Japanese and Chinese experts gathered to discuss the future of free trade, globalization, and cooperation between Japan and China during a breakout session on economic issues at the 13th Tokyo-Beijing Forum on Dec. 16 in Beijing. During the first half of the session, scholars and leaders of the corporate sector from both countries focused their discussions on how Japan and China could cooperate to create a more open global economic order.

Challenges facing Japan and China

The session started with a keynote address from Li Xiao, dean of the Economics School at Jilin University, who said that China is undergoing structural changes that will see it shift from a simple manufacturing base to a rapidly growing market. Hence the relationship between Japan and China is not only an issue for the two nations, but has ramifications for other countries in Asia, as well as for the global economy. As economic powerhouses, both countries are expected to contribute to the sustainable development of the global economy and of neighboring countries. And as specific examples of cooperation, Li pointed to further discussions on the Chiang Mai Initiative, a multilateral currency swap arrangement among Asian countries, including Japan and China, that serves as a regional financial safety net, and the participation of Japanese corporations in China-led projects like the One Belt, One Road economic initiative and the Asian Infrastructure Investment Bank (AIIB).

From Japan, Fumio Sudo, a former chairman of Tokyo Electric Power Company (TEPCO) and currently advisor to JFE Holdings, followed Li to the podium. Sudo said that while Japan was ready to cooperate in the One Belt, One Road initiative and the AIIB, China also needed to take more action, such as consolidating its so-called "zombie corporations," the loss-making firms that continue to operate only with the support of government subsidies or soft loans, as well as improve the financial health of companies and municipalities that lack transparency. Sudo also expressed concern over the Communist Party's interference in state-owned companies, saying consideration should be given to the stakeholders to improve the corporate governance of such companies.

Meanwhile, Hu Angang, director of the Institute for Contemporary China Studies at Tsinghua University, said China is the most economically vibrant country. He said global enterprises like Alibaba will continue to emerge and China's share in global R&D will likewise expand. Hu emphasized that this was a sea change, just like when the U.S. economy overtook that of Great Britain 100 years ago, and added that Japan should "recognize China's potential and leverage on China's growth as an opportunity."

Tatsuo Yamasaki, a former Japanese vice finance minister for international affairs, said Japan's basic position is to advance free and open trade, and the Trans-Pacific Partnership (TPP) agreement is not designed to exclude China. With regard to the One Belt, One Road economic initiative and the Regional Comprehensive Economic Partnership (RCEP), Yamasaki pointed out that these initiatives should aim to realize a higher level of trade liberalization. There are, however, specific areas that Japan would be able to cooperate in, encouraging the innovation of Chinese companies, such as in the fields of medicine, nursing and health care.

Globalization and challenges of the Chinese economy

The keynote speeches were followed by a panel discussion. Liu Debing, former chairman of China General Consulting & Investment Co., Ltd., kicked off the discussion. Liu said that the recent anti-globalization movement is temporary and globalization is here to stay. Susumu Okano, advisor of Daiwa Institute of Research, responded that China needed to provide some of the capital it has accumulated from its trade surplus to the development of the global economy. Okano said that the moderate depreciation of the Chinese yuan in the currency market should help revitalize capital transactions.

Jiang Ruiping, executive vice president of China Foreign Affairs University, said the globalization pursued by Japan and Western nations is far from perfect, and a new avenue for globalization should be pursued. Masayuki Kinoshita, advisor to Mitsui & Co., concurred, pointing out that globalization has created income disparities between states as well as within each country, and there is a need to strive for sustainable development. Takashi Morimura, advisor to Bank of Tokyo-Mitsubishi UFJ, stressed the need for Japan and China to seek harmony with the world economy. While the One Belt, One Road initiative has great potential, there are issues of transparency and fair capital procurement that need to be addressed, Morimura said.

hat kind of framework is appropriate to promote free trade?

Chi Fulin, chief research fellow at the China Institute for Reform and Development (CIRD), said that when observing the development of the TPP discussions, the Japanese government appear to be obsessed with the agreement, while Jiang said the priority of integrating the regional economy, including frameworks like the Japan-China Free-Trade Agreement (FTA), seems to be low. Yamasaki denied that Japan is working to establish the RCEP and Japan-China FTA as frameworks of free trade, while Sudo explained that TPP11, agreed upon by 11 countries with different interests, is significant as a platform to consider the future of multinational cooperation.

Zhang Yansheng, chief researcher of the China Center for International Economic Exchanges (CCIEE), pointed out that while the United States withdrew from the TPP, it was Washington that initiated the TPP framework, and globalization based on the values of Western nations has created problems such as world wars as well as stagflation. Zhang proposed that countries should look for a new approach to trade, rather than rely on multilateral trade negotiation frameworks like the World Trade Organization and the International Monetary Fund.

Masahiro Kawai, a Specially Appointed Professor at the University of Tokyo's Institute of Social Science, countered that in China, the benefits of globalization outweigh the negative impacts such as economic disparities. He pointed out the difference in economic conditions of the two countries, saying that the Japanese government meanwhile is addressing the problem of disparities through policies that seek to redistribute income. Li acknowledged that free trade has great advantages and the TPP would be able to enjoy the benefits of free trade, but questioned whether it will function as a multilateral framework without the participation of China.

The panel discussion was opened to the floor, and questions from the audience included how Japan and China should cooperate in the field of innovation. The response was that while the business environment in China has room for improvement, it is nevertheless a good platform on which to try new businesses, and that Japanese companies can support Chinese firms in areas such as raising the efficiency of operations.

As moderator of the discussions from the Japanese side, Hirohide Yamaguchi, chairman of the Nikko Research Center, wrapped up the first half of the session by commenting that Japan-China cooperation is essential for maintaining a more open economic system and Japan should have an accurate understanding of the scale of the Chinese economy, which in turn will contribute not only to the two nations but also to the development of Asia as a whole.

In what areas should the two countries seek to deepen ties?

Fu Chengyu, a former chairman of China Petroleum and Chemical Corp. (Sinopec) and member of the Chinese People's Political Consultative Conference (CPPCC) National Committee, kicked off the second half of the economic session with remarks on the specific kinds of partnership that can be created between China and Japan. Fu acknowledged that China-Japan relations have not fulfilled their potential, and deepened bilateral ties may lead to a harmonious coexistence of countries in a world where politics is becoming polarized. The supply chain has become fluid and multinational companies will have larger roles to play when it globalizes further, Fu said, adding that this trend was likely to strengthen in future.

Kinoshita followed with his keynote address, in which he mentioned how the service industry continues to expand and how Japan has been at the forefront of tackling serious challenges that the rest of the world is likely to face as industries mature. Japan will have a competitive edge in areas related to declining birthrate and an aging society, as well as the environment, Kinoshita said, citing Japan's meticulous attention to detail as an advantage even in China. Kinoshita also cited Japan's unsuccessful overseas investments during the Asian currency crisis as a learning experience that may offer room for cooperation in the One Belt, One Road initiative.

Meanwhile, Chi said that achieving a breakthrough in service trade will be the next focus. He explained that the pace of growth in China's service industry is faster than the growth of its gross domestic product, and there will be an era of new consumption. Hence cooperation in service areas, including medicine and education, will be important for the two countries, Chi said.

The University of Tokyo's Kawai said cooperation in the private sector will have the advantages of economic benefit and increased opportunities of personal exchange. He pointed out that many Chinese replied in the recent opinion poll that there will be more cooperation between Japanese and Chinese firms, while the Japanese replied otherwise. Kawai explained that the existence of industry areas that are averse to economic liberalization, such as theme parks, hot springs and drugstores, may be the reason for the discrepancy between the Chinese and Japanese outlook on the mutual cooperation of companies.

Possibility of bilateral cooperation in various areas

During discussions on the areas of possible cooperation between Japanese and Chinese businesses, Li pointed out that the issue of corporate governance is deeply related to the culture of a country and therefore should not be treated as a major concern. Shosuke Mori, senior managing director at Sumitomo Mitsui Banking Corp., countered that from the point of view of a financial institution, many Japanese companies are concerned over whether free and open corporate activities are guaranteed in China, and stressed that a predictable system is required. Fu responded that the risk of the Communist Party interfering with corporate management has existed since the 1980s, but the Chinese government has since set forth reforms and open policies, so the challenges in China should be viewed as opportunities for Japanese businesses. Morimura, nevertheless, stressed the need for China to resolve its excess debt.

Meanwhile, Kawai pointed out that the number of visitors from China to Japan is increasing while the number of Japanese going in the opposite direction is not, to which Li responded that Japanese people are overly cautious about risks and that the excessive media coverage of China's air pollution was not helping. Hu also pointed out that compared to the United States, Japan lags behind in its efforts to implement a multipurpose visa scheme between China and Japan.

Liu said more could be done to better collaborate on service areas such as health care in third countries and asked the Japanese side for ideas. Kinoshita gave an example of Chinese companies taking on construction work in infrastructure projects like building power plants.

Akihiko Funaoka, executive managing officer of Mitsui Fudosan, mentioned the need for a long-term perspective on innovation, citing his company's "smart city" project as an example. Both Li and Sudo mentioned there are about 30,000 long-established companies in Japan and this is where the great potential for bilateral cooperation exists.

In response to questions from the floor on the Japanese perception of manufacturing in China, the panelists said the quality of Chinese products is improving and that many of them in fact have become a part of the daily lives of the Japanese people. As to whether Japan has the will to participate in the AIIB, the Japanese panelists said that although many of the concerns over its governance have been dispelled, there is still a need for thorough deliberation on the issues of financial contributions and environmental standards.