China escalates Japan spat with threats of economic reprisal

[BEIJING] China is escalating its confrontation with Japan over Prime Minister Sanae Takaichi’s comments on Taiwan, with state media threatening major countermeasures after Beijing’s travel warnings raised the spectre of economic retribution.

Yuyuantantian, a social media account linked to China’s state broadcaster and frequently used to signal official policy, published a commentary this weekend warning that Beijing “has made full preparations for substantive retaliation”. The post hinted at imposing sanctions, suspending economic, diplomatic and military ties, and restricting trade as forms of potential reprisal.

Hours later, the People’s Liberation Army Daily reinforced that message publishing a commentary by a state-affiliated scholar warning that if Japan’s military got involved in the Taiwan Strait, “the entire country would risk becoming a battlefield”.

The diplomatic crisis risks unravelling recent progress in bilateral ties, a few weeks after Takaichi met with Chinese President Xi Jinping and agreed to improve relations. The spat also threatens to inflict damage on businesses straddling the key trading partners, as China warns tourists and students about heightened risks in Japan.

Those measures put millions of Chinese tourists, about a quarter of all visitors to Japan annually, on the line, triggering slides in the shares in tourism and travel-related stocks, with Shiseido falling as much as 11 per cent on Monday (Nov 17). Hong Kong also updated its travel advisory for Japan.

Japan is dispatching a senior diplomat to China on Monday in a bid to smooth tensions, public broadcaster NHK reported, citing a senior official at the country’s Ministry of Foreign Affairs. The upcoming G-20 leaders’ summit this weekend in South Africa could provide Takaichi a venue to meet with Chinese Premier Li Qiang and mend fences, although no sit-down is confirmed.

“This is about setting the terms early in Takaichi’s term, deterring other countries from similar rhetoric, and discouraging Tokyo from taking further steps,” said Bloomberg Economics’ Jennifer Welch. “Japan is a relatively easy target and tourism an easy lever to pull.”

Takaichi has so far defended her remarks over Taiwan, while Tokyo has said that its stance is unchanged from previous administrations.

China’s fallout with Japan comes shortly after Europe welcomed a Taiwanese vice-president for the first time since 2002, outside transits, sparking anger from Beijing. That came amid a flurry of diplomatic outreach between Taiwan and the European Union, which runs against Beijing’s strategy of isolating the global chip hub.

SEE ALSO

China’s economy jolted by weakest factory output, retail sales growth in over a year

China heads for longest consumption slowdown since post-Covid

China’s central bank to maintain accommodative policy as challenges persist

China to step up policy support for private investment in energy sector

More

For Tokyo, the economic stakes are substantial. China is Japan’s largest trading partner, and Yuyuantantian’s commentary explicitly noted that Japanese manufacturers depend heavily on Chinese imports for critical materials. An earlier dispute between China and Japan in 2012 over disputed islands saw a months-long boycott of Japanese goods that affected trade.

Over the weekend, Beijing also sailed four armed Chinese Coast Guard vessels through disputed waters controlled by Japan before leaving.

“It is reasonable to assume modest negative impact on Japan’s service sector activity in the next few months,” said Homin Lee, a macro strategist at Lombard Odier Singapore. “Clearly, retail, leisure, real estate, and airline names closely associated with Chinese visitors to Japan will be weighed down by the episode.”

China has already displayed its willingness to take economic retaliation against regional neighbours over political spats. In 2017, Beijing deployed trade weapons against South Korea over the THAAD missile defence system that China complained would disrupt the region’s strategic balance.

That saw China suspend sales of package tours to South Korea and hinder the operations of Korean companies. The row shaved 0.4 percentage point off South Korea’s gross domestic product expansion in 2017, according to Bank of Korea estimates. Beijing could replicate these tactics against Tokyo.

The confrontation represents an abrupt turnaround in ties after Takaichi met Xi on the sidelines of the Apec summit in South Korea, and pledged to “deepen their personal relationship”. She also used that meeting to raise concerns over Beijing’s export curbs on rare earth, critical to making everything from electric vehicles to smartphones.

Still, Takaichi has a history of being friendly to Taiwan, meaning that she came to office already facing scepticism from Beijing. China is highly sensitive to remarks around Taiwan, the self-ruled island it’s vowed to claim someday, by force if necessary.

“Because she is early in her tenure and because her position is not quite stable yet, China sees itself as able to more fully test the boundaries,” said Dylan Loh, associate professor at Nanyang Technological University in Singapore. “But by no means are the reactions in Beijing inauthentic, quite the contrary,” he added.

Tokyo has for years been concerned about any attempt by China to seize democratically governed Taiwan, because of its close proximity. Yonaguni, the closest Japanese island to Taiwan, is around 100 kilometres east of the Taiwanese coastline.

Sitting Japanese prime ministers have avoided discussing the details of potential conflicts over Taiwan and instead called for the status quo to be maintained, reflecting the sensitivities.

Takaichi deviated from that in her statement this month, in which she suggested military force used in any Taiwan conflict could be considered a “survival-threatening situation”, a classification that would provide a legal justification for Japan to support friendly countries that choose to respond.

China’s Foreign Ministry summoned Japan’s ambassador using the term “on instruction”, language that Yuyuantantian said indicates the intervention came from more senior leaders and was more than a routine diplomatic protest.

Ties between Beijing and Tokyo have been rocky for decades over historical issues, including Japan’s invasion in the 1930s, as well as long-running territorial spats over disputed islands.

Taiwan President Lai Ching-tae on Monday accused Beijing of undermining peace and stability in the Indo-Pacific region with its attacks on Japan, calling on the international community to pay attention and urging China to exercise restraint.

The US has so far issued no official response to the China-Japan dispute. Both Washington and Tokyo have historically avoided explicit statements about defending Taiwan militarily. BLOOMBERG