Improved political relations must precede economic deals

Chinese economists on Saturday urged the Japanese government to improve political ties with China as a prerequisite for boosting economic cooperation.

"Boosting trade between China and Japan was an effective way to break the political standstill in the past decades. But the simple prescript doesn't work anymore," Li Daokui, a Tsinghua University professor and former central bank adviser, told the economic session of the Beijing-Tokyo Forum held in Beijing on Saturday and Sunday.

"China's economy changed much in the past 10 years and market demand is increasingly decided more by small and medium-sized enterprises than by government influence."

Japan's "purchase" of China's Diaoyu Islands in September 2012 not only injured bilateral political ties but also decreased the trade flow between the world's second- and third-largest economies - although two-way shipments have increased in recent months, mostly because of mutual demand from both markets and the dispute's ebbing impact, experts said.

China is Japan's largest trading partner and Japan is China's fifth-largest. In this year's January-September period, bilateral trade reached $229.08 billion, down 7.9 percent from a year earlier. China's overall trade rose 7.7 percent.

China's exports to Japan decreased 2.8 percent year-on-year in the same period to $109.31 billion, while its imports dropped 12.1 percent to $119.77 billion, the General Administration of Customs reported.

In September, China's exports to Japan rose 1.5 percent year-on-year, ending the 14-month decline.

Customs spokesman Zheng Yuesheng said on Oct 12 that China-Japan trade "showed signs of improvement since the second half of this year". The monthly trade value narrowed the three-month decline that began in July.

Chinese consumer sentiment - rather than Japanese exports' quality - following the island dispute was responsible for the trade decline, Li said.

"The key to improving economic ties lies in the establishment of mutual political trust," Li said.

"Japan should ensure Chinese consumers it's willing to support China's rise and growing role in Asia.

"It should avoid shortsighted strategies that sour Chinese sentiment. Japan's cooperation with the United States to advance the Trans-Pacific Partnership (trade deal) is viewed as an attempt to curb China's rise."

He said Japan's government should realize China remains a huge market, and increasing exports is crucial for Japan to avoid fiscal and debt crises.

In the next five years, China is expected to import commodities worth $10 trillion, and the scale of its outbound direct investment will reach up to $500 billion.

"If we don't resolve the political stalemate caused by the Diaoyu Islands dispute, our improved economic ties will be affected again," said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a Ministry of Commerce think tank.

Both political and economic ties have cooled, which is a far cry from past decades. Although Japanese spending in China has continued to grow, the number of projects has declined - suggesting a narrower future investment inflow from Japan, Huo said.

However, Asian Development Bank Institute dean and CEO Masahiro Kawai said: "I don't agree with the claim that economic cooperation would not move forward without political consensus.

"The process of increasing interdependency is unstoppable. And I am optimistic that economic activities will continue to expand because of the two countries' self-interests."

Former Chinese State Councilor Tang Jiaxuan said East Asia has the most potential among the world's regions and enjoys unprecedented development opportunities.

China and Japan, which accounted for 20 percent of the world's GDP and 80 percent of the East Asia, will decide the future of the region and even the world, according to Tang.