Sino-Japan economic ties show signs of improvement

Despite strained political relations between China and Japan, trade is flowing, two-way investments are recovering and the trend is expected to continue in the near future, experts said.

A recent decline in the value of bilateral trade, as well as Japan's direct investment into China, was mainly caused by economic restructuring in both countries, though recent tensions were partly to blame.

"Trade flows between China and Japan will maintain a steady development and the value of Japan's exports to China and China's exports to Japan are showing signs of recovery," Hirohide Yamaguchi, chairman of the advisory board of Nikko Financial Intelligence Inc, told China Daily on Saturday.

He added that the political difficulties between China and Japan, "somewhat dented, but could not fully stop, the economic and trade activities" between the two countries.

Japanese vehicle producers' sales in China improved this year after the slump amid tensions over the the Diaoyu Islands in 2012. In the first four months of the year, Japan's Toyota Motor Corp and its two local joint-venture partners sold 313,800 vehicles, up 20.2 percent from a year earlier.

Chinese tourist numbers to Japan also recovered with 1.05 million recorded in March, up 22.6 percent year-on-year, NHK reported.

Wei Jianguo, vice-chairman of the China Center for International Economic Exchanges, echoed the view that China and Japan are "in complementary positions" regarding economic and trade relations.

"Following the recovery of Japan's auto exports to China and the rising number of Chinese tourists to Japan, there will be more signs suggesting an improvement in economic ties," Wei said. "I am optimistic and fully confident on the prospects of Sino-Japan economic ties."

Following tension over the islands, economic ties between China and Japan cooled.

This "was not normal and many opportunities in potential cooperation regarding environment protection, high-tech and fine manufacturing were missed", Wei noted.

Japan is China's fifth-largest trade partner and bilateral trade decreased 5.1 percent year-on-year in 2013 but the first five months of this year saw bilateral trade rise 3.4 percent from a year ago, according to the General Administration of Customs.

Japan's direct investment in China fell 4.28 percent year-on-year in 2013 and slumped 46.8 percent in the January-April period, according to the Ministry of Commerce.

"The cooled economic ties at present, a temporary slowdown, were mainly caused by the economic restructuring, though political challenges are to blame to some degree," Wei said. "China is now selective to foreign investment rather than welcoming all kinds of foreign investments. Investments with high-tech features, instead of low-end and labor-intensive ones, are preferred.

"China's economic restructuring will release huge potential for foreign investment, especially in service sectors, and the country remains a promising market for Japanese enterprise. Japan's investment in China will return," he added.

Yamaguchi said that Japan's investments in China were "quite severely" impacted by political challenges as investments were long-term activities and demanded a stable environment to reduce investors hesitations.

"Japanese enterprises will continue their investment in China because of the attractiveness of the huge market. They will also tap opportunities in China's expanding domestic demand and the emphasis will be on industrial investment with high value added," Yamaguchi said. "Despite the estimated prospect of stable development, Japan's investment in China will hardly recover to that of the peak era owing to comprehensive impacts such as China's restructuring and stress in bilateral ties."

He added that the continuous rising of China's production and labor costs has renovated supply chains between China and Japan. Japanese enterprises in China are producing for the Chinese market rather than exports to Europe and the United States. Chinese enterprises now tend to export parts to Southeast Asian countries with low labor costs and re-export the assembled products to Japan, which "will contract but will not significantly reduce" Sino-Japan trade value.

Regarding Chinese investment in Japan, which surged 204.3 percent year-on-year in the January-April period, Wei expected bigger investments and faster growth.

"The trend of robust Chinese investment in Japan will last for quite a long time because of the big market in Japan and the sound legal framework. Also, Japan needs Chinese investments and there are many opportunities in tourism, transportation, infrastructure as well as services for the aging," Wei said. "The next two or three years are a crucial period for improving bilateral ties through effective moves such as advancing a bilateral free trade pact, stepping up the investment protection treaty talks and the currency swap."