China unlikely to apply 'economic coercion' against Japan amid slowdown as Tokyo builds 'safety net'

Beijing is not expected to resort to economic tools to exert pressure on Tokyo over bilateral issues despite a high-powered Japanese delegation returning from China last week virtually empty-handed.

Analysts say China can ill-afford to turn to "economic coercion" while national security concerns appear to have emerged as a bigger concern compared with the economy.

Last Thursday, a delegation of senior Japanese business leaders led by the head of the Japan-China Economic Association (JCEA) Shindo Kosei visited China, the first such trip in four years.

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In a meeting with Chinese Premier Li Qiang, the Japanese delegation pressed for a return to visa-free travel as this would induce more Japanese companies to invest in China, according to JECA officials who briefed journalists after the discussion.

While Li pledged to improve China's business environment, he called for reciprocity on visas and delivered little else in areas that the delegation sought, such as concerns about the safety of Japanese citizens in China and bans on the import of seafood and other food products.

In a separate meeting with the Minister of Commerce Wang Wentao, the delegation also raised concerns about China's anti-espionage law, difficulties in bidding for government contracts and rules relating to cross-border data transfers.

Stephen Nagy, a professor of politics and international studies at Tokyo's International Christian University, said China would not engage in economic coercion due to the worsening structural challenges within its economy.

These include slower foreign direct investments into China, deteriorating sentiment on the Chinese market, and an increasingly uncertain business outlook since the anti-espionage law was enacted last year.

"[These] suggest that China will not engage in a full-fledged economic coercion against Japan or other states," Nagy said, adding that Beijing needs investment, expertise and technology from Japan.

If Beijing engaged in economic coercion, Nagy said this would likely lead foreign companies to "diversify away from China".

In recent years, China has increasingly used its economic leverage - including restrictions on imports, exports and tourism - to pressure countries into avoiding or reversing political or military policies opposed by Beijing.

In a bid to counter Chinese influence, Japan has over the past few years increased defence and security cooperation with Western countries particularly the United States, including strengthening mutual supply chains, moves which had drawn China's displeasure.

In October, China arrested a Japanese businessman who was earlier detained in March on suspicion of espionage, with Tokyo calling on Beijing to release its national who is in his 50s. Since 2015, China has detained at least 17 Japanese nationals for alleged espionage, according to Kyodo News.

The arrests have resulted in a growing sense among many Japanese companies that the business environment in China has become more "ambiguous" in terms of "what is legal and what is illegal", Nagy said.

"As a result, we're seeing more Japanese businesses finding ways to have their footprint in Southeast Asia and South Asia while maintaining a footprint in China," he added, referring to Japanese manufacturers that have moved their operations from China to mainly Vietnam and India.

Shin Kawashima, an international relations professor at the University of Tokyo said while the economy is important to President Xi Jinping's administration, national security has gained greater prominence.

"Under [China's] comprehensive national security, not only the economy but also the environment and culture are associated with security," Kawashima said, adding that even though the delegation accomplished little, it was important that Li met with the delegation.

"In recent years, politicians at the prime ministerial level have not met with delegations from Japanese business organisations," Kawashima noted.

He added that the lack of concrete results could be seen as attempts by Beijing to pressure Tokyo into making concessions before the trilateral summit between China, Japan and South Korea, which is likely to be held this year and would be their first meeting in five years if confirmed.

Leaders from the three countries had previously met for annual summits between 2008 and 2019 to bolster diplomatic and economic exchanges, with the Covid-19 pandemic and bilateral rows leading to the hiatus.

Elli-Katharina Pohlkamp, a visiting fellow with the European Council on Foreign Relations, said there could be a "slight possibility" that Beijing might address some of the Japanese business concerns, "but only on a selective and conditional basis".

"[It will] depend on the sector, the company, and the timing and if it is helpful for its economic situation and business with Japan," said Pohlkamp, who specialises in Japanese foreign relations, security and defence policy.

China appears to have a mixed attitude towards Japan, willing to cooperate in some areas and applying pressure [on Tokyo] in others, she added.

"The ongoing disputes and disagreements on the Senkaku Islands, Taiwan and the US role in the region will influence China's behaviour in this regard", said Pohlkamp. Beijing claims the Japanese-controlled islands in the East China Sea as its sovereign territory and refers to them as the Diaoyu Islands.

In recent weeks, China and Japan had accused each other of maritime incursions after a confrontation between their coastguards in waters around the islands.

Both countries also do not see eye to eye on Taiwan, with Japan actively cooperating with the US on Taiwan especially militarily, while mainland China - which sees Taiwan as its inalienable part - considers the island a domestic issue that foreign countries should not interfere with.

Pohlkamp, who is also director of the Agora Strategy Institute, a geopolitical consulting firm specialising in political risk analysis, said that Japan will continue to diversify its economic ties with other countries and strengthen its security capabilities even as it seeks to maintain stable ties with China.

Japan announced in 2021 a strategy to bolster its economic resilience and security, including a stable supply of critical materials, patent protection, development of advanced technologies, and infrastructure security.

"If China resorts to full-fledged economic coercion, such as imposing sanctions, tariffs, or boycotts on Japan, it will have a significant impact on Japan's economy and society.

"But with its economic security strategy, Japan is already preparing to have safety nets in critical sectors," Pohlkamp added.

This article originally appeared on the South China Morning Post (SCMP).

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