China is Japan's biggest market and strategic threat. Photo: AFP

Japan’s China dilemma is intensifying. Japanese economic health is deeply dependent on the same country that increasingly threatens Japan’s security.  

The squeeze Japan is suffering does not result from a “security dilemma” or some other impersonal structural force of the international political system. It is the intended result of the People’s Republic of China’s (PRC) foreign policy. 

Two core components of China’s grand strategy under Xi Jinping are visible in PRC policy toward Japan. The first is applying military pressure to compel foreign governments to submit to Beijing’s will on questions of disputed territory. 

This is the common element visible in Chinese Navy and Coast Guard activity near the Senkakus, the frequent incursions of PLA aircraft into Taiwan’s airspace and the encroachments of Chinese troops in the China-India border area. 

The aggressiveness of the PRC’s approach stands out more clearly when contrasted with Japanese foreign policy. Japan has a territorial dispute with Russia over the four islands at the southwestern end of the Kuril island chain, and another dispute with South Korea over the Takeshima/Dokdo Islands.  

In both of these cases, it is the rival government rather than Tokyo that has administrative control over the disputed territory. Thus, Japan’s position is comparable to the position of China in the Senkakus dispute. 

Yet Tokyo’s effort to assert its sovereignty over the southwestern Kuril and Takeshima islands is limited to diplomacy and totally devoid of attempts at military intimidation.  

Two Chinese fisheries patrol vessels, the Yuzheng 202 (below) and Yuzheng 35001 (center), in waters near the disputed Senkaku Islands in 2012 as a Japan Coast Guard vessel watches. Photo: AFP/Osamau Kanazawa/The Yomiuri Shimbun

Economic leverage

A second core component of Xi’s grand strategy is using Chinese economic leverage to either reward trade partners for supporting China’s international political agenda or punish partners that don’t. 

For Beijing, trade and investment are dual-use tools that can pay off for China both economically and politically. When a foreign country’s economy becomes reliant on Chinese markets and capital, Beijing routinely attempts to exploit that reliance.  

AustraliaSouth Korea and the United States are among recent targets of Chinese economic coercion. The Japanese business community has its own experience with suffering economic losses due to political disagreements with China, including destructive anti-Japan demonstrations in 2005 and 2012 and the disruption in China’s exports of rare earths to Japan in 2010. 

As a commentary about Japan-China relations in a Chinese government-owned publication warns, “no rational country would want to contain or offend its biggest trading partner.” To some degree, the danger of China taking “offense” has a chilling effect on Japanese statements and policy, just as Beijing hopes. 

Beijing’s demands of Japan are not minor. Most recently, the Chinese government pressured Tokyo to accede to China’s economic domination of the region, to distance itself from America’s tougher stance toward China, and to avoid publicly criticizing China over “internal” issues such as the dismantling of civil liberties in Hong Kong and persecution of China’s Muslim minorities in Xinjiang.  

As a frontline state with territorial disputes with China as well as a high degree of economic complementarity with China, Japan faces the full force of both of these aspects of China’s foreign policy. 

Visitors look at goods imported from Japan during an exhibition in Yiwu city in east China’s Zhejiang province in 2017. Photo: AFP/Lv bin/Imaginechina

The risks of exposure

On one hand, Japan’s continued prosperity depends on business with the PRC. China is Japan’s largest trade partner and the leading destination for Japan’s exports. It accounts for 20% of Japan’s total trade. 

After the strains introduced into the Japan-China economic relationship by the pandemic and pressure from the US government, the Japanese business community is making adjustments to reduce the risks of its exposure to China, but Japan is doing little to economically decouple from China.  

In 2020, the Shinzo Abe government announced funding to encourage Japanese companies to move their production facilities out of China. Even with this incentive, however, few Japanese businesses report they plan to leave China.  

They stay, despite the Chinese government requiring them to hand over their technology as the price of access to China’s market, because China offers higher profits and a better supply chain than other possible host countries.   

On the other hand, the Japanese perceive that the Chinese strategic threat to Japan is worsening. The Japanese government already had long-standing concerns about China’s military buildup. China has the world’s largest navy, and its lead is projected to grow.  

In April, the Chinese Navy commissioned three new ships in a single day: an amphibious assault ship, a guided-missile cruiser and a nuclear-powered ballistic missile submarine. 

In addition to burgeoning Chinese military capabilities, Tokyo sees China elevating its pressure on the Japanese government to recognize China’s claim to the Senkaku/Diaoyutai Islands.  

Chinese President Xi Jinping inspects a joint military exercise in the South China Sea in April 2018. Photo: Xinhua

Maritime threat

Chinese government vessels entered the waters near the islands almost every day in 2020, an unprecedented level of activity. In early 2021, the Chinese government gave blanket authorization for Chinese Coast Guard vessels to fire on foreign vessels violating what the PRC claims is Chinese territorial sovereignty.  

China is also deploying new classes of Coast Guard vessels that are much larger and better-armed than the biggest Japanese Coast Guard ships.  

Retired Japanese officials often privately express the fear that the Chinese government has territorial ambitions on China’s maritime eastern periphery that go beyond the Senkaku Islands.  

In 2013, the Japanese government protested a claim in a Chinese government-owned publication that China should own the Ryukyu Islands, which include Okinawa. 

The increased hostile Chinese military signals toward Taiwan also increase Japan’s anxiety, with the result that the Japanese government is reportedly contemplating committing itself to the defense of Taiwan in the event of a cross-Strait war.  

On these and other strategic issues, however, the undesirability of antagonizing China is a persistent consideration

Japanese Special Defense Forces in a file photo. Image: AFP/EPA

Hence the dilemma: the need for a constructive economic relationship with China impedes Tokyo from more robustly responding to Chinese threats to its security. 

Beijing is implementing what amounts to a pincer campaign that combines economic and military pressure, with the aim of steering neighbors toward conforming to China’s global economic vision while submitting to China’s strategic agenda.  

Although not the only country in the region on the receiving end of this treatment, Japan is in the hottest circle of China’s “peaceful rise” along with Taiwan.  

Denny Roy is Senior Fellow at the East-West Center, an independent, public, nonprofit organization with funding from the US government and additional support provided by private agencies, individuals, foundations, corporations, and governments in the region.