Sino-Japanese Review

Does National Security Still Come before Profit for Japan’s Firms?

Welcome to installment XXXVIII (February 2022) of Sino-Japanese Review, a monthly column on major developments in relations between China and Japan that provides a running commentary on the evolution of this important relationship and helps to put current events in perspective.

Economic security is not a new concern for national governments around the world, but pandemic induced supply-chain disruptions, shortages in raw materials, and market insecurities have thrust the issue into the spotlight. In Japan, the Kishida administration has identified economic security as a key policy priority. China has also stressed the importance of economic security, which is part of a broader  obsession with achieving “comprehensive national security”. Economic security is therefore bound to play an increasingly prominent role in Sino-Japanese relations, although its concrete impact on bilateral economic ties remains to be seen.

In the early days of the Kishida administration, the newly appointed minister for economic security Kobayashi Takayuki cast his agenda in broad and ambitious terms, stressing the need to deal with economic and security issues as one and to ensure the safety and sustainability of Japan’s supply chains and technological base. He moved quickly to give concrete shape to this program, assembling a panel of experts who gave their recommendations at the beginning of February. The draft law based on those proposals was swiftly approved by the cabinet and is now before the Diet. It covers four main areas, namely the strengthening of supply chains, the safety and reliability of basic infrastructures (including digital ones), official support for research and development, and the secrecy of sensitive patents with potential military uses.

Japanese officials have been careful not to single out China as a threat to economic security and to stress the multiple dangers faced by Japan today, from cyber piracy to the threat to international economic exchanges from natural disasters and health risks. Yet concerns about China’s behavior and U.S.-China geopolitical competition are obviously at the heart of Tokyo’s agenda. A recent series of articles by the Yomiuri Shimbun, known as a voice of the Japanese establishment, on the “invisible threats” to economic security invariably focused on China as a source of risks, from the theft of Japanese citizens’ private data to competition around the production of semiconductor, dependency on foreign manufacturers for medicinal supplies, or attack and sabotage of basic infrastructure.

While Japanese officials have been careful to avoid singling out China as a threat to economic security, it’s hard to imagine that China’s behavior and its competition with the United States isn’t at the heart of the agenda

China in fact shares many of the same concerns, with a focus on the threat U.S. hostility poses to its economic development. Xi Jinping has stressed the need to strive for “self-reliance” and to boost China’s technological base in order to cut its dependence on foreign suppliers. Even if fighting off U.S pressure is at the centre of Beijing’s economic security strategy, it fully expects U.S. allies and partners in East Asia – especially Japan, which it often dismisses as little more than a “vassal state” – to follow Washington’s lead in its attempts to “contain” China. This expectation is not unfounded since Japan is actively participating in ongoing discussions with the United States and Europe to put in place a new export control regime for key technologies, squarely aimed at the People’s Republic. China is therefore likely to redouble efforts to end reliance on Japanese suppliers for important advanced industrial goods.

The growing focus on economic security on both sides of the East China Sea is bound to strain Sino-Japanese economic ties, historically the ballast of their relationship. The key to how far the damage will go is the reaction of the business community on both sides – and especially on the Japanese one due to its much greater freedom of maneuver. Japanese companies have for several years been diversifying their investments and manufacturing outside China and toward Southeast Asia. This trend is set to continue, with one recent example being Murata, a major electronic components manufacturer, opening a large plant in Thailand. 

Yet, as we already argued in a previous column, such moves should not be interpreted as a sign that Japanese businesses are willing to cut ties with China. In fact, major companies like Panasonic and Toyota are still building new, state-of-the art factories in order to better serve the Chinese market. Even businesses that are diversifying from China typically remain committed to their presence there, and are responding to geopolitical tensions and other supply chain challenges by making sure they can continue to serve customers and maintain access to talent and technology on both sides of the emerging divide between China and the West. 

Japanese companies have also given a cautious welcome to their government’s economic security program. They have publicly expressed concerns about an excessive regulatory burden and damage to their international competitiveness. Some economists have also signaled their worries that greater government activism would undermine growth and threaten the dynamism offered by free markets. If Tokyo demands that companies put national security interests before the pursuit of profit and partially abandon the Chinese market in the process, it is unclear if the Japanese business community is ready to comply.

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Andrea A. Fischetti is a government scholar conducting research on Asia-Pacific Affairs and East Asian Security at the University of Tokyo and at the Asia Pacific Initiative. He was a visiting student at the Hiroshima Peace Institute of Hiroshima City University, and a research assistant at the House of Commons in the British Parliament. Mr. Fischetti earned his MA in War Studies from King’s College London, following a BA with First Class Honours in International Relations, Peace and Conflict Studies.

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Antoine Roth is assistant professor at the Faculty of Law of Tohoku University, working on Sino-Japanese relations, China's foreign relations, and East Asian international affairs. He holds a PhD in International Politics from the University of Tokyo and a MA in Asian Studies from the George Washington University and a BA in International Relations from the University of Geneva. He has previously worked at the Swiss Embassy in Tokyo and has been a visiting student at Fudan University in Shanghai.

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