The re-emergence of China as Asia’s leading power may cause more soul-searching, internal debate and policy change in Japan than anywhere else outside of China. The rough coincidence of China’s economic takeoff over the last three decades with Japan’s relative economic decline solidifies the connection between China’s present rise and Japan’s self-questioning. The contrast in these national trajectories is profoundly influencing Japan’s self-identity, its perception of external threats and its economic interests.

Japan’s Lost Identity

Modern Japan’s international identity has been intimately tied to the country’s rivalry with China in both domestic and external affairs. Traditionally, Japan used imperial China as its political model. In the year 710, Japan established its first permanent national capital, Nara, as a direct replica of the Chinese capital city of that time. Over a millennium later, the ability of Western powers to “break down the door” of imperial China served as a salutary warning to the Japanese. Modern Japan’s first military engagement came in 1894, less than 30 years after the overthrow of the Tokugawa shogunate, when it decisively defeated imperial China to win control of the Korean peninsula.

This war, the first of the two Sino-Japanese Wars, symbolized the replacement of China by Japan as Asia’s most powerful nation. A decade later, Japan’s victory over Russia in a naval battle symbolized Japan’s entry into the first rank of global powers. Japan’s traditional role as Asia’s leading power and the only Asian power with a seat at the table of global power  has been a key source of modern Japan’s self-identity, pride and the way it has been perceived by others. As a result, many in the Japanese political and economic elite see their country as the only to be Asian culturally while maintaining material strength on the level of Western powers. For the rest of the world, Japan’s economic dynamism and cultural distinctness led to a similar hybrid view of Japan, both Asian and Western.

For decades, Japan was Asia’s only advanced economy, serving as a model for its neighbors. It is still the only Asian economy represented in the G7, the “informal steering committee of the global economy.” Japan’s economic success helped create an integrated Asia through trade and investment flows. Moreover, for most Asian countries, Japan has been the leading Asian export market and source for imports.

Today, this is either no longer true or not as significant. China is Asia’s largest and the world’s second-largest national economy, a fact that triggers global fascination and talk of a new geopolitical model, the “Beijing Consensus.” China’s hothouse economy now acts as the leading source of exports, and destination for imports for most other Asian economies. In the 1980s and early 1990s, the US and Europe were concerned about the potential for Japanese economic domination, hammering Japan over its mercantilist exchange rate policy. But today, China, with a population ten times that of Japan and with much more scope to continue to industrialize, stirs similar fears and policy reactions across the West.

When postwar Tokyo hosted the 1964 Olympics, Japan was globally seen as the face of modern, dynamic and exotic Asia. In 2008, China played host to the games and — while topping the medal tally — had taken over that mantle. Later that same year, President George W. Bush called the first leaders’ meeting of the G20, which includes China, a move that helped this larger and more representative group rise in importance over its creator, the G7. For Japan, the elevation of the G20 to leaders level and its apparent eclipsing of the G7 came at a particularly inopportune time as its economy had been battered much more severely than China’s by the global financial crisis. The elevation of the broader G20  coincided with a growing discussion of a new “G2” relationship between the China and the US. The G2 idea triggered great consternation in Japan because it reinforced a sense of the loss of Japan’s image as Asia’s leading economy and the United States’ most important relationship in Asia.

Japan’s Strategic Fears

China’s economic rise is unsettling Japan in more concrete ways than the erosion of its proud self-image. The impressive pace of China industrialization and economic dynamism is providing the state with the means for rapid military modernization. While Japanese annual defense spending has remained under 1 percent of GDP for decades, China’s officially announced annual defense spending has witnessed annual double-digit increases in nine of the last ten years. In 2008, the Stockholm International Peace Research Institute (SIPRI) estimated that China boasted the world’s second-largest defense budget, now over twice the size of that of Japan. According to polling data, the share of Japanese people who perceive China as a threat to Japan has quadrupled in the past decade, with North Korea the only country viewed as more threatening.

In the last few years, this sense of fear has been aggravated by increasingly common incidents in areas of sovereign disputes between China and Japan in the East China Sea. One example is the series of Chinese naval convoys passing close by the Okinotori islet, which Japan claims as sovereign territory but China does not recognize as such. Furthermore, just days after Japan’s devastating triple disaster centered in Fukushima, a Chinese maritime helicopter flew within meters of a Japanese naval vessel in the vicinity of the disputed Senkaku/Diaoyu Islands, sparking anger in a shaken Japan and the lodging of a formal diplomatic protest. An earlier flare-up in the same area, this time triggered by a collision between a Chinese fishing trawler and a Japanese coast guard vessel, led the US to reassure Japan and warn China that Article 5 of the US-Japan alliance covers the Senkaku islands as Japanese administered territories. Hence, any Chinese attempt to take over the islands would trigger a combined US-Japan response.

The People’s Liberation Army’s continued expansion and modernization of its nuclear arsenal is a further source of fear for Japanese defense planners and is leading to a questioning of Japan’s long-standing “Three Nuclear Nos”: no possession, production or permitting the introduction of nuclear weapons into Japan. China is one of the few nuclear-armed states expanding its arsenal, and its focus on short- and medium-range weapons are of particular for China’s many neighbors.

It is not only China’s nuclear advances that are stoking fear in Japan. The perception of a threat emanating from North Korea has deepened considerably in Japan since the mid-1990s. In 1996, North Korea test-fired missiles over Japanese territory and a decade later a nuclear device. In 2011, North Korea sank a South Korean naval vessel and shelled South Korean civilians on a disputed island. In all of these cases, China, North Korea’s only ally, has provided it with steadfast diplomatic support and used its veto-wielding seat in the United Nations Security Council to shield North Korea from the consequences of its hostile acts. While Japan’s fear of China’s military intentions and capabilities are growing, so are its fears of China’s continued embrace of North Korea. These fears have already pushed Japan to strengthen its strategic and diplomatic ties with the United States, India, South Korea, Australia and other partners that feel equally uneasy when it comes to China’s future strategic intentions. In 2007, Japan signed a Joint Declaration on Security Cooperation with Australia that is now backed by a deference logistics treaty. This year, Japan again joined the United States and India in the Malabar series of naval exercises that were held off the coast of Okinawa for the first time.   

 Japan’s Fragile Economy

While China’s re-emergence as Asia’s leading power is for the most part diplomatically and strategically disadvantageous for Japan, China’s economic dynamism is of great benefit to Japan’s struggling economy. China’s economic rise coincides with the aging of Japan’s population and the economic maturation of Japan’s domestic economy.

Fortunately for both, the world’s second- and third-largest economies are quite complementary. In 2004, China topped the United States as Japan’s largest trading partner. Today, roughly 20 percent of Japan’s exports go to China while Japan receives the same share of its total imports from its giant neighbor. Last year, Japan’s total trade with China grew an impressive 30 percent year on year, with Japanese exports outpacing this at 36 percent growth. Japan’s gross national product as a whole grew at 3.9 percent in 2010. Japan’s ambassador to China, former general trading company executive Uichiro Niwa, suggested that Japanese firms affected by the triple disaster shift production to China. The last trilateral meeting between South Korea, Japan and China focused on freer trade and investment flows among the three countries as a way of helping Japan recover.

The commercial interests of Japan’s largest and most successful manufacturing firms are pressing for increased cooperation with China. Still, Japan’s security concerns and psychological challenges in letting go of its self-image as Asia’s leader press it in the opposite direction. Not surprisingly, a growing debate has arisen in Japan about how to manage relations with its powerful neighbor. From 2001 to 2006, diplomatic and security tensions prevented Chinese and Japanese leaders from meeting bilaterally. At the same time, though, Japan’s economy became increasingly intertwined with China’s. As a result, Keidanren, Japan’s most important business association, made a very rare public intervention and called for a change in Tokyo’s China policy. But the rising number of clashes between the two powers and the public reactions these spark in both countries make such rapprochement a tall task.

Persisting Tensions

It is telling that the first change of government in Japan in over 50 years, from a conservative to a left-leaning government in 2009, has failed to reduce tensions between China and Japan, particularly on the security front. The 2010 National Defense Policy Guidelines call on Japan to boost its force projection capabilities, focus more on the defense of remote islands such as the Senkakus and transfer forces from northern Japan facing Russia to southern Japan and the East China Sea.

China’s rise to Asian supremacy is simultaneously triggering a sense of loss, fear and hope in Japan. The confusion plaguing the Japanese national psyche coincides with significant social and political changes in the face of the country’s economic stagnation and worrying demographic and fiscal trajectories. One should not expect clarity from Japan when it comes to addressing the rise of China. Instead, one can expect contending pressures from the business sector to deepen ties with China and from the strategic community to be decidedly wary of China. The only certainty is that Chinese-Japanese relations will play a central part in Japanese popular politics for years to come.