Extending pragmatic trade and technology cooperation can help China and Japan improve their relations

Tensions between China and Japan over the Diaoyu Islands, known as the Senkaku in Japan, have alarmed trade and diplomatic circles around the world. The timing was particularly disconcerting because of the signs of a downturn in economic performance in both countries.

Conflict between China and Japan is not just a regional matter. Its implications for international peace and security are profound. Fortunately, long-term trade and technology cooperation between the two countries is a stronger force for peace than is publicly appreciated.

After continuous debates and bitter quarrels, the Diaoyu Islands dispute between China and Japan escalated in September when the Japanese government decided to "nationalize" the islands through a "purchase". Chinese protests, coupled with declining Japanese exports to China, led some analysts to argue that the bilateral economic relationship between the two East Asian giants had been seriously affected.

However, close scrutiny of their trade and technology ties over the past half century shows strong bonds and incentives that will pre-empt a costly military dispute and economic losses. In essence, the two countries have over the years created a web of trade and technology relations that is not likely to be torn apart by the temporary dispute over the islands.

Despite the current tensions, it is reasonable to argue that the existing and perhaps extended forms of such pragmatic trade and technology cooperation will contribute to improving China-Japan relations in the foreseeable future.

Even more significant in fostering peaceful coexistence is the central role that the two economies play as economic anchors for the Asian region as a whole. In this respect, peace between the two countries is not just a regional necessity it's also a global imperative.

China's rise as an industrial power owes a great deal to Japan providing technology at a critical moment. Following the Sino-Soviet split in the early 1960s, Japan emerged as a source of technology. By the 1970s Japan accounted for nearly 70 percent of China's technological imports. The imports also included strategic know-how as well as management practices. And, in a way, Japan served as an industrial role model for China at a time when the country was isolated from much of the world.

Technology cooperation between China and Japan was characterized by a number of features. First, the two countries developed a supplier-buyer relationship at a time when the United States and Western European countries were reluctant to sell technology to China for ideological reasons. Second, the trade concentrated on complete plant transfers, with Japan helping China to build large industrial systems, such as the Baoshan Iron and Steel Complex in Shanghai, the Qilu Petrochemical Complex in Shandong province and the Daqing Petrochemical Complex in Heilongjiang province. Third, much of the technology was for civilian use despite the fact some of it may have had dual use.

The relative decline of Japan's share of China's technology imports has at times been viewed as caution on the part of Japanese firms. The perception is that Japanese firms started to reduce their technology exports to China because they feared Chinese companies would overtake them.

However, there is little evidence to support this view. The answer lies in the changing trade patterns between China and Japan. In the 1960s and 1970s, it was difficult to sell consumer products to the largely poor and tightly controlled Chinese market. This led Japanese manufacturers to focus on technology exports. But as household incomes grew in the 1980s Japanese electronic appliances such as televisions and washing machines found their way into the Chinese market. This led Japan to diversify from the original focus on technology exports to products. Meanwhile, technology imports from the US and Western Europe also reduced the share of China's import of Japanese technology.

This trend led to complaints in the early 2000s that Japanese firms were reluctant to set up research and development centers in China and were lagging behind their US and Western European counterparts. But this is not true. Most Japanese firms in China have increased their local R&D activities, but they prefer to integrate their research into their overall manufacturing in China instead of setting up independent R&D centers.

Japan's exports to China also included core electronic components used to assemble Chinese appliances for the US, Western European and Japanese markets. In the process, Japanese technologies have supported China's rapid growth in exports and improved economic performance.

Given their long-standing trade and technology cooperation, it is essential that the two countries maintain good economic relations. Even though China's imports from Japan declined in September, the dip was part of the long-term trends in their trade relations rather than a result of China engaging in an "economic war" against Japan. China's export growth has dramatically slowed since late 2011, which has affected the demand for Japanese components used in Chinese manufacturing. Recent trade data clearly indicate that Japan's exports to China have steadily declined in line with the slowing of China's export growth.

Given the historical distrust, geopolitical considerations, resource competition and nationalistic feelings, it is very difficult for China and Japan to find an easy solution to their territory disputes. However, both countries have shown interest in maintaining their reciprocal trade, investment and technological relations, which they have enjoyed since 1972. Despite the current tension the two countries have a robust foundation upon which to build a new future with stronger relations in trade and technology cooperation.

Both countries have emerged as role models for the developing world and emerging markets on how to leverage science and technology for economic development. Already, African countries are looking to Asia for policy inspiration and there is great potential for new models of global cooperation around science and technology. Such expanded cooperation will further tighten the global web of peace and stability.

Calestous Juma is director of the science, technology and globalization project at Harvard Kennedy School. Jia Hepeng is a research associate at Battelle Center for Science and Technology Policy at the John Glenn School of Public Affairs of Ohio State University.

(China Daily 01/10/2013 page8)