Tokyo Can’t Buy Beijing’s Love

After what has been described as a "historic meeting" between Japanese Prime Minister Yasuo Fukuda with officials in Beijing this week to mark the 30-year-old signing of the Japan China Treaty of Peace and Friendship, Fukuda's meeting Friday with President Hu Jintao has sparked high hopes in Tokyo that China and Japan can reach some continuing rapprochement, but don't count on it. A look at Japan's long-running low-interest loan program with China gives some indication why.

On December 21, Japan signed its final yen-loan agreement with China, for 46.3 billion yen (US$406.2 million) for six environment projects. This brings the total over the last 28 years to 3.316 trillion yen, at interest rates between 0.75 percent and 3.5 percent, with repayment periods of up to 40 years. It is by far the largest amount of cheap credit China has received from any country.

The loans have paid for magnificent improvements to China’s infrastructure, but for Japan they must rank as one of the most unsuccessful investments in history, at least in terms of goodwill. The largesse has done little to earn the friendship intended by the donor, while it has helped to create a formidable economic rival.

The hostility of the Chinese government and people to Japan remains as fierce today as it was when the loans began. Earlier this month, the government arranged emotional public events, broadcast widely on state television, to mark the 70th anniversary of the infamous Nanjing massacre, in which as many as 200,000 Chinese were murdered by Japanese troops during six weeks in 1938.

Each week television channels run war dramas featuring Japanese with Hitlerian mustaches torturing heroic resistance fighters and seducing beautiful Chinese women. Newspapers delight in new items of Japanese perfidy, such as how, in the aftermath of World War II, Tokyo rushed to recruit 70,000 “comfort women” for the occupying American army in order to reduce the incidence of rape among the population.

Nonetheless, the loans have made an important contribution towards the infrastructure that amazes visitors to China, such as the airports in Beijing, Shanghai, Wuhan and Xian, the Beijing subway and the light rail system of Chongqing. The credits paid for 34.5 percent of the electrification of China’s 13,000-km railway system and 12.2 percent of China’s large 470 port berths.

Changing fortunes

“In the early years of reform, when we were extremely short of capital and technology, this money played a very important role,” said Zhang Jifeng, a scholar in the Japan Research Institute of the Chinese Academy of Social Sciences. “It went for major projects, which required a long investment period and a high level of technology, to develop energy, transport, telecommunications, environmental protection and irrigation.”

Immediately after World War II, under pressure from the US, which feared a Communist takeover of Japan, China’s President Chiang Kai-shek said he would not seek war reparations. When Beijing normalized relations with Tokyo in 1972, China also said that it would not seek reparations.

However, during a December 1979 visit to China, Prime Minister Masayoshi Ohira said that Japan would provide the low-interest loans to support reforms and modernization. It was the aftermath of that decade’s oil crisis, and Japan needed Chinese oil and coal. It also wanted a stable neighbor and a growing market for exports to reduce its dependence on the United States.

Since then, how the world has changed. China’s economy has developed at a rate no one could have imagined, while Japan has stagnated. China has foreign exchange reserves exceeding US$1.4 trillion, double those of Japan, leading many Japanese to wonder why the country is still providing such loans to China and not other more needy and more grateful countries.

So why don’t they like us?

In economic terms, the loans generated a return for Japan. In the early years, they were tied to purchases of Japanese goods and services. In 2006, China overtook the US to become Japan’s biggest trading partner for the first time, with Japan’s reliance on China higher than the other way around.

China also became a major investment destination for Japan. The golden years were 2002-2006, when the investment totaled more than in the previous 15 years combined; there are more than 30,000 Japanese projects in China now.

Investment started to fall this year, with the volume in the first half of 2007 down 11.2 per cent year-on-year, thanks to rising wage and land costs in China. A worker in Vietnam costs US$90-110 a month, compared to US$160-190 for one in Dongguan, Guangdong.

In political and social terms, however, the return has been negligible. Few Chinese are aware of the contribution that Japan has made to their economy, mainly because the media tells them so little about it. It concentrates instead on wartime atrocities and the failure of some Japanese leaders to acknowledge them.

When he went to attend the opening of terminal two of the Beijing International Airport in November 1999, Japan’s ambassador noticed that the plaque to be unveiled made no mention of his country’s substantial loan. He stormed off in protest and a new one was cast, to include it. The airport’s website makes no mention of the Japanese contribution.

“The Chinese public wants the government of Japan to show a correct attitude toward history and a deep reflection of history,” said Qiao Linsheng, a professor at Nankai University. “Those Chinese who understand history believe that, since China gave up war reparations, this overseas aid by Japan is to be expected.”

It would be more accurate to say that Beijing has chosen to spin it this way. The leaders of France and Germany, along with other European nations, chose to close the dark pages of their war-torn past in order to bring the nations together. The leadership in Beijing – and to a certain extent in neighboring South Korea have done the opposite.

When the Japanese emperor or political leaders do apologize for various past atrocities, Beijing ridicules their words as insincere and self-serving. When Japan truly acts like a good neighbor, the deeds go unacknowledged. Beijing has chosen to keep alive the image of Japan as a mean and aggressive nation, jealous of China’s economic and military success and eager to contain it. In this script, three trillion yen buys almost nothing.