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The New Phase of Japan-China Business: Lessons from the Boat Collision off the Senkaku Islands

Kenji Hattori
Professor of Investment and Business Management in China, Chinese Industries and Markets, and the Asian Economy, Graduate School of Strategic Management, Chuo University

3Ts in the Japan-China Relations

On September 7th, a Chinese fishing boat collided against Japan Coast Guard's patrol vessel around the Senkaku Islands, which are called Diao Yu Dao in China. The series of subsequent events had such tremendous impacts that people began reconsidering how to deal with China. It was the vulnerable nature of the Japan-China relations that emerged through the incident. In particular, the Chinese government's decision to suspend rare earth export to Japan as a countermeasure inevitably led to rebuilding strategies for business with China.

The chaotic situation - the events ranging from the arrest of the Chinese boat captain to the release of the last person of the arrested Fujita employees, followed by frequent anti-Japan demonstrations in inland China and the leakage of the video shot by Japan Coast Guard to the Internet on November 5th - has even spilled over to cause discord inside the administrations of both Japan and China.

I would like to draw some lessons from the issue, particularly regarding behavior to be taken by Japanese enterprises at the forefront of business with China.

First, though I think the incident occurred accidentally, the China side must have had dolus eventualis, or willful negligence, given that many Chinese fishing boats have recently crowded around the Senkaku Islands. In other words, contingency of the event occurred on the time axis of necessity. Because no fundamental solution has been found, the similar would be highly likely to recur in the future. Those who engage in business with China, therefore, need to reconfirm the necessity of country risks.

Why did the Chinese government show unprecedentedly uncompromising responses? Actually, China acts under their nonnegotiable principles in the Japan-China relations called 3Ts: Taiwan, or intervention in issues regarding Taiwan; Territory, or the possession of the Senkaku Islands; and Textbook, or the history textbook issue, which is equivalent to the issue of historical recognition. Regarding the historical recognition, an argument that the Second Sino-Japanese War was not invasion by Japan or the Nanjing Massacre was not a fact would not cause tangible damage except hurting Chinese people's mind. In fact, even Prime Minister Koizumi's visit to Yasukuni Shrine kept economic interactions active under the situation dubbed cold political relations but hot economical relations. On the other hand, the issues of Territory and Taiwan are practical matters regarding whether or not they lose interests, which is totally different from the emotional nature of historical recognition. China has not hesitated to resort to arms on border conflicts with India, former Soviet Union, Vietnam, the Philippines, etc. They regarded the incident off Senkaku as a matter concerning the principle affecting their sovereignty, so not only undertook the diplomatic offensive but also even shut down youth exchanges.

Effective control as bargaining power

Obviously, China has increased their alternatives of bargaining power more than Japan over the decade. This is evidenced, for example, by the dependence of the Japanese economy on China. They are also a permanent member of the United Nations Security Council, with enormous political influence as well as military capability, economic power, and foreign currency holdings even affecting tourist groups and private-sector exchanges. Kicking and screaming would be no use. So, it is important for Japan to keep as many bargaining power alternatives as possible. These might include soft power such as more advanced high technologies, manufacturing, fashion, animation, and architecture; and social systems including cleanness, safety, and good manners that everyone would like to learn from Japan but not from China. Anticipating Chinese aircraft carriers showing up in several years, Japan also has to enhance the naval force rapidly for maintaining effective control of the Senkaku Islands. The effective control is also an alternative of bargaining power, which would enable some proposals by Japan such as joint development through shelving the sovereignty.

While China is not an enemy but a friend, they are not on our side, frankly speaking. Their communist regime and Chinese people should also be distinguished. The Chinese Communist Party has been developing through battles against Japan in their history. We must never forget that DNA of antagonism and antipathy against Japan unfortunately underlie the body of the party. Particularly, now that the people have ceased to embrace Marxism-Leninism, Maoism, and socialism, the only foundation for maintaining the regime is nationalism or patriotism. For that purpose, the party have exaggerated their achievement during the war against Japan and conducted anti-Japan education excessively emphasizing cruelty of the then Japanese troops. Governing the nation by means of hatred instead of affection, the regime would be under the Sword of Damocles.

Responses from Japanese enterprises

On the other hand, because both Japan and China cannot move to other geographic locations, the Japanese and Chinese nations have no other choices but striving for building eternal friendship and peace. Since Japan has invaded and brought tremendous mischief to China in the past, we have to be more careful about the friendship between the nations. At the same time, we must understand that the wish for punishing Japan and the historical tradition of anti-foreign sentiment remain deeply embedded in the mind of Chinese people. These stemmed from traces of victim mentality and envy held by the proud nation with long history and culture that has been oppressed by western powers and Japan. The viewpoint of cross-cultural exchange should be taken instead of the empty prayer of the Japan-China Friendship.

It is during the time of tension that we must adhere to a one-level higher perspective that establishment of mutual understanding, cooperation and trust should be on the mainstream and confrontation and disgust on branches for the Japan-China relationship.

Below I will list three points of practical responses that should be kept in mind by Japanese enterprises engaging in business with China:

  1. Avoid discussing territorial issues with Chinese, because it would necessarily end up with emotional argument. Tell them straightforward, however, the fact that China began claiming to the islands only after the discovery of oil resources in the East China Sea, and persuade them to recognize diversity in opinions among different people as well as necessity of respecting and listening to others' opinions.
  2. Oppose ultranationalistic behavior such as bullying Chinese individuals and throwing stones at shops run by Chinese. Threatening letters or dangerous objects sent to the Chinese embassy should be denounced.
  3. In order to prevent Chinese employees of Japanese companies in China from feeling guilty, tell them that those companies are always making efforts for the development of China and better life of Chinese people.
Kenji Hattori
Professor of Investment and Business Management in China, Chinese Industries and Markets, and the Asian Economy, Graduate School of Strategic Management, Chuo University
Professor Hattori graduated from the Department of Chinese Language at Osaka University of Foreign Studies in 1972 and received his M.A. degree from the University of Southern California. He worked for the Japan-China Economic Association from 1979 and was the head of the Beijing office for JCIPO. Later, he became a Professor for the Faculty of Modern Chinese Studies at Aichi University in 2001; and a visiting fellow for the Weatherhead East Asian Institute at Columbia University before assuming the current position of a Professor for the Graduate School of Strategic Management (the Business School) at Chuo University in 2008. Based on experience of working in Beijing for eleven years in total, he advocates the Four-Gen principle - Genchi (actual location-oriented), Genba (field-oriented), Genbutsu (actual things-oriented), and Genjin (actual person-oriented) - and teaches strategies for investment in China, market analysis of Chinese industries, etc. Professor Hattori's recent publications include The Track of Industrialization in Asia [Ajia Kogyoka no Kiseki] and The Japan-China Relations in the Era of Asia [Ajia Jidai no Nicchu Kankei] (co-authored).