With the arrival of the 21st century, East Asia is now widely acknowledged as a whole entity for the first time in Asian history. Yet political differences between China and Japan remain one of the main obstacles to further East Asian cooperation. Chinese scholar Li Xiao, professor of economics with Jilin University and vice-secretary of the Chinese World Economy Association, and Japanese scholar Ogawa Yuhei, professor of business at the Business School of Southwest College, present their insightful views on what position of both China and Japan in East Asia cooperation.

The Sense of Union Taking Shape

Li Xiao: The year 2002 saw great progress in multi-lateral negotiation and cooperation in East Asia as all nations and sub-regions had become more cooperative in terms of economics, politics and security. Being a now recognized entity, East Asia won unprecedented collective acknowledgement. The East Asia Financial Crisis in 1997 enabled East Asia to be seen as a whole. As a result, the nations and regions of East Asia began to surpass the limits of their history, and quickly strengthen the process of integration and common union, which is called "East Asian Identity".

Ogawa Yuhei: Before that, economic cooperation was conducted within two geographic areas: one in the Southeast Asia region, enabled by the development of ASEAN, the other in Northeast Asia, represented by the Yellow Sea and the Japanese Sea, two huge economic exchange circles. As matter of a fact, East Asia always existed in various forms of economic exchange, which formed its own strong separate identity but failed to establish a bigger regional economic circle. That so-called East Asian Identity can be traced back to the end of the Cold War. At that time, the development of economic globalization and changes in international politics and economic environment, the Yellow Sea areas and Japanese Sea areas began to emerge as a whole new economic body which included ASEAN countries. The conditions to form an East Asian Mediterranean Sea Economy Circle are ripening. So the 1997 East Asia financial crisis could be called a stimulator.

Li Xiao: In 1997 when the Asian financial crisis occurred and the ASEAN+3 mechanism began, and later with the signing of the Framework Agreement on ASEAN-China Economic Cooperation by China and ASEAN in November 4, 2002, signals were appearing for the creation of an ASEAN-China Free Trade Area. But how fast are the steps of multi-lateral cooperation in East Asia going to be? At that time, China and ASEAN signed two important papers on the Conduct of Parties in the South China Sea, and Cooperation in Non-traditional Security Issues. Being the first political paper concerned with issues of the South China Sea, between China and ASEAN, the two papers sent a signal to the world that China and ASEAN could solve their existing differences through dialogue and mutual trust. It also showed that China and ASEAN could not only make progress in economic fields but also in political and security fields too.

Ogawa Yuhei: Currently, the political and economic development in East Asia is realistic and is in the interests of the region. The reality is though that the economic development are at various levels and multi-lateral cooperation is concentrated on this area because development is a priority for the whole of East Asia. With this background, it is wise for East Asia to set up a multi-lateral mechanism and help solve the dilemma and problems that hinder economic development in East Asian countries.

Li Xiao: If only to look from the point of view of regional cooperation, there are two problems in East Asian economic development. First, there is no large consumption market in the region, so economic development seriously relies on overseas markets especially the American market. Second, although trade inside East Asia has been growing, the regional monetary system prevents complete growth. It was one of the main contributors to the 1997 East Asian financial crisis.

Roles for China and Japan

Ogawa Yuhei: China has already taken the first steps concerning a free-trade zone with ASEAN, but it is expected to play a bigger role in terms of economic development and an open market. Ever since the Cold War, the establishment of free-trade zones have been well developed. Until June last year, treaties regarding free-trade zones in the WTO had already reached 143, nearly all major powers being involved. In 1998, Japan had a plan to set up a Japan and Korea free-trade zone. In addition, the Framework Agreement on ASEAN-China Economic Cooperation stimulated Japan to quicken its steps. However, in addition to the free -trade zone with Singapore, Japan did not make much progress in talks with other countries and other regions. Why? The answer has two parts: trade imbalance and protection of farm products. In my opinion, a "Japan-Korea Free-trade Zone" will be unlikely to come true unless China joins in. On the other hand, Japan should learn from China how to protect its farm products.

Li Xiao: I agree with you. One more thing I would like to point out is that China must pay attention to the impact of the so-called "China Threat". China has to prove that its actions will benefit the economic development of East Asia as well as that of the rest of the world. China has shown that it can be responsible when in the 1997 East Asia financial crisis it did not devalue its RMB. Today China still needs to prove to the world that with the development of its economy, its market will be more open, and it will contribute more to the rapid and steady economic development of its neighboring countries. This is also the strategic background that China offers to establish a free-trade zone with ASEAN and to form a China-Japan-Korea free-trade zone.

Ogawa Yuhei: It is almost certain that China's position in East Asian economic development and regional cooperation will continue to rise. At the moment, because of China's rapid economic development and the increase of the FDI in China, many Japanese scholars think that the "flying geese model", which theorizes the relocation of traditional industrial production to other East Asian countries in search of lower production costs, no longer exists. This is echoed in China, too. However, as I understand, it is the participation of China that enables the "flying geese model". The huge economic development gap inside China's east, middle and west hides large markets and economic development potential. In other words, the development of China's west and middle areas will be the same process of transferring capital, as well as using successful techniques from Japan, and the four dragons of Asia, ASEAN and China's east to these deprived areas. In this sense, China has the biggest market of the 21st century, not only in market scale, but also in deepening regional market structure.

Li Xiao: Well, in this sense, Japan will continue to act as a capital and technique provider while China becomes the biggest market in East Asia, together the US, the biggest market outside the East Asia, to promote the steady development of the region. Thus, any contradictions in the East Asian economy will be largely resolved. Accordingly, the position of the RMB as a regional currency will rise and play a bigger role in the development of East Asian regional monetary and financial cooperation. It is estimated that the RMB is expected to become the coin currency with the Japanese Ren in East Asia. At the moment, China stands second in terms of foreign exchange reserves, only after Japan. So it is necessary for both China and Japan to enhance cooperation in financial currency fields.

Ogawa Yuhei: As for Sino-Japanese relations, 2002 witnessed important achievements in the economic and trade sector. According to Japanese official figures, the total Chinese export volume from January to October (excluding Hong Kong) was US$50.168 billion, an increase of 4.5 percent than the previous year, surpassing US exports of US$47.861 billion to Japan. It is the first time since 1961 when China and Japan resumed trade that China beat the US in terms of export volume to Japan.

Li Xiao: In addition to this, from 2001, the FDI of Japanese enterprises in China has climbed to a new high, both the investment scale and money volume increasing sharply. The East Asia regional cooperation has two parts, economic cooperation, and security cooperation. Sino-Japanese cooperation in the political and security field is rather backward. Although the development of economic cooperation will strengthen mutual connection so as to push cooperation in fields like politics and security, deepening political and security development will ensure the stability of economic cooperation. In this regard, the development and change in Sino-Japanese ties will have impact on the whole strategy of the East Asia regional economic cooperation.

Ogawa Yuhei: Not long ago, DPRK declared to resume nuclear research and withdraw from the Nuclear Non-Proliferation Treaty [NPT]. The relevant countries, including Japan and China, enhanced the dialogues and discussions. Actually the subject of cooperation in the fields of politics and security between China and Japan is important, yet I insist that economic development should always be of top priority. Only after all parties have common economic interests through exchange and cooperation, will they be more likely to choose negotiations and dialogues instead of confrontation when in conflict. For the Korean Peninsula, in the long run, I have two suggestions: to promote the construction of the Eurasian continental bridge, and to develop the Northeast Asian energy union.

Whether the energy supply is stable or not is vital for regional security in East Asia. So all East Asian countries, including China and Japan, should be active in promoting the Northeast Asian energy union. Natural gas is a so-called green energy whose carbon dioxide release is much less than oil. If natural gas in Sakhalin and Siberia in Russia could be transported to China, North Korea, South Korea and Japan through pipes, it would certainly stabilize energy provision in those areas. Further more, with the development of super conducting material research, natural gas can first be generated into electricity, then transferred to China, North Korea, South Korea and Japan through electric lines made of superconductors. No matter how it happens, the Northeast Asian area can achieve political stability and regional security by the exchange of material, personnel as well construction of the Northeast Asian energy union. In this respect, China and Japan share the same interests.

Political Difference Between China and Japan

Li Xiao: What you talk about is very good. If it was realized, it would help the prosperity and stability of Northeast Asia. However, I stick to the point that no further development can be achieved without good cooperation between China and Japan, no matter in the field of economics, politics or security. It is important to realize that Sino-Japanese relations are first "Sino-Japanese relations within Asia". If China and Japan fail to handle East Asian cooperation well, it is impossible that Sino-Japan relations will work. From this perspective, by taking advantage of the Korea nuclear issue, both China and Japan should give priority to multi-lateral security cooperative mechanism construction in Northeast Asia consisting of China, Japan, the US, Russia and South Korea.

Now there are three contradictions in the Japan-China policy: Japan's close economic cooperation with China, in contrast with Japan's dependence on the US in the field of politics and security; Japan's increasing sense of "returning to Asia from Europe" conflicting with the right-of-centre domestic politics in terms of "war attitude" and the supervening of the only developed nation in East Asia challenged by China's rapid development. Due to the existence of these contradictions, the Japan-China policy obviously shows signs of difference between economics and politics, that is, in the economic field dominated by the private sector Japan still wants to enhance economic exchanges with China, while government affairs maintain a persistent "cold war" hostility.

Ogawa Yuhei: I have been in China many times and I also feel a similar lack of confidence for Japan. Japan is right-of-centre in its politics and feels uneasy about China's growth, but it is mainly because for the past ten years Japan has been in a recession. In fact, in today's Japan, the right-of-centre Japanese are becoming less while most Japanese cherish the China-Japanese friendship, and are friendly towards China and think China's economic development will benefit Japan.

One thing needs to be stressed however. Whenever some right-of-centre Japanese politicians speak out with their hyperbole, China always worries that Japan is going to commit the same historical mistake again. But I know it is impossible. Perhaps the Japanese are now among those who really understand the meaning of peace in this world. There has been more than 50 years of peace since World War II that has helped Japan to become an economic power and enable them to live a rich life. So they are opposed to war. As for military activities where Japan sends its war ships to the Indian Sea to help the Americans, it has greater political than military meaning. Of course, according to the Japan-US Military Alliance, the US has the right to ask Japan for military support.

Li Xiao: Personally I do not think Japan will choose the road to be a militarist nation. The problem is that Japan should give more understanding to the Chinese people why do they have such a profound lack of confidence in Japan? In today's economically globalized world, the global reach of a nation's outlook is of vital importance. Japanese leaders must be clear that Japan should remember its responsibilities. Japan should be cautious of its actions and deeds. Otherwise a nation, which cannot rethink its own history and cannot fully appreciate the feelings of suffering countries, can hardly shoulder the leadership of regional and global affairs.

Ogawa Yuhei: In history it is the failure and mistake of Japan's China policy that caused historical catastrophe, bringing huge material and personal losses and psychological wounds to China as well as other Asian countries. So today's Japan must be peaceful and right. The China strategy will secure the friendship between China and Japan in order to enhance economic exchange as well as political and security dialogues, all of which are a precondition of East Asian regional cooperation.

(China.org.cn translated by Zheng Guihong, June 16, 2003)