Relations with Japan thawing but not yet warm enough

Flags of participating nations at the the 2015 Bo'ao Forum for Asia. [Photot/CFP]

At the Bo'ao Forum for Asia in March, former Japanese prime minister Yasuo Fukuda met with former Chinese vice-premier Zeng Peiyan and proposed initiating a dialogue between the two countries' business elites.

More than 50 Chinese executives of State-owned and private enterprises, and former high-ranking officials, led by Zeng, started the first round of the dialogue with their Japanese counterparts in Tokyo on Friday, resolving to build a non-governmental platform to increase exchanges between the two countries.

China and Japan still need each other. China, which is in the process of transforming its economic structure, needs Japanese technologies and experience to address issues such as urbanization, industrial upgrade, efficient use of energy and environmental protection. China's huge market still appeals to Japanese corporations as their country is struggling with an aging and shrinking population. And trade relations have for long been a guarantee against serious confrontation between China and Japan.

But this calculus has changed in recent years. Political rift between the two countries and rising labor costs in China have cooled Japanese investment in China. Data from China's Ministry of Commerce show Japan's direct investment in China dropped to $2.01 billion in the first half of this year, a year-on-year decline of 16.3 percent.

Also, Japanese investment in China plunged 38.8 percent in 2014 from the previous year, the sharpest since 1985. The pace of the decline has slowed this year, but the recovery has been sluggish with many Japanese manufacturers putting off their construction and production expansion projects in China.