Third China-Japan high-level economic dialogue holds promise of strengthening cooperation on several fronts
China and Japan are witnessing two milestone developments. China is closing in on Japan as the world's second largest economy in size and buying enough Japanese government bonds to become one of Japan's largest creditors.
China and Japan hold the third high-level economic dialogue on economic recovery, bilateral exchanges and cooperation in the region, and the world as a whole, in Beijing today. The dialogue is important for facilitating a sound development of Sino-Japanese strategic relations of mutual benefit and reciprocity.
Bilateral trade and mutual investment are two pillars of Sino-Japanese economic ties. Since the normalization of bilateral diplomatic relations in 1972, the two-way trade volume reached from $1 billion to $266.79 billion in 2008.
And though bilateral trade dropped by 14.2 percent in 2009, because of the global financial crisis, it rose drastically in the January-June period this year, reaching as high as $136.55 billion, an increase of 37 percent year-on-year. It is predicted that this year's bilateral trade would, at least, reach the 2008 level.
Japan began investing in China from 1979. But Japanese foreign direct investment (FDI) was at its lowest ($2.15 billion) in the first half this year. By the end of last year, total Japanese FDI had reached $69.48 billion, spreading over 42,401 ventures.
In recent years, Chinese enterprises have increased their investment in Japan in line with their "going out" strategy. Chinese FDI (excluding financial investment) in Japan is $670 million. Though the amount is relatively small, it has changed the one-directional investment pattern.
Japan is China's third largest trade partner, after the European Union and the United States. And after Beijing became Tokyo's largest trade partner in 2007, Japanese exports to China topped those to the US in 2009 for the first time.
Japan is an important source of FDI for China, and bilateral trade has promoted sound economic development in the two countries. Most Japanese enterprises in China have made big profits in the past couple of years, which have not only fuelled Japan's economic recovery and growth, but also contributed to China's economic construction.
Globalization has helped China and Japan strengthen cooperation, become more interdependent and derive mutual benefit from bilateral trade. China depended more on Japan until the mid-1990s, but the trend has reversed since then. From 1996 to 2009, the proportion of Sino-Japanese trade in China's total foreign trade volume fell from 21 percent to 10 percent, while the proportion of bilateral trade in Japan's gross foreign trade rose from 8.2 percent to 20.5 percent. This shows China's fast paced growth has helped Japan's economic recovery, too.
Over the past three decades, Sino-Japanese economic ties have maintained a sound momentum - even when bilateral politics suffered setbacks. Recent years have been one of the best periods for bilateral economic ties. But problems still exist. The growth of bilateral trade has averaged about 12 percent in recent years, only half of the average growth rate of China's foreign trade. Because of various reasons, Japan's FDI in China fell sharply in 2006 and 2007.
Though bilateral economic cooperation has progressed considerably, Beijing and Tokyo are still in the slow lane when it comes to coordination on regional and global issues. The building of free trade area between the two countries hasn't been put on their agenda.
Japan has not yet recognized China as a market economy. Besides, Japan's business environment and relatively closed market do not favor Chinese enterprises investing in Japan. Chinese companies face some practical problems, too, such as complex visa procedures and frequent tax inspections. It is necessary for the two sides to attend to these problems.
The potential of bilateral trade and economic cooperation is huge. Though China is the world's second largest economy, its per capita GDP is barely one-tenth of Japan. But the purchase of Japanese government bonds by China, in line with its efforts to diversify its foreign exchange reserves, could boost the Japanese economy, making it a win-win situation for the two sides.
After weathering the global economic crisis, Sino-Japanese trade is on track to recovery. The two sides now have to boost bilateral trade and investment and set up a joint fund for energy conservation and environmental protection to cultivate new growth areas for bilateral economic cooperation and lay a solid foundation for the establishment of an East Asian community.
We hope the China-Japan high-level economic dialogue helps take bilateral economic and trade cooperation to a new high.
The author is associated with the Chinese Academy of Social Sciences.