Co-operation or confrontation?

POLITICS:Inextricably linked through shared history and geography, the relationship between China and Japan has always been a complex one, but now japan is struggling to adapt to its neighbour's growing power

Forget political scandal, climate change or even looming recession; in Japan the biggest domestic story of early 2008 is frozen Chinese food. The news that 10 people fell ill after eating pork dumplings imported from China dominated the headlines in February and continues to rumble on, amid rumours that anti-Japanese activists in China deliberately poisoned the dumplings with insecticide.

The story brought home Japan's growing reliance on its booming neighbour. About half of all frozen food products eaten there now come from China, the tip of a very large iceberg. The two traded 27 trillion yen (about €170 billion) in goods and services last year, as China steams ahead of the US to become Japan's largest business partner. Japan now buys 60 per cent more from China than it does from the US.

But tension, mistrust and sometimes outright xenophobia lurk just below the surface of Asia's most important bilateral trade relationship, as the dumplings incident illustrated. Day after day, commentators lined up in the Japanese media to denounce the quality of Chinese products, often taking their cue from senior politicians.

The government's top spokesman, Nobutaka Machimura, publicly criticised China's "loose safety awareness" after the story broke. Former foreign minister Taro Aso even sarcastically thanked China for "adding value" to Japanese products by failing to ensure the safety of its own.

Anti-Chinese sentiment has been growing for years in Japan. The chill set in around 1995, when about half the people polled in a Japanese government survey expressed "friendly feelings" toward China. This plummeted to a low of 32 per cent in 2005, after anti-Japanese riots broke out in several Chinese cities, initially sparked by school history textbooks that many believed whitewashed Japan's wartime occupation of the country.

In China, animosity is even stronger: when asked "What comes to mind when you think of Japan?" Chinese university students regularly poll "the Nanjing massacre" - one of the Japanese Imperial Army's most horrific war crimes - as their top answer.

Many Chinese feel that Tokyo has never atoned for the 15 years it spend ransacking their country, killing millions of people. Tokyo believes it has more than compensated with the roughly €2 billion in foreign aid it provided from 1980 to 2003.

But these disputes have not stopped the two governments from deeply entwining their economies. Thousands of Japanese-owned factories in Guangdong and throughout China, including Japan's top clothing retail chain Uniqlo, churn out cheap clothes, shoes, toys and electrical goods for the Japanese market. In return for access to cheap labour, Tokyo has helped provide infrastructure, technology and crucial diplomatic support for China's 2001 entry into the World Trade Organisation.

Japanese investment in China began soon after the Stalinist government there liberalised the closed economy in the early 1980s, and accelerated throughout the 1990s, reaching a record high of €4.4 million in 2005. The investment helped China's economy race ahead at a rate of about 9 per cent a year while its neighbour spluttered badly, mired in bad debts, scandal and political paralysis for much of the period.

This cross-fertilisation has helped create the planet's most formidable export machine. After years selling to the US and Europe, Japan and China together hold about €1.4 trillion in foreign currency reserves, by far the largest deposits in the world.

"In the crucial matter of international trade, the Chinese and Japanese are making sweet music together," says Tokyo-based Irish economist Eamonn Fingleton, author of the forthcoming In the Jaws of the Dragon: America's Fate in the Coming Era of Chinese Hegemony. "Whatever problems there are at the political level, at the level of economic policy there is complete integration."

The two countries are pulling closer together culturally too. Japan is now China's top destination for university students, beating out the US, and an increasingly popular tourist destination: almost one million Chinese visited the country last year, according to the Japan National Tourist Organisation, up nearly two-thirds since 2000. About three million Japanese travel to China annually amid a mini-boom in cultural exchanges and mixed marriages.

Yet, like their US counterparts, some Japanese politicians cannot decide whether China's spectacular rise is an opportunity, or a threat. Last year, Shoichi Nakagawa, the chairman of the Liberal Democratic Party's (LDP) policy research council, warned that Beijing is "seeking hegemony" in Asia and that Japan could become "just another Chinese province" within 20 years.

Tokyo's outspoken governor, Shintaro Ishihara, is one of many nationalists who warn that Beijing seeks not just business but military domination of the region. Former Prime Minister Yasuhiro Nakasone recently added heft to these warnings by urging Japan to prepare for "future instability" in China.

Japanese right-wingers have been predicting the demise of China for years, says Gregory Clark, a former Australian diplomat and now vice chancellor of Akita International University in Japan. "They show little remorse for wartime atrocities. On the contrary, they try to make anti-China capital out of attempts by China to tell its people about those atrocities. China's military build-up is labelled as proof of militaristic intent, with no mention of the fact that it has been thoroughly preceded and exceeded by the US-Japanese anti-China military build-up."

Beijing's declared military budget in 2006 was $35 billion (€23 billion) - compared to $42 billion (€27 billion)for Japan. The two sides have had small spats over resources in the East China Sea, and the largely symbolic issue of who owns the Senkaku Islands (Diaoyutai in Chinese) a rocky uninhabited outcrop northeast of Taiwan claimed by both sides. Nothing serious yet, but some believe China will soon start flexing its muscles. It may have already begun to do so. Last year, Beijing stunned the world by carrying out an unannounced anti-satellite weapon test. The military has recently taken to parading sophisticated new weapons, including a new class of nuclear submarine, and standing up to the US: last November, Beijing abruptly cancelled a planned Hong Kong docking by the giant US aircraft carrier Kitty Hawk, which is based in Japan.

There are other warning signs that those beaming economic figures mask potential trouble. Japan's long-term decline is irreversible: its share of world production has declined from a mid-1990s peak of 18 per cent to 10 per cent. South Korean giants like Samsung and Hyundai are gaining on once world-beating firms like Sony and Nissan. Public debt is running at historically high levels, and the population has started to decline, meaning fewer workers to pay for it. The shocking loss of economic confidence has been accompanied by a political drift to the right, with nationalists demanding a more muscular role for Japan's neutered military.

Meanwhile, China storms ahead, confident that its moment in history has arrived. This situation is made infinitely more complicated by the role of the US, which has forged a strong alliance with its old enemy Japan and is urging it to shoulder more of the military burden in Asia. Beijing believes that the US is pushing Japan to become the "Britain of Asia" in a bid to contain Chinese power. More than one Chinese leader has cautioned Japan against militarisation. "Japan should proceed carefully when using military force abroad," said then Premier Zhu Rongji in 2003.

Commentators have noted a marked ratcheting down of friction since the resignation of prime minister Junichiro Koizumi, who enraged Beijing by making annual pilgrimages to the Yasukuni war memorial in Tokyo, putting high-level political exchanges in deep freeze for four years. His successor, Shinzo Abe, made a fence-mending trip to China in 2006 and current leader Yasuo Fukuda, a diplomat with strong Chinese connections, is less driven by ideological concerns than either of his successors. And Australia, under prime minister Kevin Rudd - the country's first Mandarin-speaking leader - may help pull Japan away from America and closer to its old rival.

Still, the underlying tensions have not gone away: a growing and newly assertive China and declining but still powerful Japan, cemented together in an economic marriage of convenience. How these competing nationalisms play out will be one of the great dramas of the early 21st Century.