The economics sub-session was convened in the afternoon of Oct. 26, with discussions held on "Issues and Cooperation between China and Japan for Economic Development in Asia."

Mutoh Toshiro, board chairman of Daiwa Institute of Research Ltd., acted as chair for Japan, and Jiang Ruiping, a vice dean of the China Foreign Affairs University, for China.

Taking part as panelists from China were Wei Jianguo, a vice chairman of the China Center for International Economic Exchanges, Zhao Jinping, deputy director-general of the Research Department of Foreign Economic Relations at the Development Research Center of the State Council, Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation in the Ministry of Commerce, Zhang Hongli, senior executive vice president of the Industrial and Commercial Bank of China (Macau) Ltd., Li Daokui, Mansfield Freeman chair professor in the Department of Finance at the School of Economics and Management, Tsinghua University, and Zhuang Rui, deputy dean of the Research Institute of International Economics, University of International Business and Economics.

The Japanese panelists were Fumio Sudo, former president of JFE Holdings, Inc., Tatsuya Ito, a member of the House of Representatives, Masahiro Kawai, dean and chief executive officer of the Asian Development Bank Institute, Koji Tanami, former Governor of the Japan Bank for International Cooperation, and Hirohide Yamaguchi, former Deputy Governor of the Bank of Japan.

At the outset, the Japanese chair Mutoh explained the significance of the talks, saying, "As a result of heightened political tensions arising from the dispute over the Senkaku (Daioyu) Islands, the feelings of the people of both countries are probably at their worst ever since this forum was first held.

This is affecting our economies, and if relations between our two countries remain poor, it is likely to have a negative effect on the rest of Asia." He finished by stressing the importance of having a frank discussion and sharing opinions.

First, Wei Jianguo from China offered data showing that between January and October this year Japanese investment in China was increasing, and the number of tourists from China to Japan was also on the rise, adding that both countries should promote more cooperation on the trade and economic fronts without being influenced by the political and diplomatic situation. He further pointed out that this year, China has sent a delegation representing small and medium-sized companies to Japan to promote ties with local governments, and that it was important to put forward definite plans that are realistically viable.

In response to this, Sudo from the Japan side began by saying that it was important for both countries to return to the starting point of 1972 (when the Japan-China Joint Communiqué was issued for the normalization of Japan-China diplomatic relations) and 1978 (when the Japan-China Treaty of Peace and Friendship was signed). He pointed out that, as Japan and China combined makes up 20 percent of the world's GDP, and 80 percent of Asia's, "we have enormous influence, and it is clear that cooperation between our two countries is essential for both Asia and the world. Therefore, business should be kept separate from politics."

On the other hand, Zhao Jinping's opinion was that with growth currently slowing in emerging countries in Asia due to the world financial crisis, if China and Japan share resources and infrastructure development in the Asian region, it ought to contribute to economic growth and the strengthening of ties right across Asia.

As three key areas for mid- and long-term growth in the whole of Asia, Ito from Japan, who was formerly a minister of state for financial services, proposed more economic integration, redressing disparity and sustainable development, stating that "to achieve this, cooperation between China and Japan is absolutely essential, and we should look at improving the situation from a comprehensive standpoint."

Following on from that, both sides showed they were aware that relations between the two countries are not just a problem for China and Japan alone, as good Sino-Japanese relations contribute to the development of the overall Asian economy. Many of the Chinese panelists raised their fear of "cold political and economic relations," and with the influence of political problems on the economy, they were conscious of the fact that there could be no real solution of economic problems unless the political problems were solved.

However, the Japanese panelists said it was precisely because politically relations between Japan and China were so problematic now that trade, investment, and personal interactions should be strengthened. Tanami suggested that it was not acceptable for the countries with the world's second and third largest GDP to remain at loggerheads. Discussing the importance of improving relations between Japan and China, he said, "We should flip the order of priority of politics and economics and contribute more to the world."

Discussion at Second-Half Subsession

In the second half of the subsession on the economy, held after a coffee break, the chair for the Chinese side, Jiang Ruiping, asked the panelists how they would achieve a good mutual effect between economics and politics based on their current awareness of the economies of China, Japan and the rest of Asia.

Sudo from Japan pointed out that there were many cases of the political situation being strong and stable, but the economy being poor, ending in collapse, adding, "So far China has done well economically, but shouldn't you have some sense of crisis now?" He proposed prioritizing the economy as a way to deal with any impending crisis.

In response to that, Zhuang Rui from the Chinese side said, "When corporations are debating whether to invest, the political risk is the most important factor for them," adding that since political relations between the two countries deteriorated, there has been a huge negative effect on direct investment from Japan to China.

Huo Jianguo argued for the necessity of improving economic relations, saying, "Economic cooperation between China and Japan is extremely important for all of Asia, and both have the hidden potential to cooperate in a wide range of areas, such as manufacturing and the energy environment.

Kawai then pointed out that if America's monetary easing starts to contract, emerging countries in Asia may suffer due to a reverse flow of capital. "If that happens, Japan and China must unite to support the countries in danger," he said, arguing for the internationalization of the Chinese Yuan from a perspective of crisis response.

Li Daokui said that the Chinese government is pushing forward with structural reforms in order to avoid a replay of the "Lost 20 Years" that befell Japan, stressing that China has already greatly reduced its dependency on foreign demand. Moreover, as the Chinese government plans to produce a policy for fundamental reform in the near future, he bullishly forecast that, if the reforms are steadily implemented, "China will be able to return once more to an annual GDP growth rate near 8 percent."

The Chinese panelists then showed a strong interest in Abenomics, with some wondering whether its aim "was to depreciate the yen."

In response, Yamaguchi denied that, saying, "Even if the policymakers are thinking of controlling the exchange rate as they wish, they wouldn't be able to do so."

Mutoh expressed a measure of approval, saying, "Abenomics has changed the psychology of the market. Share prices are rising, and it has a good effect on consumption." He then added that it was necessary to observe dispassionately whether or not results would be gained from the relaxation of rules and deregulation of trade.

Finally, there was a question from one of the general observers regarding the "Shanghai free-trade zone" initiative.

Tanami from Japan expressed high expectations towards the experimental deregulation of finance, saying that up to now China's economy has achieved high export and investment-driven growth based on a financial system with state banks at its core and under the control of the Chinese government, but "developing a financial system that follows market mechanisms to change this is an enormous problem."

Summing up the whole 4-hour discussion, Mutoh said that they were able to have an extremely significant dialogue, and that he would like to return to the starting point of the Treaty of Peace and Friendship between the two countries and continue comprehensive discussions for the future, upon which the talks were brought to a close. (End)