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Initially, when China struck an economic deal with U.S. President Richard Nixon in 1973, the Japanese were shocked. They were not participants in any of the economic and trade negotiations that began immediately after Nixon's China trip. The political upheavals in China during the 1970s further prevented the Japanese from engaging with China.
Later, with Deng Xiaoping as supreme leader, things began to change. The United States put full faith in him, and Japan grudgingly followed. Trade between China and Japan began to take shape in 1978. Soon it was boosted significantly -- to US$20 billion in 1985. But the age-old enmity between China and Japan never seemed to go away, though it was kept on the back burner in favor of burgeoning commercial relations.
The Japanese salivated at the Chinese market and began major investment plans in competition with the United States. By 2000, there were as many as 20,000 Japanese stationed in China as trade representatives, technicians, financial representatives, etc. Around that time Japan became China's largest trading partner. Yet the new Sino-Japanese relationship was never free of disputes.
Economic and trade issues aside, the big obstacle to the Sino-Japanese relationship has been due to the resurgence of cultural, historical and political issues. The history books in Japanese schools glorify Japan's occupation of China and visits by the Japanese prime minister to the Yasukuni Shrine where World War II soldiers are honored repeatedly upset the Chinese.
On the flip side, the Japanese felt that economic and technical aid to China was in fact helping that country build a bigger and more mighty military that could one day threaten Japan. Anti-Japanese riots in China in the spring of 2005 were the ultimate nail struck in the coffin of the Sino-Japanese relationship.
Enter India on the world stage in 2005. The country had been achieving spectacular economic growth in the previous 10 years. It was open, democratic and no threat to Japan. Japanese businessmen argued that in order to put Japan's economy back on a high growth trajectory they would have to invest somewhere other than China to cut manufacturing costs. India was an obvious choice. The warming relationship between Japan and India today is a direct result of that.
Initially the Japanese were not sure about India, with its chaotic democracy, heavy-handed bureaucracy and lack of infrastructure. But the Indo-U.S. nuclear deal of 2005-07 spurred the Japanese into action. If the United States had confidence in India, Japan would too. Thus began the slow but orderly process of transforming Japan-India relations.
India recognized Japan in 1952, immediately after the Allies handed over local governance to the Japanese. In 1958, Japan participated in the World Bank-sponsored creditor countries meeting for India. Later, Japan began to contribute aid to India in a big way. Every year since 1986, Japan has been the first or second largest aid provider to India. In 2004 Japanese assistance amounted to US$400 million in grants, US$180 million in technical aid and over US$4 billion in loans to finance trade and development.
Today, Japan is India's fifth largest trading partner, with US$5 billion in two-way trade. These trade figures are very discouraging -- the potential is for US$50 billion trade in five years.
Trade handicaps include a lack of manufacturing infrastructure in India. To date Japanese investment has been largely to enhance the manufacturing base to supply the domestic market. Lately they have begun to explore the country's export potential, taking into account low labor costs. Therein lies the main thrust of Japan's interest in India today. Also, India's information technology infrastructure and its IT capabilities have attracted the interest of Japanese business and industry.
Sensing this growing interest, Indian Prime Minister Manmohan Singh visited Japan in December, 2006. There he emphasized foreign direct investment, trade and strategic ties. Japanese Prime Minister Shinzo Abe paid a reciprocal visit to India in August this year, just after India completed the Indo-U.S. nuclear deal and its associated 123 Agreement.
Abe brought 250 businessmen, university scholars and trade experts. He offered assistance in building the Delhi-Bombay industrial super highway, spanning six states and Delhi. Construction is supposed to begin immediately and be completed in four years. Along this super highway will be built industrial parks, economic zones, mega power plants, airports and everything else needed to build an industrialized society.
This industrial corridor will cost close to US$150 billion and the Japanese will participate in a big way. This will open up more business opportunities between India and Japan, leading to an exponential rise in two-way trade. Japan will shift a huge amount of its manufacturing base to India, roughly as the United States has done with China. This will be a big kick-start for the Indian economy.
In this way, Abe made the first major attempt to strategically align India and Japan. This, together with growing Indian strategic ties with the United States, will put India on track to achieve its major power status both economically and politically.
For Japan, the security of its trade and oil import routes is paramount. It worries about an interruption of its oil supply if a hostile power were to block Indian Ocean routes or even the Straits of Malacca. The Japanese feel that this policing role is better played by India than by either the United States or Japan. In order to meet this need, India has been encouraged to develop more rapidly and build a mighty navy, which will prevent excessive Chinese influence in the area and maintain calm in the region.
The first few steps in this overall picture are already in place. Although Japan has stopped short of unconditional support for the Indo-U.S. nuclear deal, it let it be known that the initiative is good for both countries and it will not stand in the way of the Nuclear Suppliers Group's approval. The two prime ministers also agreed to a yearly summit and complete negotiations on a Comprehensive Economic Partnership agreement.
Overall Japanese interest in India is strategic and political. India's interest is both of those and also economic. It should be remembered that the Japanese still have a pacifist Constitution that prohibits them from building a strong military. They did not like it when India tested its nuclear bombs in 1974 and 1998, and suspended cooperation for awhile. This may happen again. But the Japanese did not suspend cooperation with China when it continued to test nuclear bombs until 1995. The Indo-U.S. nuclear deal may alter that.
It is a good thing that Japan and India have begun this mutually beneficial cooperation. India will safeguard Japan's interests in the Indian Ocean, and in return Japan will invest in India in a big way.
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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
