China has made no bones about snubbing Koizumi over his continued visits to the Yakusuni Shrine by a last-minute cancellation of Vice Premier Wu Yi's scheduled meeting with him. Given China's growing maturity in international affairs, such a breach of protocol was most uncharacteristic.
Not that Japan's economic presence in China is insignificant. There are over 20,000 Japanese companies fin China providing useful product technology and employing some 9.2 million workers.
For its part, Japan's economic reliance on China has become fairly pronounced. China has overtaken the US as Japan's largest trading partner. Since 2000, Japan's trade with the US has declined by about 10% while its trade with China has grown by 80%. China has become Japan's largest export market, buttressing its still struggling economy.
So what is going on? Is war history so important? The objective answer is yes. Angry website chats in China and popular self-righteous comic book themes in Japan are some of the signs that rising nationalism is both a demand and a tool that leaders in both countries can only ignore at their peril.
More, of course, is at stake. The noise over history does not hide the fact that there is increasing geopolitical rivalry over Japan's bid for a permanent seat at the UN's top table, its open alliance with the US over the Taiwan issue, and its overt efforts to drill for oil and gas in disputed parts of the East China Sea.
Indeed, China's expanding energy demand to fuel its relentless industrial growth and urbanisation is also pitting it against another much more powerful rival - the US. Albeit the world's third largest oil producer, the US accounts for a quarter of the world oil consumption and has less than 3% of the world's proven reserves.
China is becoming the world's second largest oil consumer, growing at 16% in 2004 or a third of the world's demand growth, although its per capita energy consumption remains only one-seventh of the average of developed countries.
Both China and the US have to import about 60% of their oil. Both are heavily dependent on high-grade low-sulphur 'sweet' crude. Both share the world's largest oil supplier, Saudi Arabia.
Moreover, spheres of influence dictate that China has to seek oil alliance with countries like Iran (in a joint development of Yadavaran, one of the world's largest undeveloped oil fields), Sudan (where China is the largest foreign investor), Kazakhstan (in the heart of politically changing Near East) and Venezuela (in a South America with governments leaning towards less America-friendly centre-left). Some of these countries the US may regard as refractory countries for possible regime change. Some may be too close to the US's elbow room for comfort.
A much more open rivalry with the US during the past month is over textiles and the RMB.
China accounts only for 10% of US trade. The import content of China's exports is also high, at 50 -75%. Its products will remain vastly competitive at a much higher RMB exchange rate. Moreover, any reduction of China's import is more than likely to be offset by comparable imports from other low-cost countries.
If both the US government and citizens maintain their alarmingly high propensity to consume, it is unlikely, as Alan Greenspan has pointed out, that any RMB revaluation would solve the US twin deficit problems. Yet Capitol Hill is all guns blazing. Even unofficial envoys like Henry Kissinger and Brent Scowcroft have been mobilized to exert pressure for China to implement a 10% revaluation.
The row has become even more heated with the US imposing safeguard quotas on categories of China's apparel and textiles exports which are claimed to have surged in recent months in the wake of the global textile trade liberalisation earlier this year. A US Bill also threatens to impose across-the-board tariffs of 27.5% on all Chinese imports if the RMB is not re-valued within 6 months. Similar protectionist pressures are building up in the EU.
This is to be expected as increasingly ubiquitous incredibly-priced Made-in-China products are embraced by consumers worldwide, honing direct foreign investment in and global merchandise sourcing from China whilst in their wake decimating a host of traditional jobs in home markets. Indeed, globalisation and international competition have become some of the central issues in the timely debate over an EU Constitution.
From plummeting consumer goods prices to rising costs of natural resources, from impact of the RMB on world currencies and markets to the rough and smooth of China's trade relations, from leveraging China's ultra-competitive manufacturing systems to tapping her own vast and still relatively uncharted 'middle-class' consumer markets, China has become an integral part of business everywhere everyday.
As the formidable productive and consumer potentials of a fifth of mankind are being unleashed, few countries and companies can afford not to engage China in one way or another. Few can afford not to develop or review their own China-related strategy.
Andrew K P Leung, SBS, FRSA
