SINOGRAPH China and Japan find
common ground By Francesco
Sisci
BEIJING - As with all important
occasions, it does not matter so much who was
there, but who was missing. On December 28, among
thousands of North Korean mourners parading past
the body of the deceased Dear Leader Kim Jong-il
to bid a final farewell, what stood out was the
absence of top dignitaries from neighboring
countries and those concerned about the future of
Pyongyang.
Significantly, in the same
hours, on Christmas Day and Boxing Day in Beijing,
China and Japan, North Korea's two most important
neighbors, signed an important monetary agreement.
Japanese Prime Minister Yoshihiko Noda and
his Chinese counterpart Wen Jiabao along with
Chinese President Hu Jintao
put aside their bitter
disputes over the maritime border of the
Diaoyu/Senkaku Islands and the surrounding gas
fields, and they launched a major monetary
framework agreement.
The two countries
clinched a deal for direct exchange of Chinese
yuan against the Japanese yen. The yuan is not
fully convertible, and previously trade took place
through US dollars. Furthermore, the two countries
have agreed to let their currencies appreciate
against the dollar and the euro. Finally, Japan
has indicated its willingness to buy Chinese debt,
even if Beijing does not need to unload it.
All these elements are extremely important
in the short term and long term. In the short
term, appreciation of the currencies of the
second- and third-largest economies in the world
(China and Japan) means that efforts by the two
countries to help America and Europe will now be
easier. Exports from China and Japan to the United
States and Europe will be more expensive and this
should in turn push United States domestic
industry.
Compensating for the damage to
the two countries' exports, which had previously
offered an excellent value for the money, the
shift should help with imports of foreign products
into the two countries and to boost domestic
demand.
In the longer term, the agreement
reinforces the international role of the yuan and
it can be a very important step toward the free
exchange of Chinese currency.
China
already has currency-swap agreements with a dozen
countries, but Japan is its second-largest trading
partner, so the overall impact of this agreement
is much more important. At this point, only an
exchange agreement with the euro area is missing
to affirm the new global position of the yuan.
This can mean a step backward for the role
of the dollar in the global economy. But
Washington has been pressing for the revaluation
of the yuan, and that would not happen without
lifting the yuan profile. In any case the yuan
fluctuates with a crawling peg with the US dollar,
so it is still firmly linked with the American
currency.
There is, however, a political
aspect to this economic story. The agreement could
closely bind the destinies of China and Japan to
each other, despite the tensions that have
accumulated in recent months. Indeed, the
bilateral summit had been postponed. It was
originally planned for December 12-13 and it could
have revolved on unimportant issues.
The
death of Kim Jong-il seems to have been the
catalyst for improving the bilateral relationship.
For parallel reasons, China and Japan are both
worried that chaos could develop in the region
following the death of Kim.
Both countries
are frightened by the prospect of an
out-of-control North Korea that pulls the area
into a black hole of tension. But they are also
worried about the prospect of a reunified Korea,
which could become very nationalistic and rekindle
political and territorial disputes with China and
Japan, both home to significant a Korean minority.
China seemed able to manage so far
smoothly the Kim's power transition, as in the
same hours Kim Jong-il was declared dead,
Pyongyang announced finally it would give up its
uranium nuclear program, something that for years
had been the stumbling block in the progress of
peace talks on the Korean peninsula. The double
announcement, on Kim's demise and on the uranium
program, appears to have been managed with
Beijing's help.
The economic agreement can
then become, as often happens with strategies in
this part of the world, a platform for political
convergence to address tensions related to the new
situation in the Korean peninsula. A
reconciliation of the two countries in practice
means finding a way to follow and also hopefully
guide the otherwise potentially dangerous
developments on the Korean Peninsula.
Here
both are operating under the watchful eye of the
American diplomacy, which in very prickly and
dangerous North Korea it has arguably scored its
biggest success in the past decade. Tension there
has been contained, Pyongyang's regional influence
has been reduced, and although there has been no
final solution for North Korea there have been no
major explosions of tensions, fallout or spread of
negative results, as happened because of poor
policy choices in Iraq and Afghanistan.
It
could be that in the future, a new regional order
could be built around North Korea and China could
find in Japan and America important political and
strategic partners. This could go hand in hand
with developments in Taiwan, the island de facto
independent formally part of one China, where
America in the past decade has been careful to
curb pulls for unilateral declaration of
independence that would irritate Beijing.
In more than a way the present success of
the Chinese policy on Taiwan (see Hu
Jintao the real Taiwan election victor Asia
Times Online, December 21, 2011) has been riding
on US cooperation on restraining independence
movements irksome to the Chinese leadership.
With North Korea and Taiwan the US could
be seeking a new path of collaboration with China
and excluding a strategy of encirclement rising
from the recent tensions in the South China Sea
and the eastern sea borders with Japan and South
Korea.
Conversely, if things go wrong with
North Korea in the coming weeks and months, we
could expect an upsurge in political and economic
tensions on a global scale, involving possibly
also Taiwan, the South China sea and in the east.
Francesco Sisci is a columnist
for the Italian daily Il Sole 24 Ore and can be
reached at fsisci@gmail.com
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