Philippines backs rearmed Japan to ‘balance’ China

Posted on December 13, 2012

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Japan should become a fully fledged military force and act as a balance against China, says Philippines

China claims most of the South China Sea, including waters close to the shores of its neighbours. These areas include major sea lanes and are believed to hold vast mineral and oil resources. Photo: Reuters.

China claims most of the South China Sea, including waters close to the shores of its neighbours. These areas include major sea lanes and are believed to hold vast mineral and oil resources. Photo: Reuters.

Manila: The Philippines would support Japan dropping its pacifist constitution to become a fully fledged military force and act as a balance against a rising China, a government spokesman said Monday.

In an interview with the Financial Times, foreign secretary Albert del Rosario said the Philippines would strongly support a rearmed Japan — its World War II foe — as a counterweight to what it sees as Chinese provocation.

“We are looking for balancing factors in the region and Japan could be a significant balancing factor,” he told the paper amid growing tensions over the South China Sea, almost all of which is claimed by China.

Foreign department spokesman Raul Hernandez confirmed the government’s view that Japan should upgrade its military from a self defence force so that it has more freedom to operate in the region.

“(Del Rosario) said we are in favour of Japan’s gaining strength,” Hernandez told AFP.

Japan occupied the Philippines for more than three years from December 1941, during which suspected guerrillas were tortured and executed, and some local women forced into prostitution to serve the occupying army.

The war claimed at least a million civilian Philippine lives, according to historians.

The newspaper interview comes shortly before a general election in Japan where the front-runner, opposition leader Shinzo Abe, has said he wants to revise the country’s pacifist constitution, imposed by the US after the war.

China claims most of the South China Sea, including waters close to the shores of its neighbours. These areas include major sea lanes and are believed to hold vast mineral and oil resources.

China’s claim is contested by the Philippines as well as Brunei, Malaysia, Taiwan and Vietnam, which have overlapping claims to some or all of those same areas.

In April, Chinese patrol vessels prevented the Philippine Navy from arresting a group of Chinese fishermen at the Scarborough Shoal, which is close to the main Philippine island of Luzon and which Manila says is part of its territory.

Manila says China has continued to station patrol vessels in the area even after the Philippines withdrew its vessels and called for a peaceful resolution to the dispute according to international law.

Earlier this month, the Philippines asked China to clarify press reports Chinese authorities had authorised its forces to interdict ships entering what Beijing considers its territorial waters.

China and Japan are also in dispute over islands in the East China Sea that are controlled by Tokyo.

AFP

Asia: Sparring partners

Protests in China against Japan’s attempts to secure a group of islands are taking a toll on both

Chinese look at overturned Japanese cars after an anti-Japan protest in Shenzhen, China's Guangdong Province, Sunday, Aug. 19, 2012. Japanese activists swam ashore and raised flags Sunday on an island claimed by both Japan and China, fanning an escalating territorial dispute between the two Asian powers. (AP Photo/Vincent Yu)

Chinese look at overturned Japanese cars after an anti-Japan protest in Shenzhen, China’s Guangdong Province, Sunday, Aug. 19, 2012. Japanese activists swam ashore and raised flags Sunday on an island claimed by both Japan and China, fanning an escalating territorial dispute between the two Asian powers. (AP Photo/Vincent Yu)

At first it looked as if the fears of managers at Aeon, the Japanese retail group, might prove unfounded. Early on a Saturday, 3,000 angry protesters appeared outside its Jusco shopping centre in a suburb of the eastern Chinese port city of Qingdao but marched past without testing the lines of police sent by local officials.

The respite was only temporary, says Hiroshi Ono, Aeon’s director of business planning in the city. By late that September morning, an even larger crowd was back to protest against Tokyo’s purchase of a group of disputed islands in the East China Sea. This time protesters surged through the building’s doors and across its more than 60,000 sq m floorspace in a frenzy of smashing and looting. Staff fled and the Chinese store manager escaped with the help of security guards and police.

The scene, echoed that same day at Japanese businesses in the suburb and in a handful of cities across the country, came as a stunning challenge to assumptions that have underpinned business and economic ties between China and Japan. Past diplomatic crises have never provoked public protests of such scale or fury and have had little impact on commerce. When it came to Sino-Japanese ties, Chinese analysts used to say: “Politics are cold, but economics are hot.”

After September 15, which some shocked Japanese executives in Qingdao refer to as “9/15”, it is clear that business is no longer immune to the effects of political tensions. About Y700m in damage was done to the Aeon mall alone and Japan’s government estimates that riots across China in that month may have caused losses of up to Y10bn to Japanese businesses.

Far more costly is the impact of calls for a boycott of Japanese goods, which has dealt a blow to producers of cars and consumer goods – and to their Japanese suppliers of everything from brake pads to engine lubricant.

Sales of Toyota vehicles, for example, were down 49 per cent year-on-year in September. Japanese overall exports to China fell 12 per cent in October from a year earlier to Y948bn, leaving Japan with its biggest seasonally adjusted monthly deficit with its neighbour since records began in 1979. Visits by Chinese tourists – a bulwark of Japan’s tourism industry since last March’s nuclear crisis – slid about one-third in October compared with the same month in 2011.

A missed opportunity

When Japan’s Democratic party swept to power in 2009, it had hopes of bringing warmth to the nation’s long-strained relations with China.

Before his election, Yukio Hatoyama, the DPJ’s professorial first prime minister, published an essay condemning “US-led market fundamentalism” and said Japan should work toward integration in an “East Asian Community” with China and other neighbours.

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Meanwhile, Japanese companies have been hit by unofficial bans from trade exhibitions, making it harder to reach customers. They have also suffered delayed approvals from Chinese regulators for international mergers.

“In China you have to go through the government for all kinds of things, and that is getting more difficult,” says Takamoto Suzuki, a China expert at Mizuho Research Institute. “Japan and China both recognise that they must get along economically … but China is a country where politics affect everything.”

The disruption of economic links matters far beyond China and Japan. Together, the world’s second- and third-largest economies account for nearly a fifth of global gross domestic product. Their business sectors have become increasingly integrated links in international supply chains.

For neighbouring nations such as the Philippines, which also has territorial disputes with China, the economic chill is a worrying reminder that their own commercial ties could be at risk.

Nor can investors assume the friction is temporary. While some analysts say China’s new Communist party leadership will probably be keen to ease tensions, Japan’s general election on Sunday is likely to result in a rightward shift and a tougher tone to foreign policy. And many Japanese nationalists are outraged by the now frequent challenging by Chinese state vessels of Tokyo’s control of the waters around the disputed islands, which Tokyo calls the Senkaku and Beijing the Diaoyu. “It looks like the Senkaku problem is going to continue,” Mr Suzuki says.

That is bad news for Japan as it struggles through a double-dip recession that began in the second quarter of this year. Its contracting population means the prospects for domestic market expansion are limited and many policy makers and business leaders pin their hopes for growth on emerging Asia, with China at its head.

Last week, the Asian Development Bank cut its forecast for Japanese growth this year from 2.3 per cent to 1.7 per cent, citing in part the impact of the island dispute on exports to China. Hiromasa Yonekura, chairman of the Keidanren, Japan’s influential business lobby, has called on Tokyo to act to repair ties. He has criticised as “hard to understand” Tokyo’s official position – that there is no sovereignty dispute over the Senkaku.

. . .

But the dispute has implications for China’s economy as well. The scenes in Qingdao and other cities are prompting some Japanese businesses to rethink China strategy. A Japanese executive in Qingdao, where at least 10 businesses with direct links to Japan were attacked on September 15, says there has been a marked fall in the number of companies visiting the city to pursue potential investments.

More than 22,000 Japanese companies are operating in China and many play an important role in supplying machinery and parts crucial to the success of Chinese export industries. Others increasingly supply China’s growing consumer markets and services such as logistics management.

Rising Chinese labour costs have already prompted many to seek ways to reduce their reliance on the country. In an interview with the Financial Times in October, Carlos Ghosn, chief executive of Nissan , said the carmaker would press ahead with planned Chinese investment but that a protracted breakdown in Sino-Japanese relations could slow expansion.

A retreat by the Japanese would cut exposure to some of the world’s best technology, manufacturing and logistical expertise. Such expertise could be crucial if China is to turn itself into a developed economy.

The Chinese manager of the ransacked Qingdao shopping centre, operated by Aeon in a joint venture Aeon with a Chinese partner, says he has learnt a lot about modern management from the Japanese. “We need to keep an open attitude to learning advanced things from outside, wherever they come from,” says the manager, who prefers not to be named. “We should especially seek to co-operate with this kind of famous and advanced Japanese company.”

The attack on the Aeon centre also highlights the fact that it was Chinese people who felt the most direct impact of the anti-Japanese riots. It is partly Chinese-owned and its staff are locals. And while Qingdao residents largely echo Beijing’s anger over the island dispute, most deplore the assaults on businesses and say the worst looting was the work of opportunists.

Li Kun, a manager at a Qingdao Nissan dealership whose largest outlet was trashed, says local authorities are paying for repairs but that Beijing should also make up for the more costly losses in sales. “To us, the government didn’t plan properly and didn’t respond properly [to the protests]” Mr Li says.

A manager at another Qingdao Nissan dealership shielded his outlet from protesters with a banner proclaiming Chinese ownership of the islands and backing a “resolute boycott of Japanese goods”. But plunging sales since have prompted him to seek a new job with a company that sells South Korean and French cars. “My income is down by a half and I have to think about my family,” says the manager. “I’m also worried that this kind of thing could happen again.”

Some in China fail to recognise the consequences for their own nation of disruption of economic ties with Japan, says Jia Qingguo of Peking University. “Both sides suffer harm and it is hard to say which side suffers more,” he says. “It may be that the damage to China is greater.”

Still, even the Qingdao Nissan dealership manager says fears of economic losses should not stop patriotic Chinese from using boycotts and other forms of economic pressure to force Japan to back down over a dispute generally seen as a matter of national dignity. Many nurture resentment over Japan’s occupation in the 1930s and 1940s. They say their country is now strong enough to challenge Tokyo over islands they believe were stolen in the 19th century.

Zhou Yongsheng of the China Foreign Affairs University insists Beijing has the upper hand when it comes to the economic consequences of the island tensions. “It’s a big cost to China, but because China’s economic fundamentals are strong and its growth potential is strong, it is a cost that China can absorb,” he says. “Japan cannot absorb the cost.”

. . .

It will be some time before a final bill is calculated, however. Much depends on whether Tokyo and Beijing can find a way to put the island dispute aside. There are encouraging signs: last month they agreed with South Korea to launch formal talks on a three-way trade agreement. And Chinese authorities have kept a lid on public anti-Japanese protest since the riots.

Japanese companies that do not sell products directly to consumers report that boycott calls have had little impact on their business with the Chinese. Even some of those most af­fected by the protests remain upbeat.

Qingdao’s Aeon shopping centre reopened last month, and is full of shoppers slurping noodles in the food court and browsing fashion outlets. Some shareholders express concern about the risks of new investment, Mr Ono says, but Aeon still plans to add to its 50 shopping centres and supermarkets in China and Hong Kong. “We are looking at a pace of about 10 stores a year,” he says.

There is also a tentative revival in Japanese car sales, suggesting patriotic sentiment and fears Japanese products will make their owners a target, may be fading. “If Japanese products are cheap and good, then people will buy them,” says Mr Jia. “Things won’t go back completely to how they were before, but after a while the effect will lessen considerably.”

Still, with no solution to the Senkaku dispute in sight, there is little doubt that the Sino-Japanese economic relationship will remain vulnerable to diplomatic flare-ups.

At the Blue Island department store in eastern Beijing, a shop assistant selling televisions says sales of Toshiba and Sony, the Japanese brands, were still down by about half two months after protests.

“Customers start looking at the Sonys, then come over to the Philips,” the assistant says. “They know that Philips is Dutch and that China doesn’t have any territorial issues with the Netherlands.”

 F.T.

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