China-Japan Cooperation in Third-Party Markets: Japan's Strategic Thinking and Its Obstacles

Wang Jingchao

Positive signs have been shown in Japan's attitude toward China's Belt and Road Initiative (BRI) since 2017. The two countries have reached significant consensus on third-party market cooperation along the Belt and Road routes. Third-party market cooperation is not only expected to become an innovative platform for Sino-Japanese economic exchanges in the new era, but it is also a valuable asset for durable and sustained future of bilateral relations. Therefore, an in-depth analysis is necessary on Japan's policy considerations and the realistic obstacles it faces when cooperating in third-party markets, in order to address challenges and advance China-Japan partnership.

Achievements in China-Japan Cooperation in Third-Party Markets

Japan is a relative latecomer in regard to China's cooperation with developed countries on third-party markets. In fact, as early as June 2015, China and France had officially issued the Joint Statement on Cooperation on Third-Party Markets, which initially put forward the concept of “third-party market cooperation.”1Third-party market cooperation mainly means integrating China's mid-range manufacturing capacity with the high-end technology and advanced concepts of developed countries to provide high-level, costeffective and more competitive products and services in third countries, thus achieving multi-win outcomes. See “Third-Party Market Cooperation: 1+1+1＞3,” State Council Information Office of China, January 4, 2018, http://www.scio.gov.cn/31773/35507/35510/35524/Document/1615175/1615175.htm.Subsequently, China reached consensus on this issue with Germany, the United Kingdom, Belgium and Canada, carried out institutional cooperation in areas of infrastructure, energy, environmental protection and finance, and achieved remarkable results in a series of major projects. However, due to the detrimental influence of overall China-Japan relations, third-party market cooperation between the two countries has been delayed. Their competition over high-speed railway construction and other infrastructure projects in Southeast Asia and Africa was once so intensive that interests on both sides were seriously undermined.

In the context of a substantial transformation in its domestic and international affairs, Japan began to take steps to correct its relations with China in 2017. In May of the same year, the attendance at the first Belt and Road Forum for International Cooperation in Beijing by the Secretary General of Japan's Liberal Democratic Party Toshihiro Nikai and by the Chairman of the Japan Business Federation (Keidanren) Sadayuki Sakakibara was widely recognized as a groundbreaking signal of Japan's official willingness for rapprochement. From then on, Japanese Prime Minister Shinzo Abe repeatedly appeared on mainstream domestic media to voice his endorsement for the Belt and Road Initiative and to propose collaboration with China in countries along the BRI's routes.2“Prime Minister Shows Cooperative Attitude toward Belt and Road Initiative, Requests Fairness as Condition,” Nikkei, June 5, 2017, https://www.nikkei.com/article/DGXLASFS05H5I_V00C17A6000000.In November of the same year, during the Economic Leaders' Meeting of the Asia-Pacific Economic Cooperation (APEC), Abe indicated his readiness to intensify high-level exchanges with China, carry out economic and trade cooperation with mutually beneficial win-win outcomes, and actively explore joint projects in the domain of connectivity and within the framework of the Belt and Road.3“Xi Jinping Meets with Prime Minister Shinzo Abe of Japan,” November 11, 2017, https://www.fmprc.gov.cn/ce/cese/eng/wjdt/t1510293.htm.In December 2017, speaking at the Japan-China CEO Summit held in Tokyo,4“Welcome Reception for the Third Japan-China Business Leader and Former High-Level Government Official Dialogue (Japan-China CEO Summit),” Prime Minister of Japan and His Cabinet, December 4, 2017, https://japan.kantei.go.jp/98_abe/actions/201712/4article4.html.Abe formally proposed the synergy of Japan's Free and Open Indo-Pacific Strategy and China's Belt and Road Initiative, while also reiterating the two sides' commitment to cooperate in countries along the BRI's routes.

Chinese Premier Li Keqiang's first visit to Japan in May 2018 marked the formal resumption of the high-level exchange mechanism between the two countries. The visit also directly set into motion the two sides' approval of cooperative activities on third-party markets. Li and Abe witnessed the signing of the Memorandum on China-Japan Cooperation in the Third-Party Market between the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) on the Chinese side, and the Ministry of Foreign Affairs and the Ministry of Economy, Trade and Industry (METI) on the Japanese side, whereby the bilateral thirdparty market cooperation mechanism was officially launched. In October of the same year, after an intermission of seven years, Abe paid a visit to China as head of government, with the aim of implementing the consensus previously reached. During his stay, the first China-Japan Third-Party Market Cooperation Forum was held, where 52 agreements were signed by government agencies, enterprises and economic organizations of the two sides, covering multiple areas such as infrastructure, logistics, information technology, health care and finance with a total agreed amount exceeding US$18 billion. Furthermore, major progress was made in the establishment of collaborative platforms and in the identification of priority areas and key fields for such cooperation.

First, cross-departmental, multi-level and multi-actor cooperation systems have been put in place. A working mechanism for shared activities on third-country markets was set up under the China-Japan High-Level Economic Dialogue. On the Chinese side this mechanism involves broad participation not only from government departments including NDRC, MOFCOM, the Foreign Ministry, the Finance Ministry and the Ministry of Industry and Information Technology, but also from policy-based financial institutions such as China Development Bank and the Export-Import Bank of China, as well as economic organizations like the China Council for the Promotion of International Trade (CCPIT). On the Japanese side, besides government departments such as METI, the Foreign Ministry, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), the Finance Ministry, and the Ministry of Internal Affairs and Communications, institutions with government backing such as the Japan Bank for International Cooperation (JBIC), the Japan External Trade Organization (JETRO) and the Japan International Cooperation Agency (JICA), as well as business associations such as Keidanren, Japan Chamber of Commerce and Industry (JCCI) and Japan-China Economic Association5“Committee on Promoting Third-Country Cooperation between Japanese and Chinese Private Businesses Held,” Ministry of Foreign Affairs of Japan, September 25, 2018, https://www.mofa.go.jp/mofaj/press/release/press4_006466.html.are in the center of this undertaking. The two countries also deliberately founded the China-Japan Third-Party Market Cooperation Forum, which, as a complementary institution to the abovementioned working mechanism, aims at providing a platform for direct dialogue between business circles of the two countries, in order to create additional momentum for potential cooperation. Moreover, governments and enterprises of China and Japan, in tandem with countries that host relevant projects, are getting prepared to collaborate on various levels according to the characteristics of different industries and areas. In general, multi-level and multi-actor platforms for cooperation involving governments, policy-based institutions, economic organizations and enterprises, have already taken shape between China and Japan. While the top-level working mechanism is responsible for the conceptual design, macro policy communication and coordination of the bilateral third-party market cooperation, the forum and its various working groups focus more on handson procedures, enabling the implementation and subsequent management of specific projects in host countries approved by the two sides.

Second, priority areas and key fields of joint activities have been identified. Southeast Asia, particularly Thailand, given its close economic ties and amicable political relations with both China and Japan, while maintaining comparatively sound supporting facilities, has become a priority target for China-Japan third-party market cooperation. Southeast Asian countries have developed a close economic association with China and Japan. From 2008 to 2017, Japan's accumulated investment in ASEAN countries totaled $122.6 billion; in 2017 alone, its FDI to ASEAN countries reached $13.4 billion, making it the largest source of ASEAN's foreign investment. China started late for ASEAN investment, but it has witnessed a rapid increase. From 2008 to 2017, its accumulated investment in ASEAN countries totaled $63.3 billion, with the FDI in 2017 reaching $11.4 billion, surpassing the United States and ranking second in terms of amount invested.6The ASEAN Secretariat, ASEAN Statistical Yearbook 2018, December 2018, p.142, https://www.aseanstats.org/wp-content/uploads/2019/01/asyb-2018.pdf. The European Union as a whole is excluded in the article's ranking of ASEAN's inward FDI flows and its bilateral trade volume by country.As for trade volume, the size of Japan's trade with ASEAN countries in 2017 was $219.3 billion, placing it on third rank after China and the US as ASEAN's trading partner. Since 2009, China has been ASEAN's largest trading partner, with the bilateral trade volume in 2017 reaching $441 billion.7The ASEAN Secretariat, ASEAN Statistical Yearbook 2018, p.64.Southeast Asian countries have relatively sound supporting facilities, as can be demonstrated by the example of Thailand. Besides the comparatively mature infrastructure and industrial clustering capability in Thailand, both China and Japan have established an entire industrial chain and marketing network in the country as a result of their sustained investment efforts. Moreover, China and Japan have both maintained amicable political relations with Thailand, without any fundamental conflict of interests, making it an ideal entry point for market cooperation between China and Japan. Given these factors, China and Japan have agreed on Thailand's Eastern Economic Corridor (EEC) as the joint stepping stone for bilateral third-party cooperation.8The Eastern Economic Corridor includes Chonburi Province, Chachoengsao Province, and Rayong Province on Thailand's southeastern coast. By setting up economic zones, developing infrastructure and implementing preferential investment policies, Thailand intends to build the region into a leading economic area for industrial, infrastructure and urban development among ASEAN countries.In the future, from part to whole, the scope of Sino-Japanese cooperation is expected to gradually expand from the EEC to all of Southeast Asia, as well as South Asia, Africa and other regions on Belt and Road routes. In addition, China and Japan have essentially identified the primary fields for their cooperation within the EEC and wider Southeast Asia. The two countries will take into account the EEC's current development needs and prioritize cooperation in sectors such as transportation and logistics, energy, environment and smart cities. Specifically, EEC projects such as the Chonburi smart-city project and the high-speed rail link between Pattaya and Bangkok's airports will be advanced with greater emphasis.

Japan’s Strategic Thinking on Third-Party Market Cooperation with China

Since 2018, the Abe government has acted to remove political obstacles of China-Japan cooperation, by gradually diminishing the role of the Indo-Pacific “strategy” and instead replacing it with an Indo-Pacific “vision,” while at the same time stressing the non-exclusive nature of this new idea. Japan therefore gives more serious consideration toward China's concerns, and displays greater political resolve to maintain an overall positive relationship with China and to participate in the Belt and Road Initiative.9“Prime Minister Concerned about China? Indo-Pacific Strategy Now Expressed as a Vision,” Mainichi Shimbun, November 19, 2018, https://mainichi.jp/articles/20181120/k00/00m/010/123000c.It also verifies that Japan's decision to enter third-party market cooperation with China was not taken on a whim; instead, it reflects the Abe cabinet's strategic reorientation and comprehensive reassessment of Japan's domestic and external situation.

A facilitator to its “limited strategic autonomy”

Japan has adopted the concept of “limited strategic autonomy,”10Wu Huaizhong, Senior Research Fellow at the Chinese Academy of Social Sciences, earlier brought forward a similar concept. See Wu Huaizhong, “Japan Seeking ‘Strategic Independence': Initiatives, Motivations and Constraints,” China International Studies, No.1, 2019, pp.94-120.which suggests that, while maintaining the alliance with the United States as the pivot of its international strategy, its long-term vision is to gain more autonomy in some areas, even by incorporating policies that may be in an apparent conflict with US strategic interest. This is particularly manifest in the economic and trade field.

Since Donald Trump took office, unilateralism has emerged as a new trend in the US, with Trump's bullyish behavior exacerbating trade and economic disputes, causing increased friction between the US and Japan. Trump unilaterally announced withdrawal from the Trans-Pacific Partnership (TPP) agreement shortly after being inaugurated, and declared the establishment of “equal and reciprocal” bilateral trade relations to be the new national policy. On the other hand, Japan intends to seek cooperation and gain a dominant role in multilateral frameworks such as the TPP and the Regional Comprehensive Economic Partnership (RCEP), thus creating a dissonance between its own position and that of the US. The US has also escalated its trade offensives against Japan, seriously undermining the latter's national interests. While other major US trade partners like Australia, the European Union, Brazil and Canada were successively exempted from the high tariffs imposed by the US government on imported steel and aluminum, set at 25% and 10% respectively, Japan was not granted an exemption, which aroused strong dissatisfaction within the country. With the continuous aggravation of trade disputes with the US, Japan has felt a significant increase in pressure. US Vice President Mike Pence coerced Japan on trade during his visit to the country in November 2018, pointing out that the US “has had a trade imbalance with Japan for too long, and American products and services too often face barriers to compete fairly in Japanese markets.”11The White House, “Remarks by Vice President Pence and Prime Minister Abe of Japan in Joint Press Statements,” November 13, 2018, https://www.whitehouse.gov/briefings-statements/remarks-vicepresident-pence-prime-minister-abe-japan-joint-press-statements.He demanded the US trade deficit to Japan be slashed. The first round of trade negotiations between the two countries in April 2019 failed to produce any agreement, due to tremendous dissention on core issues such as agricultural products, auto tariffs, and digital trade standards. The Trump administration indicated that it would continue urging Japan to open up its agricultural market, and threatened to impose a 25% tariff on imported Japanese automobiles, which would increase the pressure on Japan to a painful level.

Similar to the situation in Japan, China is also facing enormous stress from US trade bullying. On July 6, 2018, the United States' 25% tariffs on $34 billion worth of imported Chinese products took effect, formally instigating the trade conflict between the two countries. Although the two sides were still conducting a series of high-level consultations in the aftermath, the US continued to impose “extreme pressure” on China. Chinese Vice Premier Liu He traveled to the US for the 11th round of highlevel trade talks on May 9, 2019, but as no agreement had been reached, the US raised tariffs on $200 billion worth of imported Chinese products from 10% to 25%. As long as no fundamental reconsideration can be perceived of Washington's “extreme pressure” strategy, the prospects of a successful conclusion of bilateral trade negotiations are far from optimistic.

Chinese Premier Li Keqiang and Japanese Prime Minister Shinzo Abe attend the 1st China-Japan Third-Party Market Cooperation Forum at the Great Hall of the People in Beijing, China, October 26, 2018.

In this context, common interests between China and Japan have been significantly expanding. Japan has acquired an increasingly clear position to cooperate with China and guard against the US in the economic and trade field, and its attitude toward the Belt and Road Initiative has also experienced a noticeable shift. On his China visit last year, Abe expressed his hope that third-party cooperation can be advanced while simultaneously avoiding fierce competition in countries along the Belt and Road. Japan's actions have not only created a favorable environment for cooperation between Chinese and Japanese enterprises, but have also been in line with its “strategic autonomy” in terms of economics and trade, which aims to weaken the negative influence of US trade bullying to the greatest possible extent.

Strong demands from domestic interest groups

While the US-initiated trade offensive is an external factor prompting Sino-Japanese third-party market cooperation, then strong appeals from Japanese domestic interest groups is an internal driving force. Following the merger of the conservative Liberal Party and Japan Democratic Party into the Liberal Democratic Party (LDP) in 1955, the 1955 system, in which the LDP constitutes the ruling party and the Japan Socialist Party (JSP) the opposing party, was established.12The 1955 system lasted for nearly four decades, with its fall marked by the emergence of the non-LDP multi-party coalition government led by Morihiro Hosokawa as Prime Minister.Under that system, an “iron triangle” composed of the bureaucracy, members of the National Diet representing specific industries or regional interests, and special interest groups, was formed in Japanese politics,13Within the “iron triangle,” special interest groups assist the Diet members in elections through political contributions and canvassing, while Diet members exert pressure on the bureaucrats responsible for making policies of different ministries, thus seeking favorable conditions for interest groups. On the part of bureaucrats, they rely on Diet members to pursue greater policy-making authority and a larger budget for their ministries, and after retirement, they often assume critical positions in big enterprises or research institutes under the auspices of interest groups. See Yu Uchiyama, “Actors and Policy-Making Patterns in Japanese Politics,” Quarterly Journal of Public Policy & Management, No.3, 2010, pp.3-5.which has exerted decisive influence on the country's foreign policy decision-making. In recent years, Japan has accelerated political reform, characterized by the centralization of power in the Prime Minister's Office, leading to a declining influence of the “iron triangle,” whereas interest groups still play a crucial role in Japan's formulation of foreign policy.

Keidanren, the Japan Association of Corporate Executives (Keizai Doyukai), and JCCI, collectively referred to as “Japan's triplet economic organizations,” are the most prominent interest groups. As major stakeholders in Japan's political decision-making, these groups possess tremendous clout in the formulation of the country's foreign policy, which became apparent in Japan's shift of position concerning its participation in the Belt and Road Initiative. Even though the Japanese government has come to adopt a “warm” attitude toward the initiative, there is still a “temperature difference” with these interest groups. On a visit to China in November 2017, Keidanren, together with other economic organizations, explicitly indicated their willingness to strengthen economic cooperation with China on the BRI by drawing on their technological advantages.14“Joint Business Delegation to China Values BRI-Included Cooperation,” Mainichi Shimbun, November 24, 2017, https://mainichi.jp/articles/20171124/k00/00m/020/078000c.However, METI threw a wet blanket over the proposal, and even suggested the Japanese economic community should handle cooperation with China's Belt and Road Initiative on ports, railways and security-related infrastructure projects in a cautious manner.15“Japanese Economic Community Should Remain Vigilant against Ports and Railway Projects in Exploration of Belt and Road Business Opportunities,” Nikkei, November 22, 2017, https://www.nikkei.com/article/DGXMZO23786930S7A121C1000000.This revealed the ambivalent attitude of the Japanese government: while responding positively to Belt and Road cooperation with China on the surface, it still harbored much hesitance and many misgivings.

Since 2017, Keidanren, Keizai Doyukai, JCCI, and the Japan-China Economic Association have been exerting pressure on the Prime Minister's Office, and have lobbied the government through Diet cliques and senior officials in different ministries, thereby accelerating the Japanese government's change of position on the Belt and Road Initiative and directly catalyzing the third-party market cooperation between China and Japan. In fact, Japanese enterprises involved in the aforementioned 52 bilateral agreements are basically all represented by the interest groups listed above, which demonstrates the crucially influential role that Japan's domestic interest groups are able to play. On the other hand, economic associations like Keidanren have served as a bridge for communication between Chinese and Japanese governments. Before Abe's formal visit to China in October 2018, Keidanren and other lobby organizations had paid multiple visits to China and effectively helped resolve disputes between the two sides by conveying their official policy concerns. In September 2018, a delegation composed of Keidanren, the Japan-China Economic Association and JCCI visited China for five days. In October of that same year, a Japanese delegation headed by former Prime Minister Yasuo Fukuda and Keidanren's Executive Chairman Hiroaki Nakanishi attended the fourth China-Japan Business Leader and Former High-Level Government Official Dialogue held in Beijing. Through repeated communication with the Chinese government, the risk of strategic misjudgment caused by asymmetry and incompleteness of information between the two sides was effectively removed, which helped high-level officials of both countries to enhance mutual trust and dispel concerns.

Active pursuit of Asia-Pacific economic leadership

The third-party market cooperation between China and Japan marks not only a major transformation of their economic relations in the course of the four decades since China's reform and opening-up, but it also signifies that Japan has to a great extent recognized the new regional cooperation model led by the Belt and Road Initiative, in which Japan, due of its participation, expects to regain economic dominance in the Asia-Pacific region. In the early phase of reform and opening-up, China acquired knowledge from Japan and introduced large amounts of Japanese capital, advanced technologies and management models, while forming a vertical system of labor division involving traditional primary goods and manufactured products between the two countries. To some extent, China was integrated into the Japan-led Asian “flying geese paradigm.” After the 1990s, with the upgrade of China's industrial structure and the continued stagnation of Japan's economy, the industrial division and transfer pattern in Asia with Japan as the leader had gradually disintegrated, and the “flying geese paradigm” started to decline. In 2010, China surpassed Japan in terms of GDP, and the overseas investment of Chinese enterprises has since witnessed rapid growth in lockstep with a further upgrade of its domestic industrial structure. In the next five years, labor- and capital-intensive industries in China are expected to successively transfer their operations to neighboring states along Belt and Road routes, on the basis of their comparative advantages in labor costs and resource endowments, which will boost the industrial upgrade of those countries.

As the Japan-led Asian “flying geese paradigm” began to fade and China's Belt and Road Initiative became a new engine of regional cooperation, Japan, reluctant to relinquish its dominant position in the Asia-Pacific economic area, has in recent years adopted a combination of measures on multiple fronts. Besides the launch of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and further negotiations on the RCEP and the China-Japan-South Korea FTA, conducting cooperation in third-party markets with China in countries along Belt and Road routes has become another major strategic response of Japan. Cooperation with China is not only conducive to Japan's integration into the new regional cooperation process, but is also expected to bring Japan's own advantages into full play and strengthen its economic influence on Belt and Road countries, thus offering Japan an advantageous position for its pursuit of Asia-Pacific economic dominance.

Obstacles for Japan to Engage in Third-Party Market Cooperation with China

By receiving sufficient support from beneficial factors, cooperation in thirdcountry markets between China and Japan has experienced a promising start and can unfold enormous potential. However, constrained by domestic and international politics, Japan has kept some reservations about the cooperation and may even create obstacles for its advance.

First, Japan has imposed multiple limitations on the participation of its enterprises in third-party markets. The Japanese government with its still vigilant attitude toward China has set a number of restrictions to its companies' engagement in the Belt and Road Initiative and in thirdparty market cooperation. While identifying energy conservation and environmental protection, industrial upgrade and logistics facilitation as key areas for cooperation, the government has remained sensitive in some “special fields,” even “strongly suggesting” that the economic community should be selective when choosing cooperation projects. Classifying relevant Belt and Road infrastructure projects as security-related and nonsecurity-related, the government discourages cooperation with China on ports, railways, airports and other projects that can be used for military purposes.16Lu Hao, “Japan's Policy towards the Belt and Road Initiative: Process, Characteristics, and Driving Factors,” Japanese Studies, No.3, 2018, p.70.

Second, the duality of Japan's position on the Belt and Road Initiative remains. Japan believes that the liberal international order and its rules, which were introduced after World War II, have always been the foundation of its peace and prosperity. Japan relies on this order perhaps more than any other country.17Wu Huaizhong, “Japan Seeking ‘Strategic Independence': Initiatives, Motivations and Constraints,” p.105.However, the United States, as the main originator and guarantor of that order, has shown a tendency of strategic contraction since Donald Trump, who has been advocating his “America First” policy, took office in 2017. The US seems no longer willing to maintain the multilateral free trade and global economic governance system at all costs.18Ibid., p.106Japan has thus come to conclude that the liberal international order has plunged into substantial instability and uncertainty. In this context, Japan intends to explore new avenues of economic cooperation to hedge against this detrimental influence, and its conditional acceptance of the Belt and Road Initiative and the decision to conduct third-party market cooperation are typical corresponding measures. Fundamentally, Japan still regards the Belt and Road Initiative as a Chinese attempt to reshape the regional order, and therefore it hopes to cooperate with China only in specified areas in order to gain economic dividends. Hiroshige Seko, Japan's Minister of Economy, Trade and Industry, once publicly indicated that Japan's third-party market cooperation with China has nothing to do with the Belt and Road Initiative.19“Japan-China Cooperation in Thailand Is Part of Belt and Road Initiative: China,” The Sankei News, March 6, 2019, https://www.sankei.com/world/news/190306/wor1903060026-n1.html.Therefore, while Japan's attitude toward the initiative has officially turned positive, its genuine intention is to gain real benefits by leveraging the initiative to its advantage; its strategic path to balance the influence of the Belt and Road Initiative in several ways has not been completely abandoned.20Lu Hao, “Japan's Policy towards the Belt and Road Initiative: Process, Characteristics, and Driving Factors,” pp.63-81.This is especially evident in its promotion of the Asia-Africa Growth Corridor together with India, its trilateral partnership with the United States and Australia, and its joint promotion of infrastructure investment in the Indo-Pacific region.21Lou Chunhao, “The Asia-Africa Growth Corridor: Content, Motivation and Prospects,” China International Studies, No.2, 2018, pp.131-152.

Third, the cooperation projects cannot be fully funded by Japan. In its third-party market cooperation with the US and India, Japanese enterprises essentially rely on governmental financial institutions such as JICA and JBIC as financing and investment channels, whose capital chain cannot even be fully sustained. The reasons are twofold. First, Japan has not established specific financing mechanisms for third-party cooperation, making its firms' financing channels rather limited. Currently, the Japanese government has not set up special investment funds for third-party cooperation, and the Asian Development Bank, which is dominated by Japan, is also inactive in financing companies involved in such cooperation. With only JICA and JBIC available, access to funds for Japanese enterprises is severely hampered. Second, as far as current financing channels are concerned, JICA and JBIC have adopted an overly cautious approach in the risk assessment of projects that domestic companies wish to participate in. Due to stringent financing conditions and complicated approval procedures, the efficiency of financing mechanisms is low. In its report “Toward Overseas Expansion of Strategic Infrastructure System,” which was submitted to the Japanese government in March 2019, Keidanren has called attention to these deficiencies.22Keidanren, “Toward Overseas Expansion of Strategic Infrastructure System,” http://www.keidanren.or.jp/policy/2019/024_gaiyo.pdf.This inadequate condition is also in urgent need of improvement when Japan conducts third-party cooperation with other countries.

Fourth, the United States has been wooing and pressuring Japan. Besides Japan's own major misgivings and reservations about the Belt and Road Initiative, the US Indo-Pacific strategy has also brought about adverse influence on China-Japan third-party cooperation efforts. Since 2018, the US has unveiled multiple specific policies under the Indo-Pacific strategic framework, to simultaneously advance initiatives in the fields of security and economy. In terms of security, the successively released 2018 US National Defense Strategy and the East Asia and the Pacific Joint Regional Strategy outline the US approach to move forward its Indo-Pacific strategy with allies and partners, by promoting Indo-Pacific multilateral maritime security cooperation.23US Department of Defense, “Summary of the 2018 National Defense Strategy of the United States of America,” January 19, 2018, https://dod.defense.gov/Portals/1/Documents/pubs/2018-National-Defense-Strategy-Summary.pdf; US Department of State Bureau of East Asian and Pacific Affairs, and USAID Bureau for Asia, “East Asia and the Pacific Joint Regional Strategy,” https://www.state.gov/wp-content/uploads/2019/01/JRS_EAP-UNCLASS-508.pdf.With the Asia Reassurance Initiative Act formally taking effect at the end of 2018, it has become an economic policy focus of the US to boost “high-quality” and “transparent” infrastructure investment in the Indo-Pacific.24US Congress, “S.2736- Asia Reassurance Initiative Act of 2018,” December 31, 2018, https://www.congress.gov/bill/115th-congress/senate-bill/2736/text#toc-H1736A89135404258AFF1BC4E7 A5555D0.The US Indo-Pacific strategy is to a great extent a safeguarding response to the Belt and Road Initiative, especially in the economic field. While accusing China of creating “debt traps” in countries along Belt and Road routes, the US has been trying to work with Japan and other allies to hedge against the Belt and Road Initiative with high-quality infrastructure investment, casting a shadow over China's third-party market cooperation with Japan.

Conclusion

Reviewing the experience and lessons in the development of Sino-Japanese relations, it is not difficult to recognize that both countries would benefit from cooperation and lose from conflicts. Third-party market cooperation is a brand-new path for the two sides to achieve win-win outcomes as well as steady and sustainable bilateral relations.

First, conducting third-party cooperation is conducive to avoiding irrational power play, by encouraging both sides to bring their respective advantages to the fullest extent. Over the course of many years, the domains of China's and Japan's foreign investment and their foreign investment structures have acquired many similar characteristics, leading to increasingly intensive competition.25Jiang Yuechun, “The Belt and Road Initiative and China-Japan Economic Cooperation,” China International Studies, March/April 2018, p.166.Particularly in Southeast Asia, the irrational contest between the two countries has seriously undermined the advantages of both. However, Chinese and Japanese economies are still highly complementary: while Japan leads in advanced and core technologies and possesses rich experience and a sound network in overseas operations, China has its competitive edges in terms of workforce, project implementation, cost control, capital availability and industrial capacity.26Ibid.The two countries' joint exploration of cooperation opportunities in third-party markets is expected to create definite win-win outcomes.

Second, by making progress in the area of third-party markets and accumulating positive results from functional cooperation, the bilateral relations can develop into a healthy and stable direction, creating a way out from the long-lasting vicious cycle going from reconciliation to improvement, but again falling back into tension and deterioration. Besides structural constraints originating from the Japan-US alliance, realistic disputes in the East China Sea and Diaoyu Islands, the issues of history interpretation and visit to the Yasukuni Shrine, the bilateral ties since the resumption of diplomatic relations have also been deeply influenced by economic and trade cooperation, which serves as the anchor of bilateral relations, but have also witnessed long stagnation and even regression. According to statistics, the bilateral trade volume was $274.8 billion in 2016, with a 1.3% year-on-year decline, registering negative growth for five consecutive years. The proportion of trade with Japan in China's overall foreign trade volume has also declined in recent years to a historic low of 7.5%. Reviewing Japan's investment in China, there were 576 new Japanese enterprises set up in China in 2016, down 10.4% year-on-year; the capital actually put in place was $3.1 billion, down 3.1% year-on-year and witnessing a decline for four years in a row.27“Basic Information of China-Japan Economic and Trade Relations,” Ministry of Commerce of China, September 27, 2017, http://yzs.mofcom.gov.cn/article/t/201709/20170902651392.shtml.The state of bilateral relations, characterized by apathy both in political and economic terms, has weakened, even shaken, the foundation for rapprochement. Even though the bilateral trade volume and Japan's investment in China both registered a recovery after 2017, it remains uncertain whether the figures might plummet again due to unforeseeable fluctuations in their relationship. Third-party market cooperation, by blazing a new trail for joint economic activities, can to some degree reduce the downturn risk of traditional Sino-Japanese economic and trade ties. The accumulation of positive outcomes, the expansion of cooperation areas, and the elevation of cooperation level in third-party markets will effectively strengthen the base of China-Japan relations and enlarge the sphere of common interests of the two sides.

While third-party market cooperation will benefit both China and Japan, historical experience shows that such cooperation could also be affected by diplomatic and economic frictions between major partners. Therefore, maintaining overall stability of China-Japan relations is crucial for advancing third-party cooperation. Meanwhile, with regard to the relationship between relevant cooperation projects and the countries where these projects are carried out, China should learn lessons from Japan-US and Japan-India third-party cooperation, and strengthen communication with the host countries at state and enterprise levels in order to dispel misunderstanding. At the state level, China and Japan should engage in effective communication with high-level officials of the host countries using multiple channels such as international conferences and summit talks, to proactively resolve any potential disputes. At the enterprise level, the two countries should work together in conducting public diplomacy in host countries, and prevent political mishaps by building amicable relations with local governments, people, media and non-governmental organizations. By promoting localized operations, they can fulfill their social responsibilities and benefit the local community. By integrating into local society, they can overcome cultural barriers and minimize conflicts stemming from differences in cultural concepts.28Fan Jixiang, “Public Diplomacy Facilitates Enterprises' ‘Go Global' Efforts,” March 8, 2013, http://politics.people.com.cn/n/2013/0308/c70731-20727788.html.In the face of technical obstacles regarding capital formation and project implementation, China and Japan can show flexibility and actively guide the Asian Infrastructure Investment Bank, the Asian Development Bank and other financial institutions to participate in third-party market cooperation projects, thus expanding financing channels from Chinese and Japanese enterprises and mitigating their financial distress. As for those confounding political and long-term historical factors, China should value the cultivation of friendly relations with Japan as the overarching principle, pursue tangible outcomes of third-party market cooperation with Japan, and strive for Japan's full recognition of the Belt and Road Initiative, thus establishing a real China-Japan economic community of shared future and bringing substantial benefits to the two peoples.