Shinzo Abe’s war shrine visit further strained ties with the US, South Korea and China. It will be a rocky 2014 in the Asia Pacific
Chinese surveillance ships off Scarborough Shoal in the South China Sea. Photograph: Philippine navy/AFP/Getty Images
In a key announcement on Friday, Okinawa Governor Hirokazu Nakaima agreed to the relocation of the US military base at Futenma to nearby Henoko. The move, which comes after many years of negotiations between Washington, Tokyo, and the Okinawa authorities, has been hailed as a “critical milestone” by US Secretary of Defense Chuck Hagel.
The development is valuable to the Obama administration as it provides a key missing piece in its pivot to Asia Pacific: a replacement base for Futenma which is scheduled to close within a decade. Japan and other allies are crucial to the success of this US strategy, both by enhancing the country’s military presence in Asia Pacific, and by increasing burden sharing of the costs of a US-led security order in the region.
Simultaneously, Friday’s decision represents a political win for Japanese Prime Minister Shinzo Abe as it underpins the country’s US alliance at a moment of major tension in Asia. Abe met personally with Nakaima only last Wednesday to discuss the base decision, which will draw considerable opposition from people in Okinawa for whom continued US military presence is already controversial.
The timing of Nakaima’s announcement seems to have been choreographed with Abe, especially coming just 24 hours after the prime minister’s controversial visit to the Yasukuni shrine. The shrine, where 14 high ranking military leaders convicted as war criminals are honoured along with around 2.5 million other Japanese men, women and children who died in wars, is perceived by many domestic and foreign critics as symbolic of the Japan’s wartime excesses.
Abe’s visit, the first by any sitting Japanese prime minister for seven years, predictably drew foreign criticism, though Abe depicted it as an anti-war gesture intended not to hurt feelings in neighbouring countries. It particularly infuriated Beijing and Seoul, which have repeatedly asserted that Tokyo has done too little to atone for its wartime abuses.
The Obama administration also expressed “disappointment” after previous proclamations from US officials that visits to Yasukuni by senior Japanese politicians should be avoided. Despite this relatively mild criticism, there is no disguising Washington’s frustration at the prime minister’s trip, especially in the context of pre-existing, major regional stress.
Knowing this would be the case, it appears likely that Abe calculated that the base decision would at least partially blunt Washington’s reprimand and give him the political space to make the visit. For the prime minister, this was an important trip on the one year anniversary of his election, which will have pleased many Japanese nationalists, a vital political constituency for him.
This underlines the importance to Abe’s conservative agenda of emphasizing Japanese pride in its past, of which his shrine visit is a part. And, relatedly, he also wishes to overturn the remaining legal and political underpinning of the country’s post-war pacifist security identity, so that it can become more actively engaged internationally.
In the broader context of current tensions in Asia, it is also possible that Abe anticipated there was little to lose, diplomatically, by making the visit now, especially with Beijing having recently made provocations towards Tokyo. From this calculus, the marginal diplomatic costs of the shrine trip are low with bilateral relations with China (and, to a lesser extent, South Korea) already in a deep freeze.
Nonetheless, there is real danger that the episode will make the regional atmosphere even more unpredictable. Already, Seoul has cancelled a series of proposed bilateral defence and military exchange programmes with Tokyo, while Beijing has strongly condemned the trip and is under pressure to retaliate.
Diplomatic temperature is so high at the moment is, in large part, due to the succession of incidents in recent weeks, including Abe’s visit to Yasukuni; China’s unilateral declaration of an air “self-defence identification zone”, and a counter-move from South Korea; China’s refusal to participate in a UN arbitration process over a territorial conflict with the Philippines; and the near-miss of a Chinese naval vessel and a US warship in the South China Sea.
These developments come in a context of significant change in the region, including a once-in-a-generation transition of leadership in Beijing; Abe’s election; and the US Asia pivot. In this fluid environment, the geopolitical landscape is shifting as all countries manoeuvre for advantage.
A clear danger, at this heated moment, is therefore serious misjudgement by one or more parties. And this point was emphasised by Hagel on 19 Decemember following the China-US near-collision at sea: the most serious bilateral encounter in the South China Sea for several years.
The US defence secretary accused Beijing of acting in a “very incendiary [way] that could be a trigger or a spark that could set off some eventual miscalculation”. While China claims that its vessel was conducting “normal patrols” and adhered to proper and “strict protocol”, Hagel asserts it cut in front of the US ship.
With numerous potential flashpoints in 2014, key external parties, including the European Union, are understandably urging calm and restraint on all sides. Unless this caution is heeded, there is a growing possibility of an incident triggering an explosive further escalation of tension.
China and Japan Remain Strong Trade Partners
Despite escalating military tensions over territorial claims in the South China Sea, China and Japan are witnessing booming bilateral trade, conducting negotiations of a free-trade agreement, maintaining an intense dialogue between their business communities and offering Japanese hospitality to a soaring number of Chinese visitors.
After a 10.8 percent decline last year, Japanese exports to China recovered briskly in the first half of this year, recording an annual decline of only 0.6 percent. In the following five months (i.e., between July and November), the growth of Japanese sales to their big neighbor accelerated to an average annual rate of 18 percent.
In the first eleven months of this year, Japanese exports to China – presumably Japan’s dangerous rival – stood at the same level as those to the U.S. – Japan’s key ally and protector in case of war. However, there was one big difference: Over that period, Japan ran a large trade deficit with China (accounting for half of Japan’s total trade gap) and an even larger trade surplus with the U.S.
Kazuhiro Nogi | AFP | Getty Images
A good deal for China, no doubt. But a U.S. trade deficit with Japan of nearly $62 billion (10 percent of America’s total trade shortfall) is certainly no gift to the slowly recovering American economy.
Japan is also doing well on service trades with China. According to Japan’s tourist authorities, only in September of this year the number of visitors from China exceeded 156,000, and a month later the Tokyo’s Sunshine City Prince Hotel reported a sevenfold increase in Chinese guests.
And then – as if nothing untoward was happening in the South China Sea and in the Sea of Japan – negotiating teams from China, Japan and South Korea were meeting in Tokyo in late November to discuss a trilateral free-trade agreement covering a market of more than 1.5 billion people, with an estimated $690 billion in the annual trade volume.
(Read more: Asian nations weigh in after US, China ships almost collide)
At about the same time, a delegation of more than 170 Japanese businessmen went to China to improve the two countries’ economic ties and to celebrate the resumption of strong trade relations. A similar Chinese delegation visited Japan in late September.
China’s response to the shrine visit
It is against that background that the Japanese prime minister decided to pay respects to his country’s war veterans at the Yasukuni shrine honoring 14 Class A WWII convicted war criminals – a gesture he knew would be very offensive to China, South Korea and other countries which suffered under the Japanese occupation.
While showing mixed feelings about the wisdom of upsetting China at a time of apparently heightened tensions over the territorial disputes, some Japanese political analysts don’t see much that China can do about it. Some are even saying that China will not curtail trade ties with Japan.
I believe China will respond, but it will do so in its own time and in a way that will address Japan’s broader political and security agenda.
And here is the agenda. Using an alleged threat of China’s growing economic, political and military dominance, Japan has set out to (a) boost its economic growth by printing money, (b) step up its military buildup, (c) change its U.S.-imposed pacifist Constitution, (d) counter China’s rising influence in East Asia and (e) become an aspiring regional security pillar.
A good bet is that Beijing is unimpressed by all that. China knows that its fast growing economy, its huge financial resources, incredibly rapid technological development and a steadfast alliance with Russia will make it an increasingly important player in shaping the changing world order.
(Read more: Place your bets: China or Japan?)
China also knows that Japan’s political agenda may not sit well with Washington. First, because the U.S. does not seem eager for a military confrontation in the Pacific with a nuclear armed adversary — which also owns nearly a quarter of America’s debt held by foreigners — in response to needlessly provocative actions of its friends and allies. Second, because Washington may see that Japan’s offensive behavior toward South Korea is undermining its Asian strategy. Indeed, Japan and South Korea are supposed to work together to offset China’s growing regional influence.
All that is certainly not lost on China. And some of the Japanese commentaries about Tokyo’s motivation for its current and future plans may be music to China’s ears.
Here is a sample.
A number of Japanese political analysts write that the country’s present political class insists on visiting the Yasukuni shrine because they believe that Japan’s war time leaders classified as criminals were victims of “victor’s justice.” According to these analysts, Japan’s government also regards the country’s present Constitution as a humiliation by an erstwhile occupying power.
All that has to change, they say. Japan should be free to worship its war veterans, and it should have its own Constitution. They, therefore, conclude that Japan has decided to take matters in its own hands because America’s weak economy, and its fixation with intractable Middle East problems, make its commitment to Asia’s security increasingly doubtful.
How China-Japan tensions are different under Abe
Tobias Harris, Analyst at Teneo Intelligence, says Japanese policymakers are moving away from hedging against China’s rise to seeking to counter it.
Reading that analysis, one has the impression that an unusual joint visit to Tokyo last October by U.S. secretaries of state and defense did not do much to convince Japan that America has the will and the means to remain the key Asia-Pacific military power.
Some investment strategy thoughts
I believe that investors should take this latest Japanese bravado with a handful of salt.
China – destination for about one-fifth of Japanese exports – could do a great damage to Japan’s economy if it decided to use trade as a political weapon.
Exports play a key role in driving Japanese investments because the domestic market is too small and too weak to warrant strong and sustained expansions of production capacities. Despite soaring profits, a record-low cost of capital and cheap equity finance, Japanese business investments (13 percent of GDP) were falling at an annual rate of 2.3 percent in the first nine months of this year. It is easy to imagine what would happen to investments if exports to China were to go into a free fall as they did last year.
Clearly, the support of external demand will remain crucially important to Japanese economy and equity markets. Japan’s falling wages and rising inflation are seriously eroding real disposable household incomes. With a puny savings rate of less than 1 percent, that does not bode well for domestic demand most people mistakenly see as the main driver of future economic growth.
Investors should look for a Japan striving to live in peace and harmony with its neighbors. I personally don’t yen for a Japan currently rewriting its history books in a way that will offend its neighbors. And neither do I think that it is a good idea for Japan to pick a fight it can’t win with the Celestial.
Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.
Follow the author on Twitter @msiglobal9