The new wave of COVID-19 Pandemic has not subsided, and the prevention and control measures taken by all countries are still ongoing. The globalization of the production chain has been largely blocked. The industrial chain between China and Japan has also suffered an unprecedented heavy blow. Even the domestic economy and bilateral economic and trade relations of the two countries have been severely impacted. China and Japan should promote the establishment of a normalized regional cooperation mechanism, further deepen economic and trade cooperation, and jointly promote the economic recovery and sustained and stable development of the Asia-Pacific region and the world at large.
1. The need for deeper economic and trade cooperation between China and Japan is on the rise
1.1 Japan’s economic recovery and hosting of the Olympics could not have come without China’s support. The COVID-19 pandemic has not subsided globally. The United States is deepening its diplomatic doctrine of trade unilateralism. The global political and economic order is undergoing such a profound adjustment that geopolitical risks are on the rise continuously. These factors lead to the disruption of global industrial supply chains, the stagnation of enterprises’ production, the decline of efficiency, the collapse of consumption, and the significant slowdown of economic activities in various countries. There is still a long way to go before the world economy recovers.
According to the Global Economic Activity Report released by the International Monetary Fund in July, the growth forecast of the world economy in 2020 has been significantly lowered from the previous positive growth to -3 percent, Japan’s economic growth forecast is -5.2 percent, and China’s economic growth forecast is only about 1 percent. Thus, both China and Japan need to strengthen cooperation to achieve economic rebound together. On July 15th Haruhiko Kuroda, president of the Bank of Japan, said again that Japan’s economy had already contracted in the fourth quarter of 2019, entering a technical recession. Now, with COVID-19 and the Olympics delayed or cancelled, Japan’s economy is even worse. Although the Japanese economy has halted its downward momentum after several emergency economic programs issued by the Japanese government, it is still a long way from a full recovery.
A survey of domestic business performance in August by the Imperial Economic Research Data Centre found that overall business performance was positive, although the number of business closures fell 2.1% in August from the previous month. But the service sector remains moribund, with closures rising by 10% compared with the previous month. Affected by the epidemic, the postponement of the Tokyo Olympic Games has caused huge economic losses to Japan. Japan’s government, which had hoped to use the Olympics to boost its domestic economy, is facing a tough and complicated economic situation.
1.2 China needs to deepen regional cooperation to break the US diplomatic blockade. As the Trump administration continues to promote the unilateralist trade protection policy and the US election approaches, the unstable factors in the US have increased, which has objectively strengthened the impetus for promoting regional cooperation in East Asia. In 2019, the East Asian regional economic integration, which had been developing relatively slowly in recent years, showed positive trends. The Regional Comprehensive Economic Partnership (RCEP), which has been under negotiation for many years, made clear progress in November. The member states concluded all textual negotiations and substantive completion of negotiations on market access issues. In December of the same year, the leaders of China, Japan and the ROK indicated that they would push for the early signing of the RCEP, accelerate negotiations on the China-Japan-ROK Free Trade Agreement, safeguard free trade and multilateralism, and build an open economic community.
In the situation of the COVID-19 outbreak and its wide spread, the need for regional cooperation in East Asia has increased. The epidemic has caused industrial supply chains to break down, and world trade and the world economy to plunge. Only by strengthening cooperation can countries and regions effectively respond to the epidemic and shake off the economic recession as soon as possible. As two major countries, China and Japan shoulder the responsibility of promoting regional development. In the face of major crises, we need to work together to maintain the continuity of the regional industrial chain and facilitate the normalization of regional economic recovery.
2. The prospect of deepening bilateral economic and trade cooperation
2.1 Maintain the integrity of the industrial chain and accelerate cooperation in new industries. Although the COVID-19 epidemic has not completely ceased, many countries and regions have tried to live with the “virus”, that is, while preventing and controlling coVID-19, they should not stop economic production, try their best to ensure the normalization of industrial chain and expand production and consumption, so as to prevent the continuous economic decline from causing more serious social problems. Under the background that industrial cooperation has basically realized internationalization, the integrity of industrial chain needs the transnational and trans-regional joint assistance. It is necessary for China and Japan, which are in an important position in the chain, to give priority to repairing the broken part in their cooperation and jointly improve the orderly operation of economic and social development in the Asia-Pacific region. In addition, South Korea and more than ten other countries of ASEAN are also important participants in the industrial chain. For example, Cambodia, the Philippines and other countries need to import a large number of semi-finished products from China and Japan for processing. Once the supply is lost, the industrial chain will be interrupted. Vietnam and Malaysia are important links in the supply chain of the microelectronics and semiconductor industries in Asia and the world. They are mainly responsible for the assembly and packaging of related products. If the production of these links is affected, the market supply and demand will fluctuate.
The issue of the industrial chain involves the interests of all countries. Although countries have some competition in the layout of the industrial chain, in the face of common emergencies and disasters, it is necessary to build a mechanism of security warning and assessment, information exchange and cooperation of the regional industrial chain, create a stable, open and orderly industrial ecological environment, and reduce the risk of regional production. COVID-19 has greatly changed people’s way of production and life. More and more institutions and enterprises around the world have begun to work online remotely to reduce human contact and cross infection and further promote the digitalization and intelligence of the production chain. There are also new opportunities. In particular, Japan will soon set up an Information Industry Agency to accelerate the development of its information industry. There may be great cooperation space between China and Japan in facilitating the upgrading of industrial structure and the transformation of business model.
2.2 Promote local cooperation and smooth exchanges between enterprises of the two countries. In the fight against the epidemic so far, there have been many examples of friendly cooperation between local governments of China and Japan. Due to the different characteristics and advantages of each place, the cooperation between China and Japan at the local level has greater space, and is also more practical and flexible. At present, due to the impact of COVID-19, the production and profits of a large number of enterprises have plummeted. In particular, the number of bankruptcies among small and medium-sized enterprises has increased, and the number of unemployed people has soared as they have weak ability to resist risks.
In the recent economic stimulus packages launched by China and Japan in response to the epidemic, support for small and medium-sized enterprises has been included. Local governments of the two countries can also strengthen exchanges and cooperation in enhancing the continuity of enterprise capital chains, improving the availability of financing for small and medium scale enterprises and reducing unemployment. Japan has suffered a lot after the announcement that Tokyo 2020 Olympics has been postponed for a year. China and Japan can take this opportunity to further promote Urban Diplomacy and help each other’s cities deepen exchanges and cooperation in various fields.
2.3 Propel the economic integration in East Asia together. From February to May this year, due to the COVID-19 outbreak, various meetings between ASEAN and China, Japan and the ROK could not be held. Instead, communication and exchanges on COVID-19 response were conducted in the form of video conferences of senior officials for health development and foreign ministers of China, Japan and the ROK. In mid-April, ASEAN, China, Japan and the ROK held an online special leaders’ meeting on COVID-19, and reached important consensus on jointly responding to the epidemic, strengthening regional economic development cooperation, and enhancing stability and resilience of the regional industrial chain and economy.
China and Japan can take this opportunity to deepen regional institutional cooperation, such as the establishment of a public health exchange and cooperation mechanism, so as to boost cooperation in tourism, health care and old-age care, promote regional economic integration, create free trade zones, liberalize the flow of capital and personnel, and drive inter-regional economic and trade development. As the first major country to successfully prevent and control COVID-19, China, on the premise of stabilizing its domestic economy, has proposed to gradually form a new pattern of development in which internal recycle plays a dominant role and both domestic and international cycles reinforce each other. The main purpose of this policy is to stimulate consumption and exports, so that China will become the anchor of the East Asian the world economy. In this process, China should strengthen the cooperation with the Japanese government and industrial community to jointly push forward the economic integration of East Asia.
Major Teng is a research fellow at Asia Pacific Regional Development Institute of Hong Kong and he focuses on East Asian studies and China-Japan comparative politics research.