Would the 3 Japanese wise men invited by China help ties with Japan?

SINCE last month, tensions over the disputed islands in the East China Sea, known as Diaoyu to China and Senkaku to Japan, have noticeably declined, largely as a result of conciliatory words and actions by Japanese political figures visiting China.

The first was by Yukio Hatoyama of the opposition Democratic Party of Japan, who was prime minister in 2009-2010 and who had advocated closer ties with China while in office. Hatoyama took issue with Japan's position of denying that there was a territorial dispute, saying "if you look at history, there is a dispute".

The former leader also visited a memorial in Nanjing honouring those who were killed in 1937 and apologised for "the crimes that Japanese soldiers committed during wartime".

Hatoyama's visit was widely publicised in the Chinese media, which published pictures of him and his wife at the Nanjing Massacre Memorial bowing in silent tribute to the dead.

The normally nationalistic Chinese newspaper Global Times declared editorially: "Hatoyama's words and deeds these days show that in spite of the tough environment, forces which are friendly to China have not disappeared."

Shortly after Hatoyama's departure from China, Natsuo Yamaguchi, leader of the New Komeito Party -- a coalition partner of the ruling Liberal Democratic Party -- arrived in China, carrying with him a letter from Prime Minister Shinzo Abe for Xi Jinping, the new leader of the Communist Party of China.

Yamaguchi was received by Xi on Jan 25, and, aside from passing over the letter from the prime minister, he also suggested that the territorial dispute be shelved for now and to let future generations deal with the issue.

Xi no doubt knew that the Japanese politician was paraphrasing the late Chinese leader Deng Xiaoping who, while visiting Tokyo in 1978, famously said, "Our generation is not wise enough to find common language on this question. Our next generation will certainly be wiser. They will certainly find a solution acceptable to all."

Alas, no solution is yet in sight and the best policy is to put the dispute back on the shelf.

Yamaguchi also suggested a summit meeting between Abe and Xi, and the Chinese leader responded that he would consider it seriously if there was a "proper environment".

Xi also said that China wanted to promote a "strategic relationship of mutual benefit" with Japan.

Soon, a third influential Japanese political figure arrived, another former prime minister, Tomiichi Murayama, whose visit, like the other two, contributed to the establishment of an improved environment.

It was Murayama who, while in power, issued an apology on historical issues that was widely hailed in Asia.

The visits by these three Japanese figures have contributed to a lowering of tensions, making it possible to envisage a thaw in China-Japan relations.

What is significant is that these three men were all invited by Beijing, which of course had a good idea of what they were likely to say and do. That is to say, without denigrating their contributions to the lessening of the impasse, the improved atmosphere of the last few weeks was largely the result of initiatives taken by China.

Japan, too, clearly wants to keep tensions low. Abe has now made it clear that he endorses the Murayama's statement, although there is still some talk of making a new statement "suitable to the 21st century". But there is unlikely to be any backtracking.

It is imperative at this stage that both Japan and China recognise the delicate political environment in the other's country. Each should rein in its own aggressive nationalistic forces.

It is also necessary for each side not to say or do anything that may be humiliating or embarrassing to the other side. Threatening to fire "warning shots", for example, is not helpful.

A lot of damage has been done to China-Japan relations. It will take time for the relationship to heal.

When Abe became prime minister for the first time in 2006, he went to China on his first overseas visit to mend relations damaged during the premiership of Junichiro Koizumi, who insisted on visiting the Yasukuni Shrine each year.

This led to a dramatic improvement in relations, with Premier Wen Jiabao making an "ice-melting" visit to Japan in 2007, followed by a presidential visit by Hu Jintao the following year.

Another China-Japan summit will be indispensable if ties are to be rebuilt.

This, however, cannot take place until the necessary groundwork has been laid. Both sides will have to work hard at this. And flexibility should be the watchword.

The row over the disputed islets, known as the Senkaku in Japan and the Diaoyu in China, are seen in this file handout photograph taken on a marine surveillance plane B-3837 on December 13, 2012, and provided by the State Oceanic Administration of People's Republic of China. A long-simmering row over the East China Sea islands, has noticeably declined, largely as a result of conciliatory words and actions by Japanese political figures visiting China. Reuters pic 

By Frank Ching New Straits Times

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China's Revolutionary New Thinking On Private Capital

In a stunning series of announcements last week, Beijing opened the doors to private capital.  In the process, officials signaled a reversal of a half decade of anti-reform sentiment.

Play Video China has issued new measures on guiding non-governmental capital into the domestic banking sector.

The China Banking Regulatory Commission has stated that private investors will have equal rights with other state-owned banks. Private investors can bid for the establishment and capital increase of a rural bank.



They can now have a larger share of a rural bank, as state-owned financial institutions shareholding has been lowered to 15% from 20%.

In addition, the Chinese banking industry will strengthen its financial support for private investors.

Yesterday, for instance, the China Banking Regulatory Commission announced private capital will have the same entry standards as state capital when it comes to the country’s banks.  Specifically, private companies will be able to buy into banks through private stock placements, new share subscriptions, equity transfers, and mergers and acquisitions.  Moreover, the government will liberalize investment into the rural banks and as well as the trust, financial leasing, and auto financing sectors.

And on the day before, Beijing gave the “all-clear” for the break up of state monopolies.  The State-Owned Assets Supervision and Administration Commission issued guidelines that, among other things, permit private investors to contribute cash or assets like intellectual property to state enterprises in return for equity and discourage these enterprises from placing additional restrictions on private parties when the enterprises sell their stakes in listed companies.  As SASAC noted, “The guideline reflects equal treatment of various kinds of investors and it helps ensure fairness in economic development.”

These two major developments followed a series of other recent indications of liberalization.  The China Securities Regulatory Commission announced it would allow private companies to list on domestic and foreign stock markets and to issue bonds; the National Development and Reform Commission said it is drafting rules to open the electricity, oil, and natural gas sectors to private capital; and the Ministry of Railways talked about opening railroads to private capital.  The State Council itself announced it is looking for private investment in the energy, telecom, education, and health care industries.

China, in short, is open for business, and there is no mystery surrounding the sudden change of attitude.  First, many cite the eroding profitability of state enterprises for these announcements.  In fact, official figures show that their profits fell 8.6% year-on-year in the January-April 2012 period.

Second, other factors include the decline of foreign direct investment—FDI fell for the sixth consecutive month in April—and a dramatic slowdown in economic activity—the economy showed signs of either zero growth or contraction last month.  Initial indications for this month, such as the sinking HSBC Flash PMI, are mostly bearish.

Third, Beijing technocrats realize they will fall far short of reaching their target of 36 trillion yuan of fixed asset investment because the central government can only “channel” 402 billion yuan and state enterprises are sitting on their hands.  The inescapable conclusion is that the only way to make up the difference is private capital.

Despite the country’s economic distress, it’s not clear when we will actually see implementation of the dramatic announcements.  For one thing, it is not an encouraging sign that Beijing issued precious few details.  At the moment, this looks like another instance of Chinese vaporware.

Why?  In the last few years state enterprises have become entrenched and extremely powerful in Chinese political circles.  And provincial and local governments are even more hostile to non-state capital because of the perceived divergence of interests between private investors and Party officials.

Moreover, it’s unlikely that much, if anything, will get done this year as top leaders are now embroiled in disruptive political struggles.  In fact, part of the reason for the accelerating economic slide is that for months they have been distracted by the worsening turmoil in the top reaches of the Party.  Moreover, not much may get done next year either.  Xi Jinping is slated to take over this fall, and new supremos usually take a couple years before they are able to effectively exercise power.

In any event, central government ministries, if they were truly serious about liberalization, would just implement structural changes as opposed to talking about them.  Until there is a sign he is serious this time, many will think Premier Wen Jiabao is borrowing from his 2010 playbook when he had his State Council grandly announced similar reforms that were not put into effect with real rules.

And there is one more factor suggesting private capital will not rescue the Chinese economy this time.  As domestic and foreign investors learn more about both the fundamental and cyclical problems in China, it will be increasingly unlikely that anyone will commit substantial sums to the country.

After all, you don’t see private investors heading for Greece at the moment, and in some important ways China is in far worse shape.  The internal and global narratives on the Chinese economy and political system are changing, and those changes are bound to have a negative effect on investment sentiment.

In short, Beijing’s announcements this month may evidence a welcome change of heart, but they could end up being both too little and too late to stop the country’s accelerating slide.

Gordon G. Chang, Forbes Contributor

I write primarily on China, Asia, and nuclear proliferation.

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