Japan walks tightrope away from China

The exchange was a small example of the much larger balancing act Japan is trying to strike on China.

The U.S. and Japan are set to announce the biggest expansion of their defense ties in decades at a summit in Washington next month. For the White House, Tokyo is an increasingly critical ally as it builds what Rahm Emanuel, the U.S. ambassador to Japan, recently described to me as a “lattice” approach to counter China’s behavior in Asia. And Japan has followed in the U.S. footsteps to implement controls on advanced technology and to “derisk” and diversify its supply chains away from China.

But there also appear to be limits on how far Japan is willing to cooperate with U.S. efforts to contain Beijing, one of its most critical trade partners, including on key issues like financial flows and semiconductors. “We don’t have any intentions to have any economic blockade,” Maki Kobayashi, a spokeswoman for Japan’s Ministry of Foreign Affairs, told me.

“We are at the frontline of competition on the strategic level,” said Ken Jimbo, a professor at Keio University and a former adviser to Japan’s Ministry of Defense. At the same time, he added, “Many Japanese companies still think that China is a potential growth market and we also learned a lot from China on the innovation side.”

“We are actually having a dual identity of the competition and cooperation,” he said.

The Japanese government is currently implementing a major defense buildup, which is in large part driven by a desire to better deter Chinese aggression in the South China Sea, and around Japan’s Senkaku Islands and Taiwan (Japanese officials also point to other regional threats from North Korea and Russia). At the same time, officials are pursuing follow-on conversations to the rare meeting between Japanese Prime Minister Fumio Kishida and Chinese leader Xi Jinping last year, in part with the goal of addressing Chinese detentions of Japanese citizens and a ban on Japanese seafood imports.

Kobayashi, the Foreign Ministry spokeswoman, said Japan needs to work with China to build “more trustworthy relations” and also deliver a message to China about “what we consider is not right.”

Japan’s challenge is not unlike the one that many other nations — the U.S. included — are grappling with, even when it comes to how it talks about China. The Biden administration likes to say the U.S. is in a “strategic competition” with Beijing, for instance, and often emphasizes its desire to cooperate on global issues like climate change.

But the struggle is particularly acute for Japan, as well as neighboring South Korea, given its proximity to China and the level of trade between the two countries. (China is Japan’s largest trading partner, followed by the U.S.)

Japan has been trying to shed some of that dependence. Foreign direct investment from Japanese companies in China is falling substantially, and experts say Japanese firms are increasingly realizing that investing too heavily in China comes with supply chain risks and other drawbacks.

Japanese officials, like those in the U.S., worry about the economic consequences if China were to invade or blockade Taiwan, as well as much smaller actions by Beijing to leverage its position in global supply chains (such as last year’s curbs on rare-earth technology).

“We need to make an effort to derisk,” Akihisa Nagashima, a member of Japan’s House of Representatives in Kishida’s Liberal Democratic Party, told me. “We have to deal with the uncertainty.”

But Japan, which last year adopted semiconductor curbs targeting China in alignment with the U.S., also doesn’t want to lean too far forward and trigger retaliation. That’s why a new U.S. request for Japan to tighten restrictions on semiconductor materials is unlikely to be fully met.

“We are probably not going to fully accept the U.S. request because if we were to put restrictions on semiconductor parts, partly it’s Japan’s strength and another thing is that if we put the restrictions on those exports, then it will halt China’ semiconductor production,” Tomoya Suzuki of the NLI Research Institute in Tokyo told me through a translator. “We also may face very strong retaliation from China.”

Japan has also not taken steps to follow U.S. outbound investment restrictions aimed at funding for advanced technology in China, despite efforts to bring allies on board.

With respect to semiconductors, Emanuel told me that Japan wants a “more comprehensive” approach — meaning that other countries join in.

“One of the things we’ve learned from Russia sanctions — and this is not sanctions, it’s ensuring the safety and security of our technology — is the more comprehensive it is, the more effective it is. If it’s not comprehensive, it’s not effective,” he said.

China has described Japan’s defense spending increase as a “very dangerous development” and the chip controls as a violation of trade rules. Following the meeting between Kishida and Xi last November, the Chinese readout noted that the “the two countries’ economic interests and industrial and supply chains are deeply intertwined” and warned against “attempts to build ‘a small yard, high fences’, decouple economies or disrupt supply chains” — a reference to the Biden administration’s description of its national security technology curbs.