Sino-Japanese Economic Issues: Interdependence on a Deeper Level Fred Taylor

Hypothesis Economic InterdependenceSecurity Cooperation Economic InterdependenceIncrease Cost of Conflict Increased Empathy Security Cooperation Diplomatic Cooperation Step 1: Step 2: Will Interdependencies Lead to Diplomatic Cooperation? My Research Question: Liberal International Relations Theory says:

Outline Economic Trends –Bilateral Trade –FDI South and SEA Rivalry –Financial Integration Foreign Exchange Energy and Ecological Interdependence Prospects in 2027 Conclusions (So What?) –Linkages to Security and Diplomatic Policy Wen-Abe Summit: April 2007

Sino-Japanese Trade Statistics China by the numbers –GDP: $2.512 Trillion –Trade Total: 1.75 Trillion –%GDP Total: 69% –%GDP w/ Japan: 8% –%GDP w/ U.S.: 10% U.S. Stats show larger % –Flows w/ Japan: -$24B –Flows w/ U.S.: $232.6B Import: Raw Materials Export: Manufactured Goods Japan by the numbers –GDP: $4.365 Trillion –Trade Total: $1.02 Trillion –%GDP Total: 23% –%GDP w/ China: 4.7% With Hong Kong included –%GDP w/ U.S.: 4.1% –Flows w/ China: $26B –Flows w/ U.S.: $88.4B Import: Food, Airplanes Export: Cars, Car Parts Bottom line: China is highly dependent on world trade Japan also net-importer for food, fuel

Direction of Trade China Top 5 ImportsExports Total ($ B) EU Hong Kong U.S Japan ASEAN Japan Statistic Bureau (MOF): 2005 Japan Top 5 ImportsExports Total ($ B) U.S China Korea ROC Thai land China Monthly Statistics: 2006 Take Away: Increased trade also increases trade friction

Foreign Direct Investment (FDI) China ’ s FDI Total: $53B FDI from Japan: $28.2B Investment Frictions –Foreign Invested Enterprises account for %58 of exports “ Economic Colonialism ” –Japanese “ hollowing out ” Suzuki Motorcycles –Emotion trumps Economics Mori Building in Shanghai Maglev vs. Bullet Train Sino-Japanese Competition for SEA Influence Chinese Foreign Exchange Investment Bank –Build Domestic Economy, Less Dependent on FDI

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Financial Integration (w/ U.S. Market) Foreign Exchange reserves –China: $1.30 Trillion –Japan: $.895 Trillion Integration After 1997 Asian Financial Crisis –Asian Monetary Fund (AMF) –Chiang Mai Initiative “Dollar Zone” Economist Intelligence Unit CRS Report RL32165 ( ’ 06) Bottom line: U.S. economic integration doesn’t directly correspond to Sino-Japanese integration

Energy Interdependence Nuclear Capacity –Japan: 55 plants –China: 4 plants Energy Efficiency –Japan: 37% –China: 9% Japan’s Options –Nuclear –Energy Conservation –Renewable Energy –East China Sea –Siberia-Pacific Pipeline China’s Options –Coal –Hydro electric –Central Asian Pipeline –East China Sea –Siberia-Pacific Pipeline

Ecological Interdependence AP/NASA/Goddard Space Flight Center Asian dust brings hazy skies to western U.S. USA Today 04/18/2001 Pollution over China Blows out to Sea October 22, 2004 NASA/Goddard Space Flight Center

Official Developmental Assistance Japan ODA to China: $30B Japan voted to stop low-interest loans in 2008 Grant-Aid will continue beyond 2008 International Nuclear Safety Center, March, 1999

Sino-Japanese Relations in 2027 Goldman Sachs BRIC Report 2050 –Models based on: labor, capital stock, and TFP –Continued growth based on: Macro-Economic Stability Openness to Trade and Investment Efficient Institutions Enhanced Education Levels Japan’s Challenges –Graying and Shrinking Population –Debt (150% of GDP), Economic Reforms Needed China’s Challenges –Environment, Corruption, Social Safety Net MP: China’s prospects for growth better than Japan’s

So What? Conclusion: Economic and Ecological Interdependence Will Remain Strong for the Next Two Decades, but So What? –Economic Linkages to Security are Weak Regime survival and “lost child” more important than $$ –Economic Linkages to Politics are Arbitrary Can sometimes “buy” good will, sometimes not Not a guarantee for “peace” in the region, but rather an incentive to maintain economic stability –If China perceives she is winning the “great game,” then she will likely preserve future good relations with Japan and the U.S.

Conclusion Economic InterdependenceSecurity Cooperation Economic InterdependenceIncrease Cost of Conflict Increased Empathy Security Cooperation Diplomatic Cooperation Step 1: Step 2: Will Interdependencies Lead to Diplomatic Cooperation? My Research Question: Liberal International Relations Theory says: Complex Interdependencies May Positively Affect Diplomatic Cooperation Sometimes Complex Interdependencies May Positively Affect Diplomatic Cooperation Sometimes

Questions? Wen-Abe Summit: April 2007