South China Sea: Cost Of Island Dispute Climbs For China And Japan – Analysis


By Michael Lelyveld

China and Japan will suffer economic damage from their border dispute for many more months, even if the two sides try to ease tensions soon, analysts say.

The latest industry and trade reports suggest that the impact over conflicting island claims between the two Asian neighbors could be profound.

China - Japan Relations
China – Japan Relations

Japan’s auto exports to China dropped by a stunning 82 percent in October from a year earlier, according to Finance Ministry data reported by Daily Yomiuri Online. Total exports to China fell 11.6 percent.

The chill with China has added to Japan’s troubles in the weak European market, giving the country its fourth monthly trade deficit in a row and the worst October figures in over 30 years, Britain’s daily The Telegraph said.

Major automakers Toyota, Nissan, and Honda reported their October production in China plunged by margins ranging from 44 to 61 percent, the official Xinhua news agency said on Nov. 29.

A Xinhua report on Dec. 7 put a positive spin on month-to-month gains in November sales of Japanese cars due to promotions, but it acknowledged double-digit declines from year-earlier marks.

Investment plummets

The costs are not all on Japan’s side, since its joint ventures in China help to create jobs and economic growth.

Japanese investment in China remained 10.9 percent above year-earlier levels in the first 10 months of the year, but it plummeted 32.4 percent in October, according to China’s Ministry of Commerce.

The slump was “mainly due to security concerns over anti- Japan protests and the boycott of Japanese brands,” the official English-language China Daily reported, quoting an expert at a Ministry of Commerce think tank.

China’s overall trade growth was weak in November despite signs of economic recovery. Monthly exports rose just 2.9 percent while imports showed no gain from a year earlier, the General Administration of Customs said.

Economic costs have been growing since April when China voiced outrage at Tokyo Governor Shintaro Ishihara’s plan to buy the disputed islands, known in Japan as Senkaku and in China as Diaoyu, from private owners.

Frictions over fishing rights, patrols, and sovereignty came to a head in September with angry protests in China that included attacks on Japanese cars.

In one vicious assault captured on video, a driver in the central city of Xi’an was dragged from his Toyota and beaten unconscious, according to state media reports.

The incident prompted a crackdown on violence, but it may also have scared off potential buyers of Japanese cars and other goods. How long the effect will last is hard to predict.

Worse in Japan

“I would give it six months, and you’ll get a better view of it,” said Thomas Bellows, political science professor at the University of Texas at San Antonio and editor of the American Journal of Chinese Studies.

There could be attempts to calm the diplomatic waters after Japan’s parliamentary elections on Dec. 16, now that government changes are also taking place in China, Bellows said in an interview.

But nationalist sentiment remains high on both sides.

“There is a lot left over from World War II, a lot of sensitivity, even though most of the people you’re talking about didn’t experience World War II,” Bellows said.

While China is starting to show signs of economic recovery, the situation is arguably worse in Japan, which is fighting the effects of negative growth.

Whichever party wins the elections, Japan will have to deal with the losses in its China trade, said Bellows.

“I think they’re going to have to work it out in some way that the sales of Japanese products continue,” he said.

‘Primed to mobilize’

Lowell Dittmer, a political science professor at University of California Berkeley, said China seems to be relying on Japan’s greater economic vulnerability.

“In the long run, I think they probably both suffer, but in the short run, Japan suffers more than China,” he said. “I think the Chinese leadership might take that into account.”

Dittmer sees the dispute as part of China’s historical shift from ideology to nationalism with the collapse of communist governments in the early 1990s after the fall of the Berlin Wall. Japan has been a primary target of Chinese nationalism since then, he said.

“The populace is primed to mobilize against Japan at the slightest provocation, and the media supplies the provocation by reporting on any recent incident in a very patriotic way,” said Dittmer.

The reactions are “mirror-imaged” in Japan, but Dittmer believes Beijing is in control of how much the public is stirred before tit-for-tat responses to each incident start.

“I think China guides this, frankly. I think China has its hand on the steering wheel,” he said.

Other countries have become wary of economic damage as they face their own border disputes with Beijing in the South China Sea.

On Nov. 28, Vietnamese Deputy Foreign Minister Pham Quang Vinh told Bloomberg news that China should not try to use trade as a weapon to pressure other countries on its border claims.

“Economic forces should not be applied in the case of territorial disputes,” said Vinh.


Radio Free Asia’s mission is to provide accurate and timely news and information to Asian countries whose governments prohibit access to a free press. Content used with the permission of Radio Free Asia, 2025 M St. NW, Suite 300, Washington DC 20036.

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