity brought the two

countries into constant contact over the centuries through maritime trade, cultural contacts,

periodic military battles, regional rivalries, and economic exchanges. Much of Japanese

development—including its culture, religion, form of writing, and philosophical tradition—was

greatly influenced by comparable traditions in a more developed and more influential dynastic

China.

This relationship of Chinese dominance changed in the late 19th century, when Japan’s growing

militarism and imperial ambition enabled it to gain a series of military victories and impose

punitive economic arrangements over the weakened Qing Dynasty and the government that

replaced it, that of the Republic of China (ROC). In addition to requiring China to pay huge

indemnities, Japan’s victories included the annexation of Taiwan (after the 1894-1895 SinoJapanese War), acquisitions in China’s Shandong Province, occupation of Manchuria, and full-

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scale invasion of the Chinese mainland. 1 By the end of World War II, Japan’s military campaigns

and conquests in China had left a legacy of bitterness that continues to affect Sino-Japanese

relations into the 21st century.

In 1949, Mao Zedong’s communist forces triumphed in the civil war with the ROC government.

Mao established the People’s Republic of China (PRC) on the mainland, and the government of

the ROC fled to Taiwan, an island off the south China coast. Japan-PRC relations since then have

consisted of attempts at economic and political engagement mixed with periods of renewed

tension and confrontation. On the “engagement” side, Japan has provided significant economic

development aid to the PRC since 1979 through concessional loan programs, and its trade with

the PRC broadened to $237 billion in 2007.2 Both countries have engaged in high-level summitry,

and both participate in the Six-Party Talks and in regional groupings such as the Asia Pacific

Economic Cooperation forum (APEC) and the East Asia Summit (EAS). However, confrontations

have arisen periodically over a number of lingering issues.

The U.S. Role

Occupation after World War II

After Japan’s unconditional surrender to Allied Forces on August 15, 1945, decisions made by the

United States played a significant role both in Japan’s post-war construction specifically and in

the structure of East Asia more generally. Rather than dividing the main Japanese islands among

the Allied Powers, the United States appointed General Douglas MacArthur as Supreme

Commander of the Allied Powers (SCAP) to supervise a unified (primarily American)

occupation. For occupation purposes, outlying Japanese possessions were divided among other

Allied Powers. Taiwan and the Pescadores were assigned to the Republic of China, a decision that

took on greater significance four years later, when the ROC government fled to Taiwan after the

communist victory on mainland China.

Among other efforts to rebuild Japan, SCAP established a post-war constitution (1947) that

established a parliamentary system of government for Japan. Article 9 of the constitution, drafted

by Americans during the Japanese occupation, outlaws war as a “sovereign right” of Japan and

prohibits “the right of belligerency.”3 The prevailing interpretation of the constitution also forbids

“collective self-defense,” although there is political movement in Japan today toward

reconsidering this restriction. Under the ban on collective self-defense, the Japanese Self-Defense

Forces (SDF—the official name for the Japanese military) can only respond to an attack on Japan

and cannot defend an ally if that ally is attacked. Although occupation officials initially set

distinct goals of thoroughly demilitarizing Japan, as confrontation with the Soviet Union

materialized, the goals of the occupation shifted to building Japan up as a strategic bulwark

against the perceived communist threat. On September 8, 1951, (after the beginning of the

Confrontations involving Japan and China included the First Sino-Japanese War (between Japan and the Qing

Dynasty, 1894-1895); the Boxer Rebellion (against which Japanese troops participated, resulting in the “Boxer

Protocol” signed in 1901); and the Second Sino-Japanese War (between Japan and the Republic of China, 1937-1945,

merging into the second World War in 1941).

International Monetary Fund. Direction of Trade Statistics. September 2008.

Chapter II, Article 9 of the Constitution of Japan.

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Korean War), the United States and Japan signed the Mutual Security Treaty, which allowed the

United States to station troops on Japan for Japan’s defense.

The occupation of Japan officially ended on April 28, 1952, when most of Japan again became an

independent, self-ruled country.4 Two years later, both countries built on the 1951 treaty by

signing the Mutual Defense Assistance Agreement (which entered into force May 1, 1954). The

agreement permitted the United States to station military forces on Japan to provide for regional

security and obliged Japan to re-arm for self-defense purposes only. Finally, on January 19, 1960,

both countries entered into a defense alliance in a new agreement that revised the 1951 treaty, the

Treaty of Mutual Cooperation and Security. The 1960 treaty obliged both parties to assist each

other in resisting an armed attack on territories under Japanese administration. Japan’s military

alliance with the United States became an additional factor affecting Sino-Japanese relations.

The “Nixon Shock”

For decades after the PRC communist victory over ROC military forces in 1949, Japan followed

the U.S. lead in having no official political relations with the PRC and in recognizing the ROC

government on Taiwan as the legitimate government of China. Still, through the 1950s, Japan’s

unofficial economic contacts with the PRC broadened, including a number of private agreements

(sanctioned by the two governments) to enhance mutual trade. The PRC suspended these trade

arrangements for several years in 1958 in a possible attempt to pressure Japan (unsuccessfully)

for full political recognition. Japan-PRC trade improved in 1962 with the negotiation of new trade

arrangements,5 but Japan’s expanding trade with the PRC met with objections from Taiwan,

which considered it out of step with Tokyo’s recognition of the ROC government. As a result, in

1964 Taiwan suspended new government purchases from Japan for six months.6

In July 1971, reportedly without first informing Japan, U.S. President Richard Nixon announced

that he would visit the PRC in 1972 to seek normalized relations between the United States and

China. The announcement came to be known in Japan as the “Nixon Shock,” and it quickly

prompted a reassessment of Japanese policy toward the PRC on the mainland and the ROC on

Taiwan. Discussions to establish Sino-Japanese diplomatic relations began in December 1971,

and on September 29, 1972, both countries signed the “Joint Communique of Government of

Japan and Government of People’s Republic of China,” establishing mutual diplomatic relations,

six years before the United States and China took this step. The period that followed from 1971

until the fall of the Soviet Union in 1991 was a time of significant rapprochement in SinoJapanese relations (as it was in Sino-U.S. relations). In addition to substantial bilateral reengagement, Japan offered China substantial aid and investment and transferred much-needed

technology.

Sino-Japanese Post-Cold War Relations

The demise of the Soviet Union prompted a reassessment of overall global relationships and

brought new challenges to Sino-Japanese relations. While growing Sino-Japanese economic

The end of the occupation was crafted in the San Francisco Peace Treaty of 1951, signed on September 8 of that year.

It entered into force on April 28, 1952.

The “Liao-Takasaki” Memorandum Trade agreement.

The suspension lasted from January 11 - July 18, 1964.

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interdependence served as what one study called a “shock absorber” for many of these

challenges, the adaptation to post-Cold War realities proved problematic. In Japan’s eyes, China

began to appear less as a supplicant for Japanese aid and investment and more as a regional rival

to Japan’s own interests. It also was not hard for Tokyo to infer that China’s expanding military

force modernization, while fostering capabilities aimed at the island of Taiwan, had the same

disturbing implications for Japan and other island nations in the region. The potential dangers

were brought home pointedly during the 1995-1996 Taiwan missile crisis, when China conducted

live-fire missile exercises opposite the Taiwan coast.

Tokyo’s growing suspicions of Beijing were returned in kind. China increasingly saw itself as a

replacement focus of the U.S.-Japan alliance—an alliance which not only did not fade away after

the fall of the Soviet Union but which both countries acted to strengthen after the Taiwan missile

crisis in 1996. China also became concerned over what it saw as a change in the alliance’s focus,

away from Japan’s defense and toward Taiwan’s status and other broader (but vague) regional

security issues. Some of the U.S.-Japan initiatives that concerned Beijing included the 1996 U.S.Japan Joint Declaration on Security, in which both parties reaffirmed their alliance; the 1997

Review of the Guidelines for U.S.-Japan Defense Cooperation, which avowed mutual cooperation

not just in Japan’s defense but “in areas surrounding Japan,” although without mentioning

Taiwan; and the 2005 Joint Statement of the U.S.-Japan Security Consultative Committee, which

for the first time mentioned both countries’ concerns that the Taiwan issue be resolved peacefully

through dialogue. These and other tensions continued to plague Sino-Japanese relations until the

new period of détente began in 2006.

Taiwan’s Role

Current controversy over the status of Taiwan is in part a legacy issue of Japan’s 19th and 20th

century militarization. After the 1894-1895 Sino-Japanese War, Japan acquired the island of

Taiwan “in perpetuity” from the Republic of China, turning it into a Japanese colony, called

Formosa, and investing heavily in the island’s development. Although not a part of Japan’s World

War II conquests, the Japanese colony of Formosa nevertheless came under Allied Power

occupation after Japan’s defeat and unconditional surrender. This decision was set forth in the

“Cairo Declaration” of December 1, 1943, issued after a meeting by U.S. President Franklin

Roosevelt, ROC President Chiang Kai-shek, and British Prime Minister Winston Churchill.

Among other things, the Cairo Declaration stated:

It is [the Allied Powers] purpose that Japan shall be stripped of all the islands in the Pacific

which she has seized or occupied since the beginning of the first World War in 1914, and

that all the territories Japan has stolen from the Chinese, such as Manchuria, Formosa, and

The Pescadores, shall be restored to the Republic of China. Japan will also be expelled from

all other territories which she has taken by violence and greed.7

In keeping with the Cairo Declaration, after Japan’s defeat in 1945, Taiwan and the Pescadores

were assigned to the Republic of China for purposes of post-war occupation. Taiwan was still

under this occupation four years later, when the ROC government fled to Taiwan after the

communist victory in the civil war on mainland China. The formal state of war between Japan

and the Allied Powers was ended by the 1951 Treaty of Peace with Japan (also known as the San

Francisco Peace Treaty.) Article 2(b) of that treaty stated that “Japan renounces all right, title, and

Cairo Communique, http://www.ndl.go.jp/constitution/e/shiryo/01/002_46/002_46tx.html.

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claim to Formosa and the Pescadores,” but the treaty mentioned nothing about Taiwan’s new

sovereign status. The failure to specify Taiwan’s sovereignty in this treaty, the specific reference

to Formosa’s return to the ROC in the Cairo Declaration, and the ROC’s physical occupation of

the island after 1949 all contributed to future controversy over Taiwan’s political status.8

Tiananmen Sanctions

In the aftermath of China’s Tiananmen Square crackdown in 1989, Japan demonstrated more

independence from the U.S. position in imposing sanctions against the PRC government. It

appeared to follow the U.S. lead—most notably, the suspension of the $5.57 billion six-year

concessional loan program that Japan had announced for China in 1988. At the same time, Japan

also withdrew all Japanese “experts” working on various projects in China and announced a

review of Japan’s Export-Import Bank policies toward China. While these steps seemed to be

severe sanctions, the effects were mitigated by the fact that the concessional loan program was

not scheduled to begin until April 1990. In addition, Japanese rhetoric toward China throughout

much of 1989 was somewhat muted; Japanese officials rejected use of the term “sanctions” in

referring to its actions toward China, and Prime Minister Sosuke Uno publicly stated that

imposing sanctions against China “is very impolite to a neighboring country.”9 Japanese officials

at the time also criticized some steps taken by the United States as overly punitive against China,

capable of deepening China’s isolation. Japan also sought to moderate the position of G-7

countries toward China at the G-7 economic summit in Houston in July 1990.10

Japan’s War History

Since the conclusion of World War II, the sharpest confrontations between Japan and China have

arisen over Japan’s wartime history and the differing ways in which both countries perceive it.

China routinely protested former Japanese Prime Minister Junichiro Koizumi’s annual visits to

the Yasukuni Shrine, where war criminals are also enshrined. (See later section on the

controversial visits.) After Koizumi first visited the shrine in 2001, China used the issue to justify

its refusal to engage in bilateral summitry, except as part of multilateral meetings. PRC officials

have criticized Japanese history textbooks which they say appear to minimize or even to deny

Japan’s wartime atrocities. China also has declared that the periodic statements of Japanese senior

leaders apologizing for Japan’s wartime aggression are insufficient; Beijing points to the

Yasukuni Shrine visits and history textbooks as examples of actions that seem incompatible with

those conciliatory statements.

Outline of Détente 2006 - Present

Against this background of historical division but increasing economic interdependence, Japan

and China have undergone a remarkable reversal from the tension of the Koizumi years (20018

Neither the ROC government on Taiwan nor the PRC government on the mainland were signatories to the 1951

treaty; however, the ROC government on Taiwan concluded a separate treaty with Japan in 1952 that was based on the

San Francisco Peace Treaty.

Foreign Broadcast Information Service East Asia Daily Report, June 8, 1989, p. 2.

Dittmer, Lowell, “The Sino-Japanese Russian Triangle,” Journal of Chinese Political Science, vol. 10, no. 1, April

2005.

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2006). This section outlines the motivations and most prominent aspects of the reconciliation of

the past few years.

Tokyo’s Motivations

Japanese leaders appear to have been shaken by the hostile turn of relations under Koizumi and

determined to set the relationship on a stronger course. Despite its suspicion of China’s long-term

intentions, Tokyo has many reasons to pursue better ties with its biggest neighbor. Chief among

them is facilitating continued robust trade relations; increased exports to China was one of the

main reasons that Japan’s economy began to recover since 2000. Although security planners may

eye China’s military modernization with alarm, security specialists also recognize the need to

avoid bilateral tension that could lead to an armed conflict—for example, in the contested

Senkaku/Diaoyutai islands—if proper safeguards are not in place. Broader regional—and even

global—considerations may also be at play for Japan: for example, the importance of garnering

some degree of support for Tokyo’s priorities in the Six-Party Talks and even ultimately for

Japan’s bid for a permanent seat on the UN Security Council.

Beijing’s Motivations

Better relations with Japan are thought to be an important calculation in the premium that PRC

leaders have placed on maintaining a stable regional environment conducive to national economic

development. China’s economic interests are well served by being able to cooperate effectively

with Japan on trade, investment, energy efficiency, environmental protection, fisheries, and other

issues of mutual importance. But PRC leaders also are thought by some to be playing a hedging

game in relations with Japan. They are thought perhaps to be seeking to nudge Japan out of its

orbit as a U.S. ally, or at least to make more difficult Tokyo’s choices between advancing future

PRC or U.S. interests. Beijing may calculate that increasing Tokyo’s decision dilemmas could

remove or minimize Japan as a potential factor in the event of a future Taiwan contingency. But

this requires a delicate balance, as Beijing is thought to be more comfortable living with a U.S.Japan alliance than with a fully militarized Japan.

Yasukuni Shrine Issue Evolves

Over the past ten years, the most consistently divisive issue between Japan and China has

involved the visits of high-level Japanese officials to the Yasukuni Shrine, a Shinto shrine that

honors Japanese soldiers who died in war. Those enshrined include several Class A war criminals

who were convicted by the International Military Tribunal for the Far East following Japan’s

defeat in World War II. While Japanese defenders of the practice claim leaders are simply paying

respects to all of Japan’s war dead, Chinese and other Asian leaders claim the ritual disregards the

brutality of Japan’s imperial conquests.

When former Prime Minister Koizumi visited the shrine annually during his tenure—including

the last visit on the sensitive date of August 15, the anniversary of Japan’s surrender to the Allied

Forces—Chinese leaders emphasized repeatedly that the visits constituted a stumbling block in

moving political relations forward. Since the war criminals were enshrined in 1978, four Japanese

prime ministers have visited the shrine. Objections were first raised by Japan’s neighbors in 1984

when Prime Minister Yasuhiro Nakasone went, after which he discontinued the practice.

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Koizumi’s hand-picked successor, Shinzo Abe, had voiced support for the shrine visits before

assuming office, but refrained from visiting during his year-long tenure. Abe did pay a lowprofile visit to Yasukuni shortly before assuming the premiership, and remained non-committal on

his future plans to the press. Despite Abe’s rhetoric, relations with China almost immediately

brightened and he made an early trip to Beijing that was viewed as successful. Abe’s successor

Yasuo Fukuda pledged not to visit the shrine before becoming prime minister, explicitly

explaining his decision as based on considering the feelings of other countries. His declaration

may have been the most effective measure to improve the atmosphere between Tokyo and Beijing

and likely set the stage for the considerable advancement in relations. Chinese leaders were quick

to praise Fukuda’s statements on Yasukuni.

Given the success in improving relations, Japanese politicians appear to want to avoid provoking

Beijing by visiting Yasukuni. In the past, current Prime Minister Taro Aso suggested that the

emperor should visit the shrine, as well as defended other politicians’ visits. However, he

indicated that as Prime Minister he would not pay respects at Yasukuni. At times, he has also been

a supporter of transforming Yasukuni into a secular, state-run institution to commemorate the war

dead. Ichiro Ozawa, head of the Democratic Party of Japan, has criticized past prime minister’s

visits to the shrine because of the damaging effect on ties with China.

High-Level Visits

Perhaps nothing is more emblematic of Japan and China’s shifting relations than the trajectory of

top-level leaders’ visits. In a 1998 visit to Tokyo that was considered a public relations disaster,

Chinese President Jiang Zemin openly scolded Japanese officials for failing to appropriately

acknowledge imperial Japan’s war-time aggression. With the exception of a Koizumi visit to

Beijing early in his tenure, Chinese and Japanese leaders did not have an official summit during

Koizumi’s five years in office. (Koizumi did hold several sideline meetings with China’s leaders

at various international fora.) Chinese leaders explicitly stated that they would resume bilateral

summits if Koizumi ceased visiting the Yasukuni Shrine. 11

Shortly after assuming office, Abe visited Beijing in October 2006 to indicate his determination

to improve ties. Chinese Premier Wen Jiabao reciprocated with an April 2007 visit to Japan,

including a historic address to the Japanese Diet (parliament). Fukuda, seen as more friendly to

Beijing than Abe, was then warmly welcomed in Beijing in December 2007, building on his

predecessor’s success. The détente climaxed with Chinese President Hu Jintao’s carefully

orchestrated visit in May 2008, the first by a Chinese leader to Japan in a decade. The heads of

state summit was heavy on symbolism, if thin on concrete substance. Notably absent from the

Chinese leader’s statements was a call for Japan to apologize for historical grievances, and both

sides emphasized a “forward-looking” friendship. The two leaders agreed to hold annual

summits, cooperate on environmental technology, and enhance cultural exchanges.

Significance of East China Sea Agreement

Following PRC President Hu Jintao’s visit to Japan in May 2008, China and Japan announced a

“consensus” on joint exploration for oil in the resource-rich East China Sea, as well as an

“understanding” on Japanese participation, under PRC jurisdiction, in development of one of the

“Summit with Japan Tied to Shrine Deal,” Chicago Tribune. April 2, 2006.

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area’s proven gas reserves, the Chunxiao gas field. Some hailed the agreement as a “remarkable

improvement” that would “remove a major obstacle” in Sino-Japanese relations.12 According to

another view, the agreement allows Japan a face-saving way to participate in energy development

in a disputed area while not requiring the PRC to accept Japan’s claims that a “median line”

divides the East China Sea into Japanese- and Chinese-owned areas.

On the surface, the East China Sea agreement appears to lay the groundwork for addressing an

area that has been the focus of years of competing Sino-Japanese territorial claims and tense

stand-offs. Still, a number of potential obstacles could hamper future progress. Each country has

put its own spin on the agreement, for instance, with China quickly clarifying that it is not a “joint

development” project (as Japan claims) but a “co-operative development” venture, which Beijing

describes as “a very different thing.”13 According to the PRC side, private Japanese investment

will have to recognize PRC sovereignty over the Chunxiao gas field and will be conducted in

accordance with Chinese laws. Details also remain sketchy on how the cooperation will move

forward and on how revenues will be shared. Neither side has compromised on its core definition

concerning its own sovereignty rights in the East China Sea, leaving this thorny issue as

something still to be determined. 14

Future Sino-Japanese cooperation under the East China Sea agreement will have to navigate

multiple minefields of nationalistic sentiments—sentiments which at times appear outside the

control of the involved governments. Such sentiments erupted after June 10, 2008, when a

Japanese patrol boat in the East China Sea collided with and sank a fishing vessel from Taiwan,

whose government also maintains sovereignty claims in the disputed area. Taiwan responded by

recalling its representative to Japan, and the following week a boat of Taiwan activists,

accompanied by Taiwan patrol boats, entered Japanese waters in the disputed area in apparent

protest of the collision. PRC nationalist sentiments also surged after the agreement was

announced, with a small protest outside the Japanese Embassy in Beijing and online commentary

criticizing PRC officials for allegedly “selling out” China’s interests to Japan.15

Sichuan Earthquake Relief

After China was struck by a devastating earthquake in Sichuan province in May 2008, Japan

immediately offered condolences and reportedly pledged $5 million in emergency aid in supplies

as well as provision of satellite imagery of the quake zone. 16 In the weeks after the quake, Japan

announced an additional $5 million in assistance in addition to tents and other supplies.17 Tokyo

Iwata, Mari and Moffett, Sebastian, “World news: Japan, China may end gas-fields dispute,” The Wall Street

Journal, June 17, 2008, p. A12; and “China’s position on Japan gas fields row unchanged: foreign ministry,” Agence

France Presse, June 17, 2008.

Japan’s Foreign Minister Masahiko Komura described the agreement as one of joint development; see Kumagai,

Takeo and Lee, Winnie, “Japan says settles dispute with China on East China Sea,” Platts Oilgram News, Vol. 86,

Issue 120, June 19, 2008. The vice-president of the PRC’s China National Offshore Oil Corp. (CNOOC), Mr. Zhou

Shouwei, differentiated between joint development and co-operative development; see Kwok, Kristine, “CNOOC

official defense gas deal with Japan; sovereignty not in peril after controversial pact, media report,” South China

Morning Post, June 28, 2008, p. 5.

China claims its sovereignty is based on the “natural extension” of its continental shelf.

“China on defensive again over Japanese gas deal,” Kyodo News, June 24, 2008.

“China requests quake aid, Japan foreign minister,” Reuter News English, May 13, 2008.

“Japan sends 800 more tents to quake-hit areas,” Xinhua News Agency, June 4, 2008.

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Sino-Japanese Relations: Issues for U.S. Policy

also dispatched a group of 60 earthquake rescue experts, the first foreign team that Beijing

accepted, and subsequently sent medical personnel to aid earthquake survivors. In addition to

Beijing’s official acceptance of Japanese aid, some news accounts reported that Japanese

assistance was welcomed and met with gratitude by the Chinese people in the quake zone. But

lingering historical sensitivities affected the scope and delivery of some Japanese aid. One initial

plan to have Japanese Air Self Defense Forces C-130 transports carry supplies into China was

shelved, apparently out of fears that Chinese citizens would react to the first arrival of Japanese

military planes in China since World War II.18 Supplies ultimately were ferried in by commercial

aircraft.

Military to Military Relations

Even modest improvements in the defense relations between China and Japan are notable given

the history of warfare—and particularly China’s widespread accusations of the exceptional

brutality of Japanese imperial forces during Japan’s invasion and occupation of China. After

Koizumi’s second visit to the Yasukuni Shrine in April 2002, China protested by canceling a

scheduled visit to Beijing by Japan’s Defense Agency chief Gen Nakatani and a call by Chinese

warships to Tokyo port.19 From that point forward until Koizumi left office, military-to-military

relations were essentially frozen.

Since 2007, military affairs between the two countries have improved alongside the warming up

of Sino-Japanese relations. In November 2007, a Chinese missile destroyer visited the port of

Tokyo, becoming the first Chinese warship to make a port call to Japan. In return, a Japanese

Maritime Self-Defense Force (MSDF) destroyer paid a call to the Chinese southern port of

Zhanjiang in June 2008.20 In September 2008, Chinese air force general Xu Qiliang became the

first commander of the People’s Liberation Army (PLA) Air Force to visit Japan since 2001. He

met with Japanese Defense Minister Yoshimasa Hayashi and agreed that there was a need to

enhance bilateral defense exchanges.

Despite these improvements, there is a limit to how far military exchanges can go, particularly

when exposed to the public spotlight. The tentative steps toward cooperation between the two

militaries has taken place against a backdrop of occasional intrusions by Chinese vessels into

Japan’s territory, although the reported incidence of naval incursions appear to have declined in

the past few years.

Japan-China Economic Ties: The Main Anchor for

the Relationship

The China-Japan economic relationship has become one of the most dynamic and important

bilateral economic relationships in the 21st century. It combines the world’s second largest

national economy (Japan) with one of the world’s fastest growing and potentially largest

economies (China). The two economies have become the world’s largest net savers and, thus,

“ASDF preparing C-130s to carry aid to China,” The Japan Times, May 30, 2008.

“China Puts off Japan Defense Minister’s Visit,” Kyodo News. April 24, 2002.

“Warship Visit Brings Message of Peace,” China Daily. July 2, 2008.

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potential sources of credit to the rest of the globe. China and Japan are the largest and second

largest holders of foreign exchange reserves. How the two countries conduct their economic

relations will likely have important implications for East Asia and the rest of the world and,

therefore, for the United States. The economic relationship is a critical part of the overall ChinaJapan relationship. While political and national security relations have made relations volatile

through the years, economic ties have provided stability. China and Japan have grown more

economically inter-dependent, which has provided great incentive for them to pursue better

relations. The economic relationship has broadened and deepened over the last two decades and

has become more complex.

Modern China-Japan economic relations developed at first very slowly after World War II as the

two countries dealt with the legacies of Japan’s colonial occupation of China and of the war. They

were hampered also in the 1960s and 1970s as the two countries were on opposite sides of the

Cold War, during which Japan largely followed U.S. policy, and because China’s severely

centralized economic system was not conducive to liberalized foreign trade and investment.

The climate for economic ties vastly improved first with Japan’s diplomatic recognition of China

in 1972, following the U.S. opening to China with the visit of President Nixon. Even more

importantly, major economic reforms that China’s leadership introduced beginning in the late

1970s included opening the Chinese economy to foreign trade and investment. While the

economic relationship improved over the years, it has still experienced periods of turmoil but has

stabilized in the last few years as the two countries have become more closely intertwined

economically.

An Overview of the Bilateral Economic Relationship

Table 1. Key Comparative Economic Indicators

for China and Japan

China

Japan

GDP (2007)(billions of $US)

-Nominal

-Purchasing Power Parity (PPP)

3,242

7,245

4,380

4,286

Per Capita GDP (2007)(U.S. Dollars)

-Nominal

-PPP

2,450

5,480

34,360

33,630

Real GDP Growth Rates (2007)

11.9%

2.1%

Average Annual Real GDP Growth Rate (1997-2007)

9.5%

1.2%

Exports as % GDP (2007)

Imports as % GDP (2007)

41.3%

31.9%

17.6%

15.9%

Current Account Balance as % of GDP (2007)

11.5%

3.9%

Gross National Savings Rate (2007)

56.2%

28.7%

Recorded Unemployment Rates (2007)

9.2%

3.8%

Average labor costs ($US/hour)

1.73

19.59

Public Debt/GDP (2007)

18.4%

179.0%

Source: Economist Intelligence Unit

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Sino-Japanese Relations: Issues for U.S. Policy

Table 1 presents comparative economic data to place the China-Japan relationship in perspective.

These data indicate some significant contrasts between the two economies. For example, China’s

economy has grown substantially faster (albeit from a much lower base) than Japan’s during the

1997-2007 period—9.5% per year on average for China compared to 1.2% for Japan. The

comparative figures for total gross domestic product (GDP) reflect the results of the rapid growth.

While Japan is still a larger economy in nominal terms, China appears to be catching up. In 2007,

China’s total GDP was $3.2 trillion compared to Japan’s $4.4 trillion. However, China’s economy

is larger if measured in terms of purchasing power parity (PPP)—$7.3 trillion for China

compared to $4.3 trillion for Japan.21

A more accurate measure of the relative state of two economies is the standard of living in each

country. One measure of standard of living is the per capita GDP and a comparison of the two

countries suggests that, as impressive as China’s progress has been, it still has far to go to “catch

up” with Japan. In 2007, China’s nominal per capita GDP stood at $5,480 in PPP terms. On the

other hand, Japan’s nominal GDP was $33,630 in PPP terms. According to this measurement,

China’s standard of living is only 16.3% of Japan’s. In addition, China carries a 9.2%

unemployment rate compared to Japan’s 3.8%, and labor costs in China are far below those in

Japan—$1.73/hour compared to $19.59/hour. The labor cost differentials suggest an economic

complementarity that would help shape the bilateral economic relationship, namely one economy

(China) with a large pool of unskilled and low-skilled labor linking up with another economy

(Japan) with a small and diminishing pool of highly-skilled, high-cost labor.

China-Japan Trade Ties

A significant element of the China-Japan economic relationship has been the growth of bilateral

merchandise trade. As Table 2 and Figure 1 show, from 1980 to 2007 total China-Japan trade

increased significantly with both Japanese exports to China (Chinese imports from Japan) and

Japanese imports from China (Chinese exports to Japan) rising substantially. As Table 2 and

Figure 1 indicate, Japanese imports from China have exceeded exports to China since the mid1980s.

Table 2. Japan’s Merchandise Trade with China, 1980-2007

(in billions of U.S. dollars)

Year

Exports

Imports

Year

Exports

Imports

1980

5.1

4.3

2002

40.0

61.9

1985

12.5

6.5

2003

57.5

75.8

1990

6.1

21.1

2004

74.0

94.4

1995

21.9

35.9

2005

79.9

108.6

2000

30.3

55.1

2006

92.7

118.4

2001

30.9

57.8

2007

109.3

127.8

Source: IMF. Direction of Trade Statistics. Data do not include Japan Trade with Hong Kong or Macao.

Purchasing power parity (PPP) measurements are the value of foreign currencies in U.S. dollars based on the actual

purchasing power of such currency based on price surveys. The PPP exchange rate is then used to convert foreign

economic data in national currencies into U.S. dollars. The PPP exchange rate raises China’s GDP significantly higher

than Japan’s because prices and goods and services are significantly lower in China.

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Sino-Japanese Relations: Issues for U.S. Policy

Not only has China-Japan trade grown in absolute terms, but also in relative terms. The China and

Japan trade relationship has tightened as they have become more important to one another as

trading partners. In 1995, China accounted for 10.0% of Japan imports and was the second largest

source of imports next to the United States. By 2007, China had replaced the United States in the

first position and accounted for 20.6% of Japan’s imports. Similarly, in 1995, China accounted for

5.3% of Japanese exports and was Japan’s fifth largest export market; but, by 2007, it was the

second largest market (next to the United States) accounting for 15.3% of Japanese exports.22

Figure 1. Japan Merchandise Trade with China, 1980-2007

Billions of Dollars

140

120

100

Japan Exports

Japan Imports

Year

Source: IMF. Direction of Trade Statistics. Data do not include Japan trade with Hong Kong and Macao.

On the other hand, while Japan is an important trade partner for China, its relative importance has

declined over the years, as China has forged closer ties with other East Asian economies and with

the United States. In 1995, Japan ranked first as a source of China’s imports and accounted for

22.0% of total Chinese imports; but, in 2007, while still number one, Japan’s share of Chinese

imports had declined to 14.0%. During the same period, Japan’s share of Chinese exports

declined from 19.1% in 1995 to 8.4% in 2007, and Japan declined from the second most

important export market to the third, having been displaced first by the United States then by

Hong Kong. 23

The commodity composition of China-Japan trade has changed over time reflecting shifts in the

structure of the trading relationship. In the early 1980s, when China had just begun its economic

reform program, a large portion of China’s exports to Japan consisted of raw materials with

manufactured goods accounting for only a small portion. In 1980, for example, mineral fuels

accounted for 54.9% of China’s exports to Japan and manufactured goods accounted for 22.6%.

By 2000, the share manufactured goods had increased to 82.1% while the share of mineral fuels

had declined to 3.9%.24

Global Information Systems, Inc. World Trade Atlas.

Global Information Systems, Inc. World Trade Atlas. It should be noted that many of the products that China exports

to Hong Kong are re-exported elsewhere.

Kwan, C.H. The Rise of China as an Economic Power: Implications for Asia and Japan. in Hilpert, Hanns Gunther

and Rene Haak (eds.). Japan and China: Cooperation, Competition and Conflict. Palgrave. New York. 2002. p. 23.

Congressional Research Service

Sino-Japanese Relations: Issues for U.S. Policy

Within the category of manufactured goods, the type of products that Japan imports from China

have changed significantly reflecting the growing sophistication of Chinese manufacturing and

the decline– or offshoring– of Japanese labor-intensive manufacturing. In 1994, 32.7% of

Japanese imports from China consisted of basic, low-skilled labor-intensive manufactured goods,

including, woven apparel, knit ware, and footwear. By 2007, the share of those products declined

to 17.2%. On the other hand, in 1994, technology- advanced goods, such as machinery and

electrical machinery accounted for 8.6% of Japanese imports from China and for 36.6% of

imports by 2007. Other products that Japan imports from China include toys, furniture, plastics,

iron and steel products, and mineral fuels.25

Throughout this period a major portion of Japan’s exports to China consisted of electrical

machinery and machinery—44.5% combined in 2007. The intra-industry trade between the two

countries is an indication of the emerging character of China-Japan trade: Japanese exports to

China are dominated by shipments of parts, including integrated circuits, car parts, and digital

camera components that are assembled in China by foreign owned firms including Japanese

firms, and then exported to Japan as finished goods. These products include business equipment,

computers, and audiovisual equipment.26 Other Japanese exports to China include iron and steel

products, cars, and organic chemicals. 27

Bilateral China-Japan trade in services has increased and is another element integrating the two

economies. Total Japan-China trade in services increased around 125% between 2000 and 2006,

and has increased particularly rapidly since 2003, as indicated by Figure 2 and Table 3. The

balance of trade has shifted over that brief period as well. From 2000 to 2005 China’s exports of

services to Japan exceeded its imports probably because of surges in Japanese tourism to China.

However, the gap diminished over time and in 2006 (latest data available) Japanese exports of

services to China slightly exceeded its imports. Future data will determine if this trend will

continue. It seems likely that the total bilateral trade in services will continue to grow, especially

as China’s economy continues to advance.

Bi llions of U.S. Dolalrs

Figure 2. Japan Trade in Services with China, 2000-2006

2000

2001

2002

Japan Exports

2003

2004

2005

2006

Japan Imports

Source: OECD.

Global Trade Information, Inc.

Hayashi, Yasuo. Sustainable Development of Japan-China Economic Relations and Prospects for Business Alliance.

Keynote Address at the Symposium on Japan-China Business Alliance in Beijing. June 7, 2007.

Global Trade Information, Inc

Congressional Research Service

Sino-Japanese Relations: Issues for U.S. Policy

Table 3. Japan Trade in Services with China, 2000-2006

(in billions of U.S. dollars)

2000

2001

2002

2003

2004

2005

2006

Japan Exports

2.4

2.3

2.7

4.1

6.4

7.1

7.6

Japan Imports

4.1

3.9

4.3

4.8

6.5

8.0

7.1

Source: OECD.

Foreign Direct Investment

Increased Japanese foreign investment in China has become one of the more significant elements

of the China-Japan economic relationship. China has become more open to foreign investment

particularly in the last decade. China-based affiliates of foreign multinational firms are significant

sources of China’s exports and imports and have allowed China to develop as a center of regional

production networks throughout East Asia. In 2007, 57% of Chinese exports and 58% of Chinese

imports originated with foreign-invested firms in China.28

Table 4. Japanese FDI Flows into China, 1995-2007

(in billions of U.S. dollars)

Year

Value

Year

Value

1995

3.2

2002

2.6

1996

2.3

2003

4.0

1997

1.9

2004

5.9

1998

1.3

2005

6.6

1999

0.4

2006

6.2

2000

0.9

2007

6.2

2001

2.2

Source: Japan Ministry of Finance.

Note: Comparable Chinese official data differ from Japanese data.

EIU. Country Profile. China. 2008. p. 48.

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Sino-Japanese Relations: Issues for U.S. Policy

Figure 3. Japanese FDI Flows into China, 1995-2007

Billions of U.S. Dollars

Japan FDI to China

Source: Japan Ministry of Finance.

Note: Comparable Chinese official data differ from Japanese data.

Before the mid-1980s, Japanese investors were reluctant to invest in China as political instability

in China and Chinese government restrictions, burdensome taxation, corruption, and an unskilled

local labor force tainted the investment climate. Japanese direct investments in China picked up

in the mid-to-late 1980s and into the early 1990s. Chinese economic reforms made foreign

investment more acceptable, and the increase in labor costs in Japan made domestic Japanese

production more expensive, causing Japanese producers to take advantage of low-wage labor in

China by shifting production to China and other East Asian countries. As Figure 3 indicates, FDI

flows dipped between 1995 and 1999 because China had imposed some restrictions on foreign

investment and made some other changes in economic policies.29 In addition, during this period,

East Asia had experienced a financial crisis and Japan was in the midst of a long recession.

As the figure above shows, since 1999, Japanese FDI has soared. According to Chinese official

data that measures FDI accumulated from 1979 to 2007, Japan is the second largest source of

non-overseas Chinese (primarily Hong Kong and Taiwan) FDI, with cumulative foreign direct

investments of $61.2 billion. 30 As the graph in Figure 3 shows, Japanese FDI in China has dipped

somewhat since 2006. Among the factors causing the decline were an increase in the cost of

investing in China, caused in part by a gradual but substantial appreciation of the renminbi, and

an insertion of more country risk in Japanese investor strategies. 31

Chinese official data also show that Japanese and other foreign-owned companies in China are

becoming important platforms for trade through their global supply chains. In 2006, $86.1 billion

Japan Ministry of Foreign Affairs. Japan-China Relations. http://www.mofa.go.jp/region/asia-paci/china/.

These data are reproduced in CRS Report RL33534, China’s Economic Conditions, by (name redacted). The

British Virgin Islands are the largest sure of FDI to China; however, these funds likely originated from other sources.

Japan External Trade Organization (JETRO). 2007 JETRO White Paper on International Trade and Foreign

Investment. August 8, 2007. p. 15.

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Sino-Japanese Relations: Issues for U.S. Policy

in imports into China from Japan were to foreign-owned (presumably Japanese-owned)

companies, or about 75% of total Chinese imports from Japan. In 2006, foreign-owned companies

in China exported $61.1 billion in merchandise to Japan, or about 68% of total Chinese exports to

Japan.32 In 2006, around 70% of the products imported by foreign-owned firms in China were

mechanical and electrical products, such as integrated circuits, parts for televisions and other

electrical appliances, and computer parts. In 2006, 63% of exports by foreign-owned companies

in China consisted of machinery and transportation equipment.33 These figures suggest that those

companies (including Japanese-owned companies) assemble parts into finished goods for export.

The increase in trade and foreign investment between China and Japan appears to have benefitted

both countries. China has benefitted from the technology and know-how that Japanese foreign

investment conveys as indicated by shifts in Chinese exports from low-skilled production of

apparel and footwear to exports of machinery and transportation equipment. Japanese producers

have benefitted from the lower production costs that foreign investment in China provides.

However, some in Japan have expressed concerns that relocation of production to China signifies

a “hollowing out” of Japan’s manufacturing base. Such arguments could become stronger as

Chinese labor becomes more skilled, and locally-based Chinese firms adapt foreign technology

and become more independent and competitive.

Multilateral and Regional Frameworks for the Relationship

China and Japan are members of the major multilateral trade and international financial

organizations, including the World Trade Organization (WTO), the International Monetary Fund

(IMF), the Asian Development Bank (ADB) and the World Bank. These provide a venue for

cooperation, channels for financial assistance, and mutually agreed upon rules for bilateral trade.

Japan and China also participate together in the ASEAN+3 (Japan, China, and South Korea)

group designed to facilitate trade among the member countries.34 They both also support the

formation of an East Asian FTA to include the ASEAN+3 members plus Australia, New Zealand,

and India.35

At the same time, China and Japan appear to be using FTAs as vehicles to compete with another

for influence in the region. For example, both countries have entered into free trade agreements

(FTAs) with ASEAN. China was the first to launch an initiative by proposing a China-ASEAN

FTA in November 2001. Japan followed soon after by launching its own initiative in early 2002

first with agreements with some of the more advanced members of ASEAN (Thailand, Malaysia,

and the Philippines) followed later by agreements with the other ASEAN members, although with

less success. At this writing, the parallel negotiations of China and Japan on viable FTAs with

ASEAN appear to be stalled as the partner countries have resisted making concessions on some

key issues such as intellectual property rights (IPR) and government procurement. Japan’s focus

in forming FTAs has been primarily to forge commercial ties, especially to secure access for

China Customs Service.

Ibid.

ASEAN is the 10-member of the Association of Southeast Asian Nations that consists of: Brunei, Cambodia,

Indonesia, Laos, Malaysia, Burma, the Philippines, Singapore, Thailand, and Vietnam.

For more details on the frameworks of East Asian trade see CRS Report RL33653, East Asian Regional

Architecture: New Economic and Security Arrangements and U.S. Policy, by (name redacted).

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Sino-Japanese Relations: Issues for U.S. Policy

Japanese investments. China’s motives in FTAs have also included expanding its political

influence in the region.36

However, a sign of enhanced cooperation occurred on December 13, 2008 in Dazaifu, Japan,

when the leaders of China, Japan, and South Korea met to address issues pertaining to the global

financial crisis. The three countries reached agreement on only a few items, including an increase

in credit lines to South Korea to help address some of the affects of the crisis. However, the fact

the unprecedented meeting took place at all was widely considered important.37

Potential Complications and Issues for U.S. Policy

U.S. Interests and Regional Rivalry Versus Cooperation

Maintenance of stronger relations between Japan and China serves U.S. interests by ensuring a

degree of stability in the Asia-Pacific, particularly if other areas, such as the Korean Peninsula,

threaten a disruption. This stability, in turn, fosters more robust trade and prosperity, which

generally serves U.S. global priorities. Regional initiatives are also likely to fare better if the two

largest Asian powers are amenable to cooperation. Prospects for success in the Six-Party Talks,

for example, are better if the forum avoids becoming a platform for Chinese-Japanese tension.

Further, Chinese accommodation of Japanese interests in other regional organizations—including

those that do not include the United States such as the East Asia Summit—may help to promote

democratic values that the United States and Japan share.

On the other hand, if Sino-Japanese ties grow closer, there is some chance that Toky could adopt

positions that move it closer to Beijing on particular issues. Japan, along with Australia, tends to

be the most reliable U.S. ally at such Asian fora. However, Japan’s own interests appear at this

point to be far more closely aligned with Washington’s, and therefore this threat appears fairly

small at this point.

Significantly, better communication between Tokyo and Beijing may help diffuse territorial issues

and minimize potentially explosive miscommunication. A military clash between the two Asian

giants involving one of the remote islands at the heart of territorial disputes could force the U.S.

military to decide whether to intervene on Japan’s behalf. U.S. and Japanese officials have given

mixed answers when questioned about whether the U.S. military would engage if armed conflict

were to occur over one of the territories in question. Former Deputy Secretary of State Richard

Armitage asserted in 2004 that the U.S.-Japan treaty extends to the Senkaku Islands, but official

guidance from the Departments of State and Defense declare that the U.S. government does not

take a position on the question of sovereignty of the islands. The apparent determination to bring

China into the international system would obviously be derailed by direct U.S. military

confrontation with China.38

A question facing U.S. policymakers is how much the United States should engage in mediating

the Sino-Japanese relationship. Certainly both powers are influenced by U.S. policy and opinion,

Searight, Amy. Emerging Economic Architecture in Asia: Opening or Insulating the Region?

The Wall Street Journal. December 15, 2008.

Armitage’s remarks and Q&A at the Japan National Press Club, February 2, 2004.

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Sino-Japanese Relations: Issues for U.S. Policy

although it is not clear that U.S. suggestions would actually alter policy. Although President Bush

reportedly mentioned U.S. concerns about tension with China over the Yasukuni Shrine visits to

Koizumi in 2006, in general the United States has not been particularly active in the evolving

relationship. Many analysts warn of the danger of U.S. officials getting entangled in thorny

historical issues that have no easy resolution.

Regional Balance of Power Issues

One key policy issue for the United States is how to address U.S.-China-Japan relations in

balance-of-power terms. Views in the United States differ somewhat on this point. Some see

China’s growing power as not just a challenge, but a threat to U.S. regional and global interests.

Chinese leaders, these observers argue, see conforming to international norms as a strategy to

employ while China is still weak; in reality, Beijing seeks at least to erode and at best to supplant

U.S. international power and influence. In pursuit of this strategy, according to this view, Chinese

leaders may be probing potential rifts in the U.S.-Japan alliance and expanding China’s economic

interconnections with Japan, seeking to complicate or raise the costs of Japan’s policy choices

where U.S. and PRC interests diverge. These observers argue that the United States should seek

to counter this PRC strategy. For instance, the United States should avoid sitting on the policy

sidelines or acting as a balancing agent between Japan and China, and instead should “unleash”

Japan from some of the more restrictive confines of the U.S. security umbrella. For example, they

say, U.S. policymakers could encourage Tokyo to develop a more muscular regional policy and a

more robust military posture to provide a counterbalance to growing Chinese power.

Other observers stress that the U.S.-Japan alliance is an important foundation of U.S. strength and

influence in Asia. While a passive approach between China and Japan may be counter to U.S.

interests, these observers say, it would be a mistake for the United States to encourage enmity or

dissension between Tokyo and Beijing as a counterweight to growing PRC power and influence.

The way to deal with growing Chinese power, according to this view, is to strengthen and expand

upon the U.S.-Japan alliance, helping to increase Japan’s power and capabilities and knitting

Tokyo more seamlessly into the U.S. regional presence.

The Sino-Japan Bilateral Economic Relationship and U.S. Interests

In economic terms, China and Japan are very important to the United States. Japan is the second

largest national economy in the world and China is among the fastest growing economy in the

world. Japan has been an important U.S. trade partner for a long time, and China has rapidly

emerged as a critical partner. They are, respectively, the fourth and third largest markets for U.S.

exports and the second and fourth largest sources of U.S. imports. Most important, perhaps,

China and Japan are the largest and second largest, respectively, foreign holders of U.S.

government debt in the form of U.S. Treasury securities, valued at $585.0 billion and $573.2

billion, respectively, as of the end of September 2008. (They both far exceed the United Kingdom

which was third with $338.4 billion.) Japan and China, therefore, each play an important role in

financing the U.S. national debt, a factor that becomes increasingly significant as the projected U.

S. national debt soars in the wake of the global financial crisis. The two countries also hold the

world’s largest volumes of foreign exchange reserves and, therefore, have a major influence in the

global capital markets. As of the end of September 2008, Japan had $969.2 billion in foreign

exchange reserves and China had $1.9 trillion. Because Japan and China are each economically

important to the United States, how they conduct their bilateral economic relationship could have

significant implications for the United States.

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The China-Japan economic relationship can be viewed as both an opportunity and as a challenge

to U.S. interests. It can be an opportunity if the relationship promotes trade liberalization and

foreign investment and, in so doing, leads to economic growth and opportunities for U.S. firms.

In this regard, the United States and Japan share an interest in encouraging China to fulfill its

WTO commitments to adhere to the multilateral rules on trade; to enforce the rights of foreign

holders of intellectual property in China; to ensure that goods produced in and exported from

China are safe and of good quality; and to encourage China to welcome foreign investment by

maintaining a transparent regulatory regime that does not discriminate against foreign investors.

The bilateral economic relationship could operate against U.S. interests if the two countries try,

through bilateral or regional trade agreements, to exclude U.S. exporters and investors from the

region. In addition, some import-sensitive U.S. firms and industries view the closer economic

relationship between China and Japan as possibly giving Japanese producers a competitive

advantage over them by using low-wage Chinese labor to produce goods that are then exported to

the United States.

Fragility of Détente and Public Sentiment

Regional analysts, while optimistic about the immediate future of Sino-Japanese relations, remain

cautious about the ultimate stability of the relationship. The emotional element of the history

issues that divide the countries is significant, and many observers warn that raw feelings could resurface at any provocation. Promisingly, however, leaders in both Tokyo and Beijing appear to be

quick to address any possible lightening rod. In November 2008, the chief of staff of the Japan

Air Self Defense Force, Toshio Tamogami, was fired for entering and winning an essay contest

with a piece that spoke admiringly of Japan’s role in World War II. Prime Minister Aso—himself

considered by some to be somewhat of a revisionist—terminated Tamogami’s service upon the

essay’s release, indicating to many that Tokyo was concerned about damaging the positive

relations with Beijing. The government re-iterated its official position of remorse for war-time

suffering.

The official reconciliation may be challenged by sentiment among the Japanese public, some

political groups, and the military. In early 2008, several packages of “gyoza” meat dumplings

imported into Japan from China that contained a toxic pesticide sickened scores of people.

Although Chinese and Japanese officials reportedly reacted quickly, the incident renewed longstanding concerns among the Japanese public about the safety and hygiene practices for Chinese

products. Further, some conservative nationalist voices in Japan have criticized the Tokyo

government for being too “soft” on Beijing and practicing “kow-tow diplomacy.”

Anti-Japanese sentiment among the Chinese public also creates a stiff headwind for any efforts at

Sino-Japanese reconciliation. In 2007, there were reports of a public outcry about the proposed

official choice of a national bird (the Red-Crowned Crane, also known as the “Japanese

Crane”).39 Chinese fans booed the Japan team during the Japanese national anthem at the 2008

East Asian Cup games. Later, after the Japanese team defeated the Chinese team, a group of fans

burned the Japanese flag and jeered the Japanese team.

Guo Qiang, “Bird choice sparks anti-Japanese sentiments,” ChinaDaily.com, April 24, 2007.

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The Taiwan Factor

Although Japan’s official ties with Taiwan were broken in 1972 when Tokyo normalized relations

with the PRC, unofficial links have remained strong despite these periodic disputes. Japan’s

official ties with Taiwan were particularly close under former President Lee Teng-hui (19882000), when the Kuomintang (KMT, or Nationalist Party) had close contacts with Japan’s ruling

Liberal Democratic Party (LDP). The Tokyo-Taipei relationship also has not been hurt by issues

surrounding Japan’s historical legacy in Asia, a subject toxic to Tokyo-Beijing relations. But on

an entirely different level, Taiwan also is a potentially important factor in the U.S.-Japan alliance.

While Japan continues to recognize the PRC and not Taiwan, as a host to U.S. military facilities,

Tokyo could become involved in any U.S.-China conflict over Taiwan. In 2005, for instance, the

United States and Japan declared for the first time that Taiwan is a mutual security concern,

implying a new Japanese willingness to confront China over Taiwan.

Territorial Disputes Remain Sensitive

Taiwan also factors into Sino-Japan territorial disputes, such as in competing claims over the

eight uninhabited Senkaku Islands (called the Diaoyutai islands in Chinese) and the Ryukyu

Islands (the largest of which is Okinawa) in the East China Sea. (See map at end of this report.)

Japan, the PRC, and the ROC government on Taiwan all have had long-standing claims in these

waters. Chinese claims to the Senkakus date back to the 14th century, when Ming Dynasty fishing

vessels frequented the islands. Taiwan makes the same claims as the PRC does to these islands—

that they belong to China—but its claims are based on the Taiwan government’s pre-civil war

status as the Republic of China on the mainland. On this issue, both the Taiwan and PRC

governments find themselves in the unusual position of being on the same side opposite Japan, as

both make their territorial claims on behalf of the Chinese nation. These competing claims can

raise unusual problems affecting not only Japan-China-Taiwan relations but also U.S. policy.

In June 2008, for instance, lingering conflict over the Senkaku/Diaoyutais produced a crisis in

Japan-Taiwan relations when a Taiwanese fishing boat sank after it collided with a Japanese

patrol boat near the islands. Taiwan strongly protested the incident, recalled its envoy to Japan,

and issued a statement affirming ROC sovereignty over the Senkaku/Diaoyutais. The incident

riled Taiwan’s relations with the PRC government, which also protested to Japan over the

collision on the grounds that both the Senkaku/Diaoyutais and Taiwan are sovereign Chinese

territory. The Taiwan Ministry of Foreign Affairs refuted Beijing’s protest, saying that the PRC

had jurisdiction over neither Taiwan nor the Senkaku/Diaoyutais. The United States declined to

get involved in this dispute.

Apart from complications posed by Taiwan’s territorial claims, the Senkaku/Diaoyutais pose

additional problems for the PRC’s relations with Japan. Japan’s claim to the Senkaku/Diaoyutais

dates from January of 1895, during the Sino-Japanese War, when the Chinese Emperor agreed to

cede the islands to Japan.40 In the 1951 Treaty of Peace with Japan after World War II, the United

States assumed control over both island groups. In a 1953 proclamation, U.S. officials responsible

In the Sino-Japanese Treaty of Shimonoseki ending the war, signed in May 1895, China also ceded Taiwan

(Formosa) to the Japanese. Since this Treaty did not mention the Senkaku/Diaoyutais, Japan has claimed that its rights

to the islands were conveyed in a separate action unrelated to the war. This becomes relevant later, during Allied

agreements at Potsdam, in which the Allies agreed to restore to China those territories it lost to Japan through military

aggression.

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for administering the Ryukyus broadly defined the region under U.S. control to include the

Senkaku/Diaoyutais.41 Thus, in 1971, when the United States signed the Okinawa Reversion

Treaty with Japan, returning to Japan the areas and territories being administered by the United

States, the Senkaku/Diaoyutais were included, thus giving the United States a recurring bit part in

the ongoing drama over the Senkaku/Diaoyutais and the Ryukyu Islands (the largest of which is

Okinawa, host of a U.S. military base.) Although there is some ambiguity, the U.S.-Japan

Security Treaty appears to say that the an attack on the Senkaku/Diaoyutais would require a U.S.

response. Sino-Japanese disputes also include areas of high oil and gas potential, such as the

Chunxiao Gas Field.

Sino-Japanese territorial claims have continued to clash since the 1990s. PRC oceanographic

research and other vessels repeatedly have entered jointly claimed areas, apparently to conduct

marine research on natural resources. This reportedly has included preliminary drilling for

mineral deposits on the ocean floor.42 PRC fishing vessels also have been active. Periodically,

PRC naval vessels and fighter aircraft have entered the disputed region.43 In 1992 and 1993,

Chinese naval vessels fired warning shots at Japanese civilian ships.44 Japan launched fighters

from bases in the Ryukyu Islands in August 1995 when PRC fighters entered Japan’s air

identification zone around the Senkaku/Diaoyutais.45 The August 1995 incident and particularly

heavy PRC ship activities in early 1996 led to an escalation of tensions between Japan and the

PRC lasting until the end of 1996. The PRC’s occupation of Mischief Reef in the South China

Sea in early 1995 also increased Japanese suspicions.

The Japanese government also has had to deal with the actions of Japanese right-wing groups.

These groups periodically send members to the Senkaku/Diaoyutais where they have implanted

markers, flags, and even erected a small lighthouse. The rightist groups sometime act in response

to heavy PRC ship traffic near the islands. Other times, they act without alleged PRC

provocations. Beijing considers their actions as a provocation and has issued diplomatic protests

to Japan demanding that the Japanese government prevent such activities. The Japanese

government replies that the government is limited in its right to interfere with the activities of

Japanese citizens. 46

Ongoing Military Concerns

Despite the promising developments in Sino-Japanese détente, including in the military-tomilitary realm, there are strong indications of lingering mutual suspicion among the defense

communities in both capitals. Japanese press outlets have reported repeated naval incursions by

Chinese vessels and submarines into Japanese territorial waters. In July 2004, Japan’s Maritime

Self-Dense Forces website reported 12 occasions of PRC naval incursions into Japan’s exclusive

economic zone in the East China Sea in that month alone and 28 during the year up to that time. 47

U.S. Civil Administration of the Ryukyus Proclamation 27 (USCAR 27).

“PRC Mobilizes Warships to ‘Unlawfully’ Explore for Resources in Japan’s EEZ,” in The Daily Yomiuri (Tokyo,

Internet version), July 26, 2001. Gilley, Bruce, “Rocks of Contention,” in Far Eastern Economic Review, September

19, 1996.

Ibid.

Kyodo News Service reports, July 21, 1992, and February 12, 1993.

Lu Te-yun, “Official Views PRC-Japanese Fighter Encounter,” in Lien-ho Pao (Taipei), August 25, 1995, p. 3.

Agence France Presse (Hong Kong) report, May 1, 2000. Kyodo News Service (Tokyo) report, September 7, 1999.

“Media Say Beijing Stepping Up Naval Incursions, Eyeing Conflict With US,” FBIS Report. August 2, 2004.

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Sino-Japanese Relations: Issues for U.S. Policy

In November 2004, an unidentified nuclear submarine, later discovered to be Chinese, entered

Japanese territorial waters near the Sakishima island chain off Okinawa, initiating a two-day

chase. Most of these incidents have occurred in waters or around islands claimed by both

countries. The reports appear to have dwindled since 2006, but Japanese military officials remain

concerned that China’s military modernization and lack of transparency make Japan increasingly

vulnerable.

At the same time, Japan’s military ambitions and upgrades alarm some defense observers in

China, who feel threatened by indications of increased cooperation between Japan’s military with

other regional militaries. In the past several years, Asia Pacific powers have pursued some modest

development of trilateral and quadrilateral security architecture involving the United States,

Japan, Australia, and India. Although the efforts have not yet developed into major initiatives,

some diplomatic meetings and military exercises were held to explore the idea. China often

complained about these activities, suspicious of strategic encirclement by surrounding maritime

powers. Wariness on both sides of the relationship remain a serious obstacle to genuine

cooperation between China and Japan.

Timeline of Major Events in Sino-Japanese

Relations, August 2001 - September 2008

Sources: Jiji Press, Kyodo News, Nikkei Weekly, New York Times, BBC, Washington Post,

Defense of Japan, Agence France Presse, Yomiuri Shimbun, Xinhua News Agency, People’s

Daily

8/13/01—Japanese Prime Minister Junichiro Koizumi pays homage at the Yasukuni shrine

dedicated to the country’s war dead, including war criminals, provoking protests from China and

South Korea. The Chinese Foreign Ministry says in a statement that Koizumi’s visit has damaged

the political foundation of Sino-Japanese relations and insulted the feelings of Chinese and other

Asian people.

8/31/01—Chinese Ambassador to Japan Wu Dawei says that Sino-Japanese relations are facing

their “toughest situation” since the two countries normalized ties nearly 30 years ago due to

history, trade and Taiwan issues. In a press conference, Wu criticizes Japan for issuing a visa to

former Taiwan President Lee Teng-hui, who visited Japan in April for medical treatment. He also

criticizes Japanese textbooks and Koizumi’s Yasukuni visit.

10/8/01—Koizumi meets with Chinese President Jiang Zemin in China and tries to ease Chinese

concerns over Japan’s policy of sending troops of its Self-Defense Forces for logistical support

for antiterrorist operations by the United States. Koizumi and Jiang agree to cooperate with each

other toward the 30th anniversary of the restoration of diplomatic relations between the two

countries next year.

4/21/02—Koizumi pays a surprise visit to Yasukuni Shrine, and Chinese Vice Foreign Minister Li

Zhaoxing quickly summons Japanese Ambassador Koreshige Anami to express China’s “strong

dissatisfaction.” China puts off a visit later in the month to Beijing by Japan’s Defense Agency

chief Gen Nakatani and a call by Chinese warships to Tokyo port in May in order to protest

Koizumi’s visit.

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8/15/02—Five cabinet members visit the Yasukuni shrine to pay respects to the Japanese war

dead on the anniversary of Japan’s WWII surrender. Koizumi does not attend and instead had

visited the Chidorigafuchi national memorial in Tokyo for the unknown dead earlier in the week.

11/15/02—Hu Jintao assumes office as President of China.

1/14/03—Koizumi visits Yasukuni Shrine for the third time. Chinese Vice Foreign Minister Yang

Wenchang quickly expresses China’s “strong displeasure and indignation” over the visit to

Japanese ambassador Anami.

8/15/03—Four cabinet ministers attend but Koizumi does not visit Yasukuni Shrine on the day

marking Japan’s World War II surrender. Chinese Foreign Minister Li Zhaoxing praises Koizumi.

3/30/04—Chinese activists land on Uotsuri Island, the largest of Japan’s Senakaku islands. The

House of Representatives Committee on Security unanimously adopts a resolution emphasizing

Japan’s sovereignty over the East China Sea islands. The activists are arrested by Japanese

officials and deported to China.

8/7/04—China and Japan face each other at the Asia Cup final. Chinese fans burn Japanese flags,

yell “Kill! Kill! Kill!” and shout various insults at the Japanese spectators. Japan wins 3-1,

leading to weeping Chinese fans and riots. Thousands of police are on hand, including riot troops

in black body armor and special tactical units. Earlier in the tournament, in Chongqing, hostile

Chinese fans booed the Japanese team throughout the games and surrounded the Japanese team’s

bus after one match.

11/10/04—An unidentified nuclear submarine, later discovered to be Chinese, enters Japanese

territorial waters near the Sakishima island chain off Okinawa, initiating a two-day chase. Japan’s

navy goes on alert for the first time in five years. Japan accuses China of violating its sovereign

rights and demands a formal apology. Beijing expresses regret over the incident, saying that the

sub was on routine maneuvers and that it made the incursion due to a technical error.

11/21/04—Koizumi and Hu meet in a Japan-China summit in Santiago, Chile. The leaders agree

to develop economic and cultural bilateral ties, which are important for themselves and also for

other parts of the world, and pledge to make efforts for the resumption of multilateral talks over

North Korea’s nuclear ambitions.

1/6/05—Despite strong protests from China, Japan grants Taiwanese president Lee Teng-hui a

weeklong visit to Japan. China postpones a visit by a group of Japanese lawmakers, claiming that

the request was not made to protest Lee’s visit and that more time is needed to prepare for the

trip.

4/5/05—The Japanese Ministry of Education, Culture, Sports, Science and Technology approves

new editions of middle school textbooks that China says glosses over Japan’s World War II

record. Anti-Japan demonstrations occur in Chendu, Sichuan province, and Shenzhen,

Guangdong province. Millions of mainlanders sign a petition against Tokyo’s UN bid on the

Security Council. Protestors attack Japanese owned or funded stores and boycott Japanese

products.

4/9/05—Anti-Japan demonstrations continue in cities across China. 10,000 people march in

Beijing to voice their anger at the textbooks, the city’s biggest protest since 1999. Protestors stone

the Japanese Embassy and the ambassador’s residence.

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4/17/05—Protestors hurl stones and eggs at the Japanese Consulate General building in Shanghai.

Some 2,000 people take part in anti-Japanese demonstrations in Shenyang and 10,000 in

Shenzhen.

4/20-4/21/05—China orders an end to anti-Japanese protects. Senior foreign diplomats are

dispatched to all cities where protests occurred to calm sentiments and stress the importance of

stability and observance of law. Officials urge its leaders to meet with Japanese leaders later this

week.

4/24/05—Hu and Koizumi meet for a 46-minute talk at the Asian-African summit in Indonesia in

hopes of improving relations. One day earlier, Koizumi had apologized for Japan’s World War II

aggression while addressing representatives of more than 100 countries at the summit.

5/24/05—Chinese Vice Premier Wu Yi abruptly cancels a meeting with Koizumi, citing pressing

domestic issues in China. China’s official Xinhua New Agency says China was extremely

dissatisfied with remarks repeatedly made by Japanese leaders on visiting Yasukuni Shrine.

China’s Assistant Foreign Minister Shen Guofang tells Reuters that a “good atmosphere” is

needed for Wu Yi to visit. Japanese ministers criticize the cancellation and lack of an apology.

9/9/05—Five Chinese naval vessels, including a missile destroyer, are seen navigating near the

Chunxiao gas field in the East China Sea.

10/16/05—Koizumi visits the Yasukuni Shrine for the fifth time, sparking more protests from

China, South Korea, and other Asian countries. China cancels Japanese Foreign Minister

Nobutaka Machimura’s visit to China scheduled for late October. Koizumi has repeatedly said

that he visits in order to mourn the dead and to vow that Japan shall never wage war again. In

response to criticisms, he has said that “other countries should not intervene on how (Japan)

should pay tribute” to the dead.

10/25/05—Chinese Vice Foreign Minister Wu Dawei says that it would be “very difficult” to hold

Sino-Japanese summits on the sidelines of upcoming international meetings in the future, due to

Koizumi most recent visit to the Yasukuni Shrine. While past Yasukuni visits have stopped

meetings by Japanese and Chinese leaders to their reciprocal countries, they have held talks on

the sidelines of international meetings in third countries instead.

3/23/06—Japan delays a decision on providing further yen loans to China because of the two

countries’ worsening relations. Japan’s aid has little financial importance but the delay is a

symbolic gesture. Tokyo has given billions of dollars in loans for Chinese infrastructure projects

over the past two decades but its aid has declined in recent years as China’s economy has grown.

9/26/06—Shinzo Abe takes over from Koizumi as Prime Minister of Japan.

10/06—A Chinese Song-class submarine appears in the vicinity of the USS Kitty Hawk aircraft

carrier of the United States in international waters reportedly near Okinawa.

10/8/06—Abe makes his ice-breaking trip to Beijing, where he is greeted warmly. His visit is the

first meeting between the Chinese and Japanese leaders since the Asia-Africa summit in

Indonesia in April 2005 and the first bilateral summit between the leaders for five years.

1/11/07—China conducts an anti-satellite weapon test and destroys an old Chinese weather

satellite. Japan shows concern over use of space and national security and demands that China

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Sino-Japanese Relations: Issues for U.S. Policy

explains the test and the country’s intentions. China claims that it had informed some countries

including Japan and the United States about the experiment.

4/12/07 - Wen becomes the first Chinese premier to address the Japanese parliament and the first

Chinese premier to visit Japan since 2000. Wen urges Japan to face up to its World War II actions

but says both sides have succeeded in warming relations.

8/30/07—Chinese Defense Minister Cao Gangchuan spends five days in Japan in talks with his

counterpart Masahiko Komura. The defense chiefs agree to steps to ease military tensions such as

the establishment of a military hotline and reciprocal port calls by naval vessels.

9/07—Chinese H-6 medium-range bombers fly into the Japanese air defense identification zone

over the East China Sea to advance close to the Japan-China median line.

9/25/07—Yasuo Fukuda becomes Japan’s prime minister after the abrupt resignation of Shinzo

Abe.

12/27/07—Fukuda visits Beijing. His engagements include a speech at Beijing University that is

broadcast live on China Central Television, an unprecedented joint press conference with Hu, and

a rare banquet hosted by the Chinese President—the first for a Japanese prime minister since the

Nakasone visit in 1986. Fukuda calls for increased co-operation with China in the future and says

that he will not visit the shrine while Prime Minister.

5/6-5/10/08—Hu visits Japan and becomes the first Chinese President in over a decade to go to

Japan on an official State visit. It is also the longest visit Hu has made to a single country. The

imperial family holds a welcoming ceremony and banquet for Hu. In a joint press conference,

Fukuda praises China on a successful Olympics, and Hu offers to lend pandas to Japan as a

symbol of bilateral friendship. Hu and Fukuda also issue a joint document and agree to promote a

“mutually beneficial relationship based on common strategic interests.” The statement stays away

from history issues and any mention of a Japanese apology while China notably recognizes Japan

as a peaceful postwar country for the first time in a political document.

6/18/08—Japan and China reach a deal for the joint development of the Shirakaba gas field,

known as Chunxiao in China, in the East China Sea. The two governments agree to divide profits

according to their stakes.

9/17/08—Japanese Defense Minister Yoshimasa Hayashi and Chinese air force chief Gen. Xu

Qiliang agree that there is a need to enhance bilateral defense exchanges. Xu is the first

commander of the People’s Liberation Army Air Force to visit Japan since 2001.

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Figure 4: Map of Japan and China

Source: Map Resources. Adapted by CRS.

Author Contact Information

(name redacted), Coordinator

Specialist in Asian Affairs

[redacted]@crs.loc.gov, 7-....

(name redacted)

Specialist in International Trade and Finance

[redacted]@crs.loc.gov, 7-....

(name redacted)

Specialist in Asian Affairs

[redacted]@crs.loc.gov, 7-....

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Acknowledgments

Particular thanks goes to CRS Research Associate Katherine Qu, who served as a co-author and researcher

for this paper.

Congressional Research Service

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