China Up, Japan Down? Implications for the United States

China Up, Japan Down? Implications for the United States

China Up, Japan Down? Implications for the United States by June Teufel Dreyer June Teufel Dreyer is a professor of political science at the Universit...

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China Up, Japan Down? Implications for the United States by June Teufel Dreyer June Teufel Dreyer is a professor of political science at the University of Miami, and an FPRI senior fellow. She was a commissioner of the U.S.-China Economic and Security Commission for five years. Dr. Dreyer has conducted field research in China, Taiwan, and Japan, has served as Senior Far East Specialist for the Library of Congress and as Asia Advisor to the Chief of Naval Operations. This article is a revised version of a paper she delivered to the FPRI’s Asia Study Group on March 1, 2012.

Abstract: China’s rapid rise in economic and military power has occurred alongside the apparent decline of Japan, which has traditionally been America’s closest ally in the post-World War II era. These shifting fortunes have led policymakers in all three capitals to reassess security relationships with the other two. This article predicts that, absent marked changes in the current distribution of power, Washington must deal with China as an equal partner while expecting that Japan will try to placate both sides even as it remains closer to Washington.

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n 2007, the People’s Republic of China (PRC) surpassed Germany, joining the United States and Japan as one of the largest economies in the world. All three possess outstanding military credentials as well. Yet the relative strengths of each are in flux, leading to uncertainty about how each should position itself to maximize its economic benefit and security. Many Americans fear that there will be no easy exit from the ruinously expensive wars that followed the terrorist attacks of September 11, 2001, and that recovery from the economic collapse that began in 2007-2008 will be partial at best, while concerns over national debt are ongoing. Meanwhile, many Japanese worry that their country is in stasis and will never achieve the “Japan as Number One” prediction of Western analysts in the 1970s. While China has been riding the crest of several decades of rapid economic development, party and government officials are acutely aware of weaknesses in its institutional structure that could halt or reverse its upward trajectory.

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The Past as Prologue Reduced to simplest terms, the major goal of U.S. foreign policy in Asia since World War II has been to stabilize the region. From the defeat of Chiang Kaishek’s Nationalist government in 1949 and through the rest of the Cold War, the United States relied on Japan as a counterweight to Chinese and Soviet-led communist expansionism. The U.S.-Japan Treaty of Mutual Cooperation and Security was signed in 1960, establishing a U.S. guaranteed to defend Japan from external aggression in return for use of base areas on Japanese territory. In Article Nine of its constitution, Japan foreswore the use of military force to settle international conflicts. Washington supported the return to power of several prewar officials, some of whom had been accused of war crimes. According to a document declassified 40 years later this even included secretly funding one of them, Kishi Nobusuke to displace a serving prime minister who had advocated normalization of relations with China.1 Although the ruling Japanese Liberal Democratic Party (LDP) was in general loyal to the United States important segments of public opinion were less so. When the security treaty came up for renewal in 1960, demonstrations against it were so widespread that President Dwight Eisenhower cancelled plans to visit Tokyo for the signing. Given this level of ill feeling and Japan’s pacifist constitution, Washington must have had serious doubts about the country’s efficacy as a counterweight to communist aggression. At the same time, however, a split between the Soviet Union and China was destroying the Western conception of communism as a monolith. No Sino-U.S. alliance was possible at this time. China was struggling to recover from a famine brought on by the catastrophic Great Leap Forward, concurrent with the implementation of a belligerent foreign policy. Among other manifestations of the latter, China was shelling the offshore islands of Jinmen (Quemoy) and Mazu (Matsu), held by U.S. ally Taiwan. Soon after the economy recovered, Chairman Mao Zedong unleashed the disastrous Cultural Revolution, which included the recall of all but one of the PRC’s ambassadors and even physical attacks on foreign diplomats in China Not until the turmoil had abated could Washington begin to seriously consider Beijing as a counterweight to an increasingly menacing Soviet Union. By 1970, Chinese diplomats had begun to return to posts abroad, and Beijing formally apologized to Great Britain for the death of one of its envoys at the hands of militant Red Guards. President Nixon’s trip to China symbolized the beginning of a new partnership in which the United States and China would jointly counter the Soviet threat. Just how much help the Chinese could be in this endeavor was 1 Yomiuri Shimbun (Tokyo) February 9, 1995, p. 1. The prime minister, Ishibashi Tanzan, resigned due to ill health only five weeks after assuming office, thereby reducing Washington’s anxieties. After stepping down, Ishibashi visited China and criticized Kishi’s policies as excessively militant.

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questionable: the People’s Liberation Army (PLA)’s chain of command had been seriously weakened by the attacks of the Cultural Revolution, and both officers and men had concentrated on studying the works of Chairman Mao rather than on training exercises. Moreover, the Chinese leadership seemed less enthusiastic than Washington about the security partnership, speaking of “sitting on top of a mountain to watch the tigers [i.e., the United States and the Soviet Union] fight.” The official press agency, Xinhua, typically referred to the two as “the superpower and the later-coming superpower,” implying that there was little difference between them. Meanwhile, since the antecedents for Nixon’s policy shift had been kept secret from Japan in contravention of prior agreements, the Japanese government felt betrayed: Tokyo newspapers showed an angry-looking prime minister, ironically, the younger brother of former prime minister Kishi and equally conservative Sato Eisaku 2 glowering at television footage of Nixon and Mao. Nixon attempted to assuage Japanese concerns by flying to Alaska to greet the Japanese emperor and empress, whose flight had stopped there for refueling en route to their state visit to Europe. More substantively, Washington agreed to consultations with Tokyo prior to future high-level visits to China, further reiterating that U.S.-Japanese relations remained the lynchpin of U.S. policy in Asia. Many Japanese had long favored the establishment of diplomatic relations with China; in fact, it took considerable U.S. pressure to deter the nation’s first postwar prime minister, Yoshida Shigeru, from doing so. Pragmatists, who argued that China, as their country’s nearest large neighbor, should be dealt with regardless of what government ruled it, joined with left-wing organizations, including large trade unions and major Japanese corporations, who were eager for a share of a Chinese economy and its rapid projected growth. Participation in the Chinese market would also help offset pressures from the United States and Europe over the large trade deficits they were running with Japan. After Washington’s demarche to Beijing, the Japanese government felt free to begin negotiations on normalization of relations with China, though Beijing announced that it refused to deal with Sato. Concurrent with its overtures to Beijing, the Nixon administration had been discussing with Sato’s government the reversion of Okinawa, which had been under U.S. administration since the end of World War II, to Japanese control. Part of this included the disposition of a group of islands known to the Japanese as the Senkaku and to the Chinese as the Diaoyu. The Chinese government had shown no interest in them until, in the late 1960s, oil and gas deposits were discovered in the area. Reluctant to anger Beijing, whose favor it was courting, the United States explicitly stated that it took no position on the status

The two men were adopted into their wives’ families, respectively named Sato and Kishi, and assumed their surnames. 2

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of the islands.3 However, a minute attached to the reversion agreement delineated an area including them in the territories to be returned to Japanese administration.4 Article Five of the U.S.-Japan Treaty of Mutual Cooperation and Security of 1960 states that Each Party recognizes that an armed attack against either Party in the territories under the administration of Japan would be dangerous to its own peace and safety and declares that it would act to meet the common danger in accordance with its constitutional provisions and processes.5

Accordingly, the United States had in effect pledged itself to help Japan to defend islands whose ownership it had not formally recognized as Japanese. If Washington saw the potential problems this might cause, it refused to publicly acknowledge them. Okinawa, including the Diaoyu/Senkaku islands, was returned to Japan in the last days of the Sato administration; PRC-Japanese normalization ultimately took place under Sato’s successor, Tanaka Kakuei. A New Asian Balance of Power Washington maneuvered uneasily in positioning itself between Tokyo and Beijing. It did not wish to alienate a fellow democracy and generally loyal ally that was known to fear abandonment. Still, China could prove a useful counterweight to Soviet aggression, while Japan, due to Article Nine, could not be. The Japanese government was experiencing comparable problems stemming from its normalization of relations with China. Southeast Asian nations worried about a Sino-Japanese juggernaut directed against them, and feared that the economic aid Tokyo had heretofore proffered would be diverted to China instead. High-level delegations were dispatched to provide reassurance. The Soviet Union, which appeared dangerously close to war with China, saw the Sino-Japanese rapprochement as threatening to Soviet interests and warned of dire consequences if Japan acceded to Chinese demands to sign a treaty of peace and friendship.6 Although the closed nature of China’s political system limits access to factual information on attitudes in Beijing, ideologues did not necessarily view better relations with the United States and Japan as desirable. Mao’s constitutionally designated heir apparent Lin Biao was alleged to have fled the country for the Soviet Union after a failed plot to kill Mao. While there are grounds for skepticism on this theory, there does seem to have been a faction in the Chinese government that argued that, insufficiently socialist though the Soviet Union may have been, U.S. Department of State Bulletin, July 12, 1971. Ibid. 5 Text of the treaty can be found at http://www.mofa.go.jp/region.n-american/US/Q&a/ref.1.html 6 After years of negotiation, and Beijing agreed to a clause stating that the agreement was not directed against any third party, such a treaty was signed in 1978. Moscow issued a strong protest, but took no action. 3 4

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improving relations with it was preferable to allying with arch-capitalist powers. Moreover, in negotiating the agreement with Tokyo, Chinese Premier Zhou Enlai had deemphasized the issue of Japan’s responsibility for World War II and made several important concessions that radicals opposed and would later complain about. These included dropping China’s claim for war reparations, agreeing to shelve the issue of the sovereignty of the Diaoyu/Senkaku islands, and allowing Japan to say simply that it “fully understands and respects this stand of the Government of the People’s Republic of China” on Taiwan rather than that it agreed with China’s claim to its ownership.7 All these were to cause problems in the future. In the meantime, Beijing was as eager for U.S. and Japanese investment and managerial expertise as the Americans and Japanese were to provide it. Particularly after Deng Xiaoping assumed the status of China’s paramount leader and instituted and open door to the outside world to back his ambitious industrialization program, cultural and economic ties among the three burgeoned. Chinese citizens were allowed greater personal freedoms, lending credence to the assumption that China was an evolving liberal democracy. It was possible to imagine a Sino-AmericanJapanese triumvirate working in partnership for a prosperous Asia while constraining the growth of Soviet influence. Problems existed, but were mitigated by common economic and strategic interests, so much so that in hindsight the period from 1972 through 1989 has been called the golden age of Sino-American-Japanese relations.8 Tensions Emerge Tensions were, however, accumulating. China complained bitterly about the huge trade deficits it was running with Japan, while Tokyo rejoined that, despite its generosity with low-interest loans and Official Development Assistance (ODA), the volume of machinery and manufactured goods China was importing meant that deficits were unavoidable. When the value of the yen rose, Beijing found it difficult to repay even the low interest loans it had contracted, and pled for debt relief. Tokyo, struggling with the reduced competitiveness of its industries internationally because of the yen’s appreciation, refused to do so. Other issues took on increased salience as well, including: war guilt; reparations; visits by Japanese officials to the Yasukuni Shrine, where Japan’s war dead, including the spirits of Class A war criminals, were honored; text books that softened the war issue; relations with

Text of the communiqué can be found at http://www.mofa.jp/region/asia-paci/china/joint72.html See Ezra F. Vogel, Yuan Ming, and Tanaka Akihiko, eds., The Golden Age of the U.S.-China-Japan Triangle, 1972-1989 (Cambridge, MA: Harvard East Asian Monographs No. 216, 2002) for fuller treatment of this period. 7 8

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Taiwan; and the Diaoyu/Senkaku islands. Sino-U.S. relations were considerably better, but would not remain so for long. The Chinese government was also experiencing domestic difficulties. Rising prosperity was accompanied by an inflationary spike, and prosperity was not evenly distributed, creating unhappy losers. Corruption had grown at a worrisome rate. Effect of the Tiananmen Demonstrations on Japan-China Relations The demonstrations that began in Beijing and a hundred other cities in China in the spring of 1989 crystallized the strains in the PRC and alarmed its government, particularly after several ranking PLA officers, some retired and others on active duty, expressed reluctance to enforce the Politburo’s declaration of martial law. The demonstrations were eventually put down, albeit with significant unarmed civilian casualties. Party and government leader Zhao Ziyang was put under house arrest, and a new, more conservative leadership emerged in his place. Public opinion in Japan and the United States—and throughout much of the rest of the world—reacted with horror to the developments in China. In the United States, it forced a reluctant President George H. W. Bush to impose sanctions on China despite his belief that quiet diplomacy would achieve better results and that what he called “peaceful evolution” would eventually produce a Chinese government that respected the right to peaceful dissent. The president also persuaded an even more reluctant Japanese government to impose economic sanctions; Tokyo agreed to postpone a promised yen loan despite feeling strongly that isolating China would prove counterproductive. Beijing responded angrily to Washington and Tokyo. It interpreted Bush’s statement on peaceful evolution as a thinly-disguised plan to overthrow the party, the government and the socialist system, thereby creating chaos in China and destroying its economic progress. The Japanese government’s actions seemed to indicate that Tokyo was little more than a faithful lackey of the United States. Beijing subsequently moved to improve relations with the Soviet Union, already on the mend despite Beijing’s misgivings about General Secretary Mikhail Gorbachev’s glasnost (openness) and perestroika (restructuring) policies. While reiterating that the demonstrations had been a counter-revolutionary rebellion 9 and sentencing many of its participants to long prison terms, the reconfigured leadership group acted forcefully to contain the inflation that had been a major cause of the demonstrations. Beijing enacted and strictly enforced a tight monetary policy. At the same time, high-ranking officials took pains to reiterate that the open door to foreign investment remained open. Japanese business executives expressed misgivings about the wisdom of this policy, which the head of one major trading house described as tantamount to a driver pressing down on the accelerator and applying the brakes at the same time. Nonetheless, Japanese businessmen were 9

Xinhua (Beijing), August 22, 1989.

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among the first to return to China seeking opportunities10 Tokyo appeared almost pathetically eager to resume lending, sending several delegations to confer with their counterparts in Beijing. Chinese leaders made plain that, although the open door to the outside world remained open and Japanese loans and joint ventures were welcome, there would be no change in its stance that any comments on human rights issues constituted unwarranted and unwelcome interference in its domestic affairs. Chinese ministers warned that if Tokyo did not resume loans quickly, there would be losses not only to China but also to Japan. The country that lifted sanctions earliest would benefit most from renewed trade. While the Japanese government resumed loans as quickly as relations with Washington allowed, unforeseen events elsewhere reduced the Chinese government’s international leverage. First, the disintegration of the Soviet Union in 1991 and resulting economic and political problems in Russia diminished the value of Moscow as a strategic counterweight to Washington, in effect creating a unipolar world in which Japan leaned more toward the United States than toward China. Second, the U.S.-led intervention to force Iraq to rescind its conquest of Kuwait indicated to the Chinese leadership that the now undisputed hegemon intended to wield power in ways that ran counter to the PRC’s interests. Japan Declines Japan was only peripherally involved in these developments. In fact, its repeated expressions of interest in becoming a permanent member of the United Nations Security Council notwithstanding, Tokyo failed to dispatch even a token number of personnel to the multinational UN force, pleading Article Nine of its constitution. The Japanese government’s position that, although its constitution confers the right of self-defense, the country chooses not to exercise that right, rang hollow. Even Tokyo’s belated contribution of $13 million to the effort was criticized as checkbook diplomacy and did little to nothing to enhance Japan’s strategic position. The perception of Japan as, at best, a minor actor in world affairs was reinforced by problems in an economy that had for so long been the object of international envy. On December 29 1989, the Tokyo Stock Exchange closed at a record high, sinking steadily thereafter. Within two years, asset prices had declined by over sixty percent. 11 At first this was regarded as a healthy corrective to the unrealistic valuations of a bubble economy—at its height, the land beneath the imperial palace had a net worth that exceeded that of the entire state of California. But far from being a short-term readjustment, the crash ushered in a period of low economic growth that has continued into a third decade. Yomiuri, October 1, 1990, p .8 See, for example, Michael M. Hutchinson, The Political Economy of Japanese Monetary Policy (Cambridge MA: MIT Press, 1997) for details.

10 11

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China Rises China’s emergence from a difficult period of economic readjustment symbolically ended when Deng Xiaoping paid a visit to the Special Economic Zone of Shenzhen in January 1992. As Japan’s economy deflated, the Chinese economy began to grow. Beijing continued to encourage Japanese investment in China’s economy even as the product mix of two-way trade began to change. Whereas in the early 1980s, Japan had imported mainly raw materials such as oil, coal, and silk, Chinese exports became gradually more labor intensive and higher value- added. Although often of inferior quality, the items were priced far below domestically-made products and enjoyed good sales in Japanese markets. The balance of trade shifted in favor of China. In 1993, it was $3.3 billion; in 1994, it had grown to $8.89 billion.12 Changes in the Chinese attitude toward Japan became noticeable. These were subtle at first. For example, in August 1991, Vice President Wan Li told a Japanese delegation that a more prosperous China would be helpful to Japan, thereby implying that the pupil was now in the position of helping the teacher rather than, as had previously been the case, vice-versa13 a few months later, a vice-premier reassured a Diet member that a prosperous China would not threaten Japan.14 In the next year, however, the PRC’s National People’s Congress passed a law unilaterally declaring ownership of a number of disputed territories, including the Diaoyu/Senkaku islands and Taiwan, as well as giving the PLA the duty to patrol the sea lanes surrounding them. This triggered alarm in Tokyo, with Beijing replying to a Japanese Ministry of Foreign Affairs demarche that its policy had not changed. Though unconvincing, the response soothed the immediate anxiety, but without removing the concern about the underlying intent of the new law. As time went by the Chinese media reported on the Japanese recession with barely disguised Schadenfreude. In the United States, there was growing irritation with Japanese unwillingness to do enough to reduce the trade imbalance and, since Japan was no longer the defeated and impoverished country it had been in 1945, with Tokyo’s persistent failure to provide for its own defense. Japanese rejoined that U.S. consumers bought Japanese products because their quality was superior to those produced in the United States, and that Article Nine of the Japanese constitution had in fact been written by U.S. officials. Nonetheless, criticism of “Japan Incorporated” and its image as a wealthy draft-dodger continued. Although candidate Bill Clinton campaigned by criticizing Bush for “coddling dictators from Beijing to Baghdad,” once in office he quickly proved eager to expand trade with China. Clinton granted China permanent Most Favored 12 According to official Japanese statistics. Due to differences in accounting standards, Chinese figures differ. 13 Xinhua, August 18, 1991. 14 Xinhua, October 16, 1991.

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Nation status, and strongly backed its entry into the World Trade Organization. Tokyo fretted when Clinton’s Deputy Treasury Secretary Roger Altman said that China’s market was bigger and more attractive to the United States than was Japan’s, and that Americans had more in common with Chinese than Japanese in terms of culture and language. Japanese leaders also noted Undersecretary of Commerce Jeffrey Garten’s prediction that the big increase in U.S. exports in coming years would be to China and Hong Kong and not to Japan or Europe,15 as well as the advocacy by the pro-Japan American author/economist Clyde Prestowitz of U.S. dissociation from Japan.16 Japan Reconsiders Its Options A debate began in Japan about the country’s appropriate relationship with the United States. Trade tensions intensified, as did arguments about the extent to which Japan, now a wealthy nation, should provide for its own defense. From the point of view of many Japanese, U.S. bases seemed more of a liability for Japan than a benefit, since an enemy of the United States would consider them to be legitimate targets. In the post-Soviet era, the security treaty was not only an anachronism, but also an invitation to foreign aggression against Japan. Japanese citizens located close to American bases complained about the noise from fighter jet training exercises; misbehaving U.S. servicemen caused problems for local law enforcement, and the land that the bases occupied could be put to more profitable uses. Some felt that, with the Soviet threat removed, Japan’s value to the United States had diminished to the point that Washington now regarded Japan as the major threat to its security. Given excessive U.S. demands on Japan and the latter’s increasing trade with China, proponents of a new Japanese strategy argued, a better option for the country would be datsu-bei, nyuu-a: to withdraw from its relationship with the United States and instead focus on Asia, and specifically on Asia’s largest and most powerful nation, China. 17 This was a riff on distinguished Meiji era statesman Fukuzawa Yukichi’s famous 1885 advice to datsu-a, or withdraw from Asia, and specifically from the influence of China and Korea. The “Japanese spirit,”18 so went the argument, should be combined with selected elements of Western civilization, Cited in Yomiuri, February 21, 1995, p. 7 See, for example, Clyde Prestowitz, Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It (New York: 1989, Basic Books). 17 Japan’s millennia-long attraction-revulsion relationship to Chinese influence crystallized in the eighteenth century kokugaku (national learning) movement, which argued for a return to an allegedly unique Japanese essence untainted by Chinese influence. In the late nineteenth century, with neither China nor its vassal state Korea able to cast off the trammels of what appeared to be a stultifying Confucianism in order to cope with the West, Fukuzawa’s advice had wide appeal to Meiji-era policymakers as well as to Japan’s intellectual elite. 15 16

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so that the country could join the ranks of the advanced countries rather than being conquered by them. China’s increasingly assertive attitude toward both Asia in general and Japan in particular posed a countercurrent to the datsu-bei argument. PLA budgets were rising by double digits annually after 1989, a period when, because of the demise of the Soviet Union, other countries defense allocations were being drastically cut. Although concerns about Chinese and North Korean military power had existed for some time, the 1995 Defense White Paper was the first to contain explicit mention thereof. Japanese liberals were not supportive, pointing out that, though the two countries had some advanced weapons, their arsenals as a whole were all but obsolete. If, as was widely believed, the United States intended to withdraw from Asia, one Japanese option was to bandwagon with China as the region’s strongest military power. However, doing so was likely to have adverse effects on issues like the Diaoyu/Senkaku islands, which the majority of Japanese considered important for reasons of national pride, control of territorial waters and the natural resources located there. Moreover, Beijing’s constant pressing for yet another and more abject apology for World War II, Chinese objections to Japanese ministers’ visits to the Yasukuni Shrine on anniversaries such as the end of the war and Tokyo’s already attenuated links with Taiwan were as least as troublesome as U.S. demands. Opponents of datsu-bei underscored the continued importance of the United States to the Japanese market: eighty percent of the soybeans and more than fifty percent of the flour consumed in Japan came from the United States, which in turn imported forty percent of Japanese exports. Hence, Japan could not expect to enjoy prosperity by relying solely on relations with Asian countries, much less China alone. Proponents of datsu-bei, they cautioned, should also keep in mind the uncertain nature of PRC policies after the death of Deng Xiaoping. A return to the more radically communist and less investment-friendly regime that had preceded Deng was not unthinkable. A more defense-minded group argued that a Japan bereft of American protection would be forced to set up an expensive, independent self-defense system simply in order to secure a safe supply of oil from the Middle East. Moreover, it would have to develop the capacity to counter China’s rising might as well as that of a hostile North Korea that appeared to be on the verge of acquiring nuclear weapons. Further, Asian countries were apt to become wary of a Japan that broke relations with Washington, thinking that a Japan unrestrained by its alliance with the United States might return to the militarism of the 1920s and 1930s that had led to its defeat and humiliation in 1945. American commentators saw a recurrent pattern of fears that, on the one hand, a Japanese alliance with the United States would entangle the island nation in U.S. military conflicts in Asia, and that on the other hand Washington was planning to abandon it. China, meanwhile, skillfully used the attraction of its large market to

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remind both the United States and Japan that those who cooperated would reap the benefits thereof. The Japan-U.S. Partnership Strengthens Datsu-bei, nyuu-a received a sharp setback in 1995 when, in retaliation for the U.S. approval of a visa for Taiwan’s president Lee Teng-hui to visit the United States, China began nearly a year of war games that looked like preparations for an invasion of the island. These included missile tests that briefly closed shipping lanes. The potential absorption of Taiwan by China would have brought Beijing’s territorial waters into proximity with those of Japan. Japan also had important business interests in Taiwan, its former colony. Accordingly, Tokyo approached Washington for a closer alliance. The resulting Japan-U.S. Joint Declaration on Security Alliance for the 21st Century acknowledged the existence of instability and uncertainty in the Asia-Pacific region, explicitly mentioning “heavy concentrations of military force, including nuclear arsenals, unresolved territorial disputes, and potential regional conflicts.”19 The declaration’s seemingly innocuous references to the common need to maintain a stable and prosperous environment in the AsiaPacific region hinted at an important shift in the alliance from a focus on the defense of Japan to one whose goal was the maintenance of peace in Asia. In a related document that was signed just two days earlier, Japan agreed to provide logistical support to the United States in contingencies involving “the areas surrounding Japan.”20 Despite disclaimers that the agreement was not directed at any third country, 21 Beijing issued a statement that any act which included, directly or indirectly, the Taiwan Strait—which the phrase “areas surrounding Japan” clearly did—was a violation of China’s sovereign rights. It termed the accord “not defensive, but offensive,” adding that, whereas the original U.S.-Japanese relationship “was simply a bilateral agreement under which the U.S. provided nuclear protection for Japan, the new accord tends to poke its nose into regional affairs.”22 Whereas Beijing had previously compared the U.S.-Japanese alliance to a cork in the bottle of Japanese militarism, it now tended to feel that pressure from the combination of the two would be directed at China. Beijing pressed forward. Having extracted in June 1998, albeit unofficially, the “three noes” statement on Taiwan (no to Taiwanese independence, no to two Chinas, no to Taiwanese membership in any organization for which statehood is a Text in http://mofa.go.jp/region/n-america/us/security/html http://www.mofa.go.jp/region/n-america/us/security/guideline2 .html 21 Kyodo, April 1, 1996. 22 China Daily, May 23, 1996. 19 20

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requirement) from a visiting U.S. President Clinton beleaguered by scandal at home Beijing demanded a similar statement from Japan, in addition to a written apology for its actions during World War II. Ignoring warnings from the Japanese foreign ministry that neither statement nor written apology would be forthcoming, President Jiang Zemin pressed on during his visit to Tokyo that fall, lecturing his hosts and engendering ill-feeling among the Japanese media and public. According to a senior State Department official, the PRC’s Japan experts reported that the fixation on history was creating a grave backlash in Japan.23 More than a year later, the situation had not appreciably improved. 24 A softer line that the Japanese press referred to as “smile diplomacy” developed in 2000, but the election of a strong Japanese prime minister—replacing a string of weak, short-lived leaders—soon reversed this trend. Koizumi Junichiro did not care for the Chinese leadership 25 and proved willing to anger it at will through such actions as regular visits to the Yasukuni Shrine. Sino-Japanese relations deteriorated, to the extent that there were serious, Beijing-encouraged anti-Japanese protests in 2005, some of which boiled over into serious property damage and a boycott of Japanese goods. When, after three weeks, the unrest showed signs of becoming comingled with protests on domestic issues that included dissatisfaction over wages and environmental pollution, the government moved to suppress them. Not surprisingly, a residue of bitterness remained. While U.S. relations with Japan remained cordial, presidential hopeful George W. Bush alarmed Beijing by announcing his view that China was a strategic competitor to the United States rather than a strategic partner, and that he would do whatever it took to help Taiwan defend itself against invasion by China. Shortly after his inauguration, the collision between an American EP-3 reconnaissance aircraft flying in international waters and a Chinese F-8 fighter precipitated a serious incident. After two weeks of negotiations, Beijing released the EP-3’s crew, but not until mid-June could arrangements be made to repatriate the damaged aircraft. 26 The Effect of 9/11 Despite lingering ill-feeling on both sides, Sino-American relations were already on the mend on the eve of the September 11, 2001 terrorist attacks on New York City and Washington, D.C. and created a limited common cause for the United States and China: the latter counts 20 million Muslims among its citizens and has its own concerns about terrorism. A degree of cooperation in what Washington termed the Global War Against Terrorism (GWOT) ensued, though Chinese official sources Susan Shirk, China: Fragile Superpower (New York: Oxford University Press, 2007), p. 167. Author’s interviews, Tokyo, June 2000. 25 Author’s interview with senior National Security Council staff member, 2004. 26 See Shirley A. Kan et al, China-U.S. Aircraft Collision Incident of April 2001: Assessments and Policy Implications. (Washington, DC. October 2001, Congressional Research Service, The Library of Congress RL30946), passim for details. 23 24

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accused Washington of using the GWOT as an excuse to expand its hegemony. Chinese newspapers accused Washington of attempting to “spread its tentacles” through the pretext of helping countries such as Indonesia and the Philippines to fight Islamic terrorism, and interpreted the increasing U.S. military presence in Central Asia as an effort to contain China through establishing itself at the country’s “back door.” Beijing could not have been reassured by the national security strategy released by the White House on September 17, 2002 in which President Bush stated that the United States would not countenance the rise of a peer competitor, nor would it hesitate to act pre-emptively in the face of threats. Japanese Prime Minister Koizumi proved cooperative in the GWOT, dispatching the Maritime Self Defense Force (MSDF) on a refueling mission in the Indian Ocean despite misgivings among influential segments of his political opponents and in the general public that the action violated Article Nine. Koizumi’s departure from office in 2006 was followed by another succession of weak prime ministers whose tenures in office averaged barely a year. All proved unable to deal with the nation’s economic malaise; all came into office pledging to improve ties with China but failed. China, no longer as much in need of Japanese loans and expertise, began to assert its sovereignty in areas sensitive to the Japanese, who were for their part increasingly vocal about their weariness with Beijing’s penchant for lecturing their country in ways that seemed to imply that Japan was a tributary state. In an economic sense, a case could be made that it was one. To the extent that there was a bright spot in the Japanese economic picture, it was China, with whom Japan was running a trade surplus. Just how closely connected economics and politics were came into sharp focus when in September 2010 the captain of a Chinese fishing boat rammed two Japanese Coast Guard vessels in waters off the Diaoyu/Senkaku islands. The coast guard arrested the Chinese captain, thereby angering Beijing, which demanded his immediate release. When Tokyo failed to comply, the Chinese government imposed economic sanctions that included both a cessation of rare earth exports that were crucial to the Japanese automotive manufacturing industry and subjecting Japanese imports to agonizingly lengthy customs inspection procedures. Japan ultimately capitulated and released the captain, who returned home to a hero’s welcome. In a clear signal that it intended to assert its claims to sovereignty in the area, Beijing then announced that its own ships would patrol the waters around the disputed islands. Tokyo asked for, and received, a reaffirmation of Washington’s commitment to its promises in the security treaty. Beijing, however, had made its point, and Tokyo had backed down. After a period of relative calm, the islands issue flared up again two years later when Tokyo governor Ishihara Shintaro, irked with Chinese ships’ incursions into the area, declared his intention of buying three of the five islands that constitute

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the Diaoyu/Senkaku group.27 Fearful that Ishihara intended to build structures on them, thus violating one of Beijing’s putative red lines, the central government purchased the islands instead, hoping to deflect Chinese anger. The plan did not work, eliciting more than a week of anti-Japanese violence and demonstrations in over a hundred Chinese cities and hundreds of millions of dollars of damage to Japanese-owned property. Boycotts against Japanese goods continue, thereby further jeopardizing one of the few bright spots in the country’s hopes for economic recovery. Chinese ships have increased their presence in the disputed waters around the islands. Although the United States reaffirmed its commitment to Japan under the mutual defense agreement, it also stated its neutrality on the sovereignty issue and urged both sides to settle their dispute peacefully. From Tokyo’s point of view, this was less than reassuring. U.S.-Japanese Friction Washington theoretically supports Japan’s desire to play a more independent role in global affairs, but tends to have misgivings about Tokyo’s specific efforts to do so. Its concerns were magnified when the opposition Democratic Party of Japan (Minshuto or DPJ) swept to victory in the 2009 general election. Already in 2007, the DPJ had succeeded in temporarily blocking the enabling legislation governing the MSDF’s refueling mission in the Indian Ocean that Koizumi had authorized. The DPJ’s standard-bearer, Hatoyama Yukio, advocated the formation of an East Asian Community (EAC) which would exclude the United States. While engendering concern in Washington, Hatoyama’s plan also did not please the Chinese, since the envisioned EAC would include India, Australia and New Zealand as members. Beijing pointed out that none of the three is located in East Asia, though did not mention what was clearly its major objection: India and Australia have security agreements with Japan that Beijing sees as threatening to its own security. In the run-up to the general election of 2009, the DPJ announced its intention to terminate its agreement with the United States on military basing rights in Japan. Once in power, however, it encountered difficulties in actually doing so. These were compounded by pressures from China that made closer cooperation with Washington seem imperative. Hatoyama’s opponents accused both him and his successors of jeopardizing the security treaty with the United States which, largely due to concerns with rapidly rising Chinese military power, enjoys recent approval ratings of about eighty-five percent. Three years and three DPJ prime ministers later, the contentious debate on where to relocate the bases continues.

One of the five is already owned by the Japanese government; the fourth is leased by its owner to the U.S. government for bombing practice.

27

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Washington’s Dilemma Nettled by a Japan that seems unwilling to defend itself, Washington faces a much greater problem with an increasingly aggressive China. At a 2010 meeting of the security forum of the Association of Southeast Asian States, Chinese Foreign Minister Yang Jiechi stormed out in response to U.S. Secretary of State Hillary Rodham Clinton’s statement that freedom of navigation in the South China Sea was a national interest of the United States, as was the peaceful resolution of disputes. Nor has Beijing reacted well to President Barack Obama’s plans to shift the focus of American defense to the Asia-Pacific region. At the March 2012 session of the National People’s Congress, Foreign Minister Yang said that while Beijing welcomed the United States to play constructive role in the region, it must also respect China’s regional interests.28 How Washington intends to finance the costs of this enhanced defense role in the region remains in question, especially given the cuts in the 2013 defense budget. A major factor in America’s financial dilemma is the huge large trade imbalances with both China and Japan. In 1994, the U.S. trade deficit with Japan was an already worrisome $5.5 billion; that with China, $2.8 billion. 29 Both have grown far larger since then; that with China is now 28 times its size during the Reagan administration, and grew by 18 percent annually after China joined the World Trade Organization in 2001. In 2011, China exported $399.3 billion to the United States while importing $103.8 billion, for a deficit of $295.5 billion.30 The deficit with Japan, America’s second largest, was $62.643 billion, or just over onefifth as large as that with China.31 Planning for an Uncertain Future With China on the rise and Japan and Europe in decline, there have been suggestions that the G-7 (eight, if Russia is included) of the world’s most important economies be replaced by a G-2 of the United States and the PRC as the management committee for an increasingly interconnected global financial system.32 Whether this could work, or should even be seriously contemplated, depends on many variables of unknown magnitude. Major changes in the Chinese leadership will occur at the party’s Eighteenth Party Congress in fall 2012; seven of the nine members of the Standing Committee of the Politburo, the epicenter of decisionmaking in the PRC, will step down. The remaining two are expected to become president and premier. While factional rivalries may exist, the putative leaders are Xinhua, March 4, 2012. Washington Post, July 30, 1995. 30 http://www.census.gov/foreign=trade/balance/55700.html 31 http:www.census.gov/foreign-trade/balance/c5880.html 32 Bloomberg, September 22, 2009. 28 29

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believed to understand that their own as well as their country’s interests will be best served by arriving at consensual decisions in private; Chinese policy will likely remain fairly static. Chinese military spending continues at a high level: an 11.2 percent increase for 2012 will bring the total defense budget to $106.4 billion dollars. Since many defense-related costs are not included under Chinese accounting procedures, the actual figure may be two to three times larger. Most foreign analysts agree that military spending is not disproportionate to the country’s overall economic growth. New weapons include stealth bombers, advanced-model nuclear submarines and missiles, an aircraft carrier, and enhanced cyber capabilities that have already carried out successful attacks on the defense websites of several countries including the United States and Japan. Collectively, these generate anxiety among the many neighbors with whom China has unresolved territorial disputes. Recalling Deng Xiaoping’s advice to his countrymen more than two decades ago to bide their time and hide their assets while building China’s strength, the country’s neighbors wonder if the Chinese leadership has decided that the need for biding time has passed and the time to take action has arrived. There is some question as to the role of the military in China’s decision-making. Although there have been no serving military officers on the Standing Committee of the Politburo for some time, the PLA nevertheless makes its views known through other channels, and PLA officers have become more outspoken in international fora in recent years. According to China’s most recent work report,33 economic growth for 2012 is projected to be 7.5 percent, down from 2011’s 9.2 percent and well below the double-digit increases of years gone by. Analysts are uncertain as to what to make of this. Certainly it would be unrealistic to think that the spectacular growth rates of the past three decades could be extrapolated indefinitely; in the words of an old Chinese proverb, trees do not grow up to heaven. Optimists believe that China can achieve an orderly, gradual deceleration; pessimists counter that accumulated weaknesses, including but not limited to over-dependence on investment, poor capital allocation, an inflated property market and large hidden debts, will cause the economic bubble to burst precipitously. If, as some economists predict, growth were to fall to three percent,34 there could be serious implications for social stability, as tens of millions of Chinese citizens see their rising expectations thwarted. In Japan, frequent changes in leadership have produced no one capable of effecting meaningful change, and no potential strong leader is on the horizon. The country’s slow-motion economic decline, albeit punctuated by brief upturns, received a sharp blow with the triple disaster of earthquake, tsunami, and nuclear meltdown on March 11, 2011; unsurprisingly, the economy contracted. Japan’s public debt now exceeds two hundred percent of its gross domestic product

33 34

Xinhua, March 5 2012. See, e.g. South China Morning Post, March 8, 2012, p. 10

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(GDP).35 Defense budgets have been declining as a percentage of GDP. Still, it is premature to count Japan out; it is the world’s third largest economy, its citizens are highly educated, and they have longer life spans than those of any other country. Most also enjoy a level of prosperity that the majority of Chinese can only dream of. Foreign economists applaud recent steps by the Bank of Japan to shift to an expansionary monetary policy that, if properly handled, could end the cycle of weak growth and deflation.36 Japan’s desire to play a more independent role in world politics notwithstanding, the combination of an apparently nuclearizing North Korea and an assertive China, plus Japan’s perception of its own perceived decline, will mean that, despite tensions over the location of military bases, Tokyo will continue to rely on Washington for its security. This will necessarily entail making some accommodations to placate the United States. By all accounts, Operation Tomodachi, a massive U.S. relief effort following the March 11 disasters that was spearheaded by the U.S. military, fostered much good will for the United States in Japan. At the same time, however, senior Japanese business leaders were opining that their country’s crisis was “an opportunity to move closer to China.”37 Periodic efforts to amend Article Nine have failed. A constitutional change may not, however, be necessary. Japan has sought out India and Australia as security partners, both of whom are U.S. security partners as well. Additionally, Tokyo has conducted talks with Seoul and Hanoi. Self-defense forces participate with international partners in disaster relief operations, anti-piracy drills and routine exercises. Hence, even given the unlikely continuation of DPJ rule, these activities may evolve into a collective self-defense configuration with the United States as majority partner. One expert on Japanese security terms the U.S.-Japanese relationship a “resentful realism,” in which the two countries have little choice but to maintain an odd couple relationship to manage their own relative declines and insecurities in the Asia Pacific region.38 For the United States, the clear first priority is to get its own economic house in order. The huge portion of the national debt that is owed to China may not be as worrisome as some think. Given the interdependency of the American and Chinese economies, the situation has been compared to the financial equivalent of the nuclear mutually-assured destruction of the U.S.-Soviet confrontation: Beijing could do substantial damage to the American economy by rapidly selling the William W. Grimes, “Japan’s Debt Challenge,” National Bureau of Asian Research (Seattle), October 6, 2011. http://www.nbr.org 36 John H. Makin, “Is Japan Set to Boom?” American Enterprise Institute, Washington, D. C, March 2012. 37 Funabashi Yoichi, post to East Asia Forum, July 19, 2011. http://www.eastasiaforum.org. Funabashi, former editor of the liberal Asahi Shimbun, is a highly respected commentator. 38 Christopher W. Hughes, “Japan’s Shifting Security Environment,” National Bureau of Asian Research, September 13, 2011. 35

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treasury bonds it holds, but only by simultaneously wreaking havoc on its own economy.39 Advice from pundits tends to take the form of alliterative but largely meaningless slogans, most of them beginning with the letter “c”—cooperation, concert, conflict, containment, and congagement, among others. Most recently, some have suggested that China be constrained rather than contained.40 It is unlikely that Beijing will see any difference between the two. Given the uncertainty surrounding the future of the Chinese economy, it would be unwise to project a future G-2 guiding the world economy. It is, moreover, a role that Beijing, despite its discomfort with the United States as global hegemon, has explicitly declined to play. 41 Still, absent marked changes in the current distribution of power, Washington must deal with China as an equal partner, while expecting that Japan will try to placate both sides even as it remains closer to Washington. In essence, this may amount to a de facto G-2, whether or not Beijing assents to the arrangement. Not unlike the U.S.-Japanese relationship, the United States and China seem to be an odd couple bound together by resentful realism as well.

Gerald Curtis, “Getting the Triangle Straight: China, Japan, and the United States in an Era of Change,” in Gerald Curtis, Ryosei Kokubun, and Jisi Wang, Getting the Triangle Straight: Managing ChinaJapan-U.S. Relations (Tokyo: Japan Center for International Exchange, 2010) p. 8. 40 Philip Stephens, Financial Times, March 1, 2012. 41 Jian Junbo, Asia Times, May 29, 2009. 39

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