Japan de-escalates the Senkaku-Diaoyu dispute

Japan de-escalates the Senkaku-Diaoyu dispute

Japan seeks to improve the tense situation in the run-up to the APEC meeting in December. Prime Minister Shinzo Abe cannot afford risking trade relations with China.

Japanese Prime Minister Shinzo Abe and China’s President Xi Jinping are set to meet for the first time in their respective tenures at the APEC meeting in Beijing in November. However, the privilege of meeting the Chinese head of state comes with a cost for Shinzo Abe. The Japanese PM has conceded to a significant change of attitude in the dispute about the Senkaku/Diaoyu Islands.

While Japan previously denied there being any dispute in the first place, now the wording has changed into an acknowledgement of the fact that “China has a case as well.” Since China has refused talks with Japan until the existence of the conflict in the East China Sea was acknowledged, this has prevented the two nations’ heads from meeting.

The Japan Times reported in June 2013, “Even after the change of government last December with the inauguration of the administration of Prime Minister Shinzo Abe, China has continued to call for Japan to acknowledge that a territorial dispute exists as a precondition for holding a summit.”

The proposal to Xi Jinping from Shinzo Abe, of which the admission that the islands are indeed disputed is one part, contains further points. Japan suggests that it, together with China, settle the issue bilaterally over time, and that no statements or other documents detailing this agreement be officially released.

These additional points are, however, secondary to Japan’s huge concessions to Chinese demands on this matter. Indeed, as Abe stated during a press conference at the UN Summit “Senkaku is an inherent part of the territory of Japan in light of historical facts and based upon international law, and the islands are under the valid control of Japan.” He noted that Chinese government vessels regrettably continue to invade Japanese waters, and that Japan would not make concessions on territorial sovereignty but would avoid a further escalation. It seems fair to say that Japan just did make concessions.

Former governor of Tokyo, Shintaro Ishihara, who suggested buying the islands during Noda’s administration in 2012, caused a deterioration of the situation back then. Now, Shinzo Abe is trying to patch things up again. The goal in 2012 might have been to test the strength of the US-Japan alliance; this goal appears to have been fulfilled.

Chinese anti-Japan sentiment has run high, and the continuing disagreement over Senkaku-Diaoyu is just throwing oil on the fire. China takes it out on Japanese restaurants and businesses, and even Japanese-made cars. The Japanese economy can hardly afford to make an adversary of Chinese consumers, and at a moment when the efficacy of Abenomics is questioned, some light at the end of the dark, deflationary tunnel is much needed.

A troublesome trade deficit in September and two quarters of contraction following the VAT hike in April mean that Abe is in a poor place for pushing ultimatums. China is too significant a trade partner to displease. As much as acute observers might point out that this is exactly how the Chinese achieve their objectives – through exerting economic pressures rather than force. As stated in The Wall Street Journal, “Japanese exports to China grew 2.5% to $78 billion in the first half of 2014 from the same period a year earlier, according to Jetro [Japan External Trade Organization]. That was still down 11.7% from the first half of 2012.”

Economic woes are not solely for the Japanese, though. China is coping with slower domestic growth and a troubled property market, and both sides in the dispute seem eager to avoid trouble and facilitate growth. The cautious rapprochement at the APEC meeting and the Japanese concessions that made it possible amount to a change of stance from “what problem?” to “we agree to disagree; we’ll solve it later”.

This head-in-the-sand approach tends to be the least bad of the options available in similar situations, so moderate optimism is due. U.S. Trade Representative Michael Forman stated that the success of two upcoming rounds of trade talks with Pacific Rim countries hinged on China and Japan making more concessions. The Japanese admission of the existence of the issue at hand is a start. China’s willingness to play tit-for-tat may have a significant positive effect on trade in the region.

Categories: Asia Pacific, Politics

About Author

Mikala Sorenson

Mikala Sorensen is an Economist with regional expertise in Europe. She holds a first class honours degree in Philosophy, Politics and Economics from the University of York and a Masters in Economics from the University of Copenhagen. Having interned at the Danish OECD-delegation in Paris and currently working at the Danish Ministry of Finance, she specialises in politics and macroeconomics. Analysis for GRI is an expression of her own views.