• 1 Peter Dutton, “Three Disputes and Three Objectives: China and the South China Sea,” Naval War Colle (...)

1Territorial disputes in East Asia continue to be a source of tension between countries in the region. In the South China Sea, China, Taiwan, the Philippines, Vietnam, Brunei, and Malaysia argue over the ownership and control of islands that would give them exclusive access to substantial oil and natural gas resources.1 The Liancourt Rocks, also known as Dokdo or Tokto in Korean and as the Takeshima Islands in Japanese, represent another territorial dispute that continues to plague the region. Most significant, though, is the ongoing territorial row over the Senkaku/Diaoyu islands, which are claimed by Japan, Taiwan, and mainland China.

• 2 AFP, “High-seas collisions trigger Japan-China spat,” Google News, 7 September 2010, www.google.com (...)
• 3 Martin Fackler and Ian Johnson, “Arrest in disputed seas riles China and Japan,” The New York Times(...)
• 4 Mure Dickie and Kathrin Hille, “Japan’s arrest of captain angers Beijing,” Financial Times, 8 Septe (...)
• 5 “9.18 shijian 79 zhounian Zhongguo duochu chuxian fanRi shiwei,” Lianhe zaobao, art. cit.
• 6 “Companies seek to reduce reliance on Chinese rare earths,” Asahi Shimbun, 25 September 2012, http: (...)
• 7 “Japan arrests pro-China activist swimmers in island row,” BBC News, 15 August 2012, www.bbc.co.uk/ (...)
• 8 Yoko Wakatsuki, “Japanese prime minister accuses Chinese navy ship of ‘dangerous’ act,” CNN, 6 Febr (...)
• 9 Jonathan Manthorpe, “China’s goading boosts Japan’s right wing,” Vancouver Sun, 13 November 2012, w (...)

2In the autumn of 2010, a Chinese fishing vessel rammed a Japanese Coast Guard vessel in the area surrounding the Senkaku/Diaoyu islands.2 The captain, a Chinese national, was arrested and incarcerated in an Okinawan jail to await trial for his infringement of Japanese territory and for damaging the Japanese Coast Guard vessel.3 The arrest of the fisherman resulted in a public outcry against the Japanese government in China and demands to have the fisherman released and repatriated.4 More significantly, the Chinese response to this incident involved tacit trading sanctions, namely a limit on the export of rare earth materials to Japan and Japanese businesses within China and, according to the Japanese embassy in Beijing (personal communication, 11 November 2011), an informal boycott of Japanese products in China.5 Japanese businesses affected by this embargo, in cooperation with the Japanese government, responded by reducing their dependence on China for rare earth materials through intensifying exploration and mining in other parts of the world (Japanese embassy in Beijing, personal communication, 11 November 2011).6 Following the return of the detained fisherman to China on 24 September 2010, Sino-Japanese tensions over the disputed islands returned to their pre-clash levels until the nationalist Governor of Tokyo, Shintaro Ishihara, made a proposal to purchase the disputed islands from their private owner in early April 2012, leading to the re-emergence of tension in August 2012, when a group of Taiwanese and Hong Kong activists landed on the Senkaku/Diaoyu islands.7 This landing was followed by aTokyo lawmaker also landing on the island and Japanese government negotiations to purchase the remaining islands from their private owner in an effort to prevent Governor Ishihara from purchasing the islands.8 In China, the Japanese move to nationalise the islands was interpreted by analysts and citizens as an instance of overt coordination between Governor Ishihara and the then PM Noda rather than an effort to prevent a provocative figure from gaining control of the disputed islands.9 For many, it was inconceivable that a local leader such as Governor Ishihara could “engage in the purchase of these islands without collusion with the national government” (Interview with Chinese scholar in Beijing, 11 October 2012).

• 10 “Dangerous Waters: China-Japan Relations on the Rocks” Crisis Group Asia Report, No. 245, 8 April 2 (...)
• 11 “Zhongguo hanwei Diaoyudao zhuquan youliyouju” (China has every reason and right to defend sovereig (...)
• 12 “Pekin no Nihon daishikan ni susennin, toseki mo Chugoku hannichi demo” (Thousands protest and thro (...)
• 13 “China blames Senkaku dispute on Japan’s failure to end militarism,” Kyodo News, 19 November 2012, (...)
• 14 “Anti-Japan protests in China swell, turn violent,” Associated Press, 15 September 2012.

3On 11 September 2012, PM Noda announced the purchase of the disputed islands from their private owner, resulting in a fierce backlash from the mainland Chinese government and its citizens,10 including “a string of measures, termed ‘combination punches’, that bore the hallmarks of a well-planned campaign with multi-agency coordination and high-level decision making,”11 as well as a less bellicose reaction by citizens in Hong Kong and Taiwan.12 At the government level, China cut off communications and began a vocal campaign that blamed Tokyo for the dispute because it had “failed to liquidate militarism.”13 At the popular level, there were widespread anti-Japanese riots, boycotting of Japanese products, and vandalism directed against Japanese businesses and Japanese business interests throughout mainland China.14

• 15 Hongyi Nie, “Explaining Chinese Solutions to Territorial Disputes with Neighbour States,” Chinese J (...)
• 16 Ibid., p. 522.

7International relations scholars have spent considerable effort to understand the approaches that states utilise in territorial dispute resolution. Approaches vary from compromise and concession to aggression and war. Nie Hongyi, in his 2009 article “Explaining Chinese Solutions to Territorial Disputes with Neighbour States,” attempted to examine why China took hard-line policies in certain territorial and border disputes while a more concessionary approach in others.15 Employing domestic politics-oriented theories, transition theories, equilibrium theory, and institutional theories to explain China’s approaches to dealing with territorial disputes, Nie demonstrated that “China resolved disputes with states that did not have expansionary territorial designs through negotiations that emphasised mutual understanding and tolerance, and worked towards a mutually beneficial and equitable solution.”16 Nie’s comparative study of border disputes between China and the USSR, China and Vietnam, and China and India in the post-WWII period demonstrated that China’s approach to territorial disputes has grown and adapted hand-in-hand with its growing economic clout.

• 17 Thomas J. Schoenbaum (ed), Peace in Northeast Asia: Resolving Japan’s Territorial and Maritime Disp (...)
• 18 Kimie Hara, Cold War Frontiers in the Asia-Pacific: Divided Territories in the San Francisco System(...)

8The above theoretical approach contrasts with that of the editor of Peace in Northeast Asia: Resolving Japan’s Territorial and Maritime Disputes with China, Korea and the Russian Federation. Thomas J. Schoenbaum’s prescriptive approach to territorial settlement is based on three separate negotiated agreements between Korea-Japan, Japan-China, and Japan-Russia.17 Instead of positing a simplistic dichotomy between strategies for the resolution of territorial disputes characterised by “concession” or “aggression,” Schoenbaum emphasises negotiations among interested parties to balance their national and regional geopolitical needs in a historical and legal context framed by international law. This negotiation-based approach resonates with Kimie Hara’s dispute resolution recommendations, although the details of the negotiated settlement differ.18

• 19 Paul O’Shea, “Playing the Sovereignty Game: Understanding Japan’s Territorial Disputes,” PhD disser (...)
• 20 Ibid., p. 22.
• 21 Ansuya Harjani, “Japan economy to contract as China dispute bites: JPMorgan,” CNBC, 8 October 2012, (...)
• 22 Allison Jackson, “Island dispute disrupts Sino-Japanese trade,” Financialist, 30 January 2013, www. (...)

9Other scholars have conducted their analysis of territorial disputes on the basis of the sovereignty game framework, which takes “the ability to exercise sovereignty over a territory and to have that sovereignty recognised, as the basic desire of a state involved in a territorial dispute.”19 For O’Shea, Japan and China have adopted more uncompromising positions on the territorial issue at the expense of weakening their bilateral relations.20 China has prevented Japan from exercising complete and comprehensive sovereignty and pressed its own claims, while Japan has been able to limit China’s claims on the islands by pressing the status quo. At the same time that they have secured their own and weakened each other’s interests, Chinese approaches to the escalated territorial tensions in fall 2012 resulted in mutually unbeneficial economic disruptions.21 On the Japanese side, exports to China plummeted, while at the same time important exports of small machinery parts for manufacturing bases in China also dropped, having a deleterious effect on manufacturing in China.22

• 23 Eric Hyer, “The South China Sea Disputes: Implications of China’s Earlier Territorial Settlements,” (...)
• 24 “An Chih-yuan refuted Japanese representative’s absurd statement about Tiaoyu Island,” Peking Revie (...)
• 25 Eric Hyer, “The South China Sea Disputes,” art. cit., p. 44.

10The changing structure of the international system has also been evoked in analyses of how China has dealt with territorial disputes.23 Hyer argued that the different approaches taken by China via territorial disputes that exist within the East and South China Sea could be attributed to the necessity of counterbalancing the USSR during the Cold War. Maintaining the status quo regarding the Sino-Japanese territorial dispute during the Cold War period, Beijing moderated its rigid position on the territorial issue. Beijing made it clear that China “absolutely will not permit” the territorial dispute to “sow discord in the friendly relations between the Chinese and Japanese people.”24 According to Hyer’s interpretation, because of a change in the perception of Japan’s role in China’s foreign policy, “Japan’s ‘wicked tactic’ of ‘postponing resolution’ had become a virtue; flexibility was completely acceptable in the pursuit of entente with a former enemy, Japan, in order to confront a former ally, the USSR, which had become the preeminent threat to China’s security.”25

• 26 Paul O’Shea, “Playing the Sovereignty Game,” art. cit.; Hongyi Nie, “Explaining Chinese Solutions t (...)
• 27 Yuka Hayashi and Brian Spegele, “China Irks Japan with patrol-ship incursion,” Wall Street Journal, (...)

12Using the “sovereignty game framework” espoused by O’Shea and Nie’s thesis that “China resolved disputes with states that did not have expansionary territorial designs through negotiations that emphasised mutual understanding and tolerance, and worked towards a mutually beneficial and equitable solution,”26 I hypothesise that the territorial dispute between Japan and China has shifted away from a concessionary-based, quiet diplomacy approach towards an approach that clearly recognises the reorganisation of the international system and relative economic weakening of key players in that system (Japan and the US). China has taken a more assertive approach to exerting its territorial claims vis-à-vis the Japanese by eschewing its historical pattern of resolving disputes through negotiation and making concessions based on mutually equitable and acceptable terms. In terms of O’Shea’s sovereignty game framework, it could be argued that China’s recent assertive behaviour regarding the disputed territories demonstrates that it has been able to unbalance Japan’s unquestioned sovereignty through repeated incursion into Japanese territory involving both military and non-military vessels.27 More assertive behaviour from China is also indicative of the success of political groups that advocate more aggressive approaches to territorial issues over those that stress the economic risks associated with a decline in bilateral relations. This more unyielding approach to territorial disputes may also be indicative of territorial dispute strategies that may be applied in other territorial disputes within the region and particularly in the South China Sea.

• 28 Maruyama Nobuo, “Nihon keizai kankei” (Sino-Japanese economic relations), in Okabe Tatsumi (ed), Ch (...)

13Trade relations between Japan and China have mostly expanded in the post-WWII period. Maruyama breaks down this economic development into four periods: (1) The 1950‑60s, in which trade was mostly private sector-oriented but also involved small-scale, selected, pro-Chinese firms; (2) the 1970s, in which intergovernmental trade (encouraged by both governments and facilitated by Japanese Overseas Development Aid) began to flow following the normalisation of Sino-Japanese relations; (3) the 1980s, when there was substantial improvement of bilateral economic cooperation that occurred in concert with Deng Xiaoping’s stewardship over China; and (4) the mid-1980s onward, which witnessed the rise of a more equal trade relationship through direct investment and stabilisation of the Chinese economy and political governance.28 This account of the shifting patterns of economic relations between the two states closely follows changes in the structure of the international system and opportunities to engage China as it normalised relations with the US and Japan.

• 29 Hattori Kenji, “Nicchu keizai koryu no hanmitsuka: Chokiteki antei o motomete” (The growing intimac (...)
• 30 Hidemi Kimura and Yasuyuki Todo, “Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity (...)

14Hattori and Kojima discuss economic relations between Japan and China in terms of economic cooperation and Chinese prosperity.29 Identifying three phases in post-normalisation Sino-Japanese economic relations, Hattori and Kojima see the 1970s period as characterised by the promotion of mutual economic dependence based on increased trade. They describe the 1980s as a period typified by large volumes of Japanese foreign direct investments (FDI) and monetary loans that contributed to building Chinese infrastructure and the expansive production network that exists in China today. In the 1990s, the overwhelming focus on FDI was succeeded by a combination of trade, investment, and official overseas development aid (ODA) in an effort to consolidate past gains and establish deeper economic integration.30

• 31 Japan External Trade Organization (JETRO), “Japanese Trade and Investment Statistics,” www.jetro.go (...)
• 32 Ibid.
• 33 Warwick J. McKibbin and Andrew Stoeckel, “The Potential Impact of the Global Financial Crisis on Wo (...)
• 34 James Parker, “The Dangers of a China-Japan Trade War,” Diplomat, 18 September 2012, http://thedipl (...)

15JETRO, Japan’s trade office overseas, asserts that Japan’s Outward FDI to China (Balance of Payments basis, net and flow) increased from US$1.86 billion in 1997 to US$12.65 billion in 2011.31 In terms of Japan’s Inward FDI from China (Balance of Payments basis, net and flow), there was an increase from US$-22 million in 1997 to US$109 million in 2011. As of December 2012, the total trade between Japan and China was US$333.7 billion.32 The drop in trade between the two countries from 2008 to 2009 can be attributed to the global financial crisis, in which not just Sino-Japanese trade was affected but also global trade in general.33 The decrease in trade in 2012 between Japan and China cannot be attributed to a financial crisis. On the contrary, the drop in 2012 can be attributed to the territorial disputes between Japan and China and the Chinese consumer boycott of Japanese brands.34

• 35 Shujiro Urata, “The Creation of Regional Production Networks in Asia Pacific: The Case of Japanese (...)

16Despite these two blips, post-normalisation trade between Japan and China has grown consistently (see Graph 1).Today, China and Japan are each other’s largest trading partners in the region, with China being home to extensive Japanese production networks.35

• 36 Quote from Carlos Ghosn, CEO of Renault Nissan. See “Nissan cautious on investment in China,” China (...)

17Territorial tensions have affected trade relations between Japan and China in at least five ways. First, there were immediate import/export effects associated with Chinese abstention (voluntary and government-encouraged) from buying Japanese brands. JETRO’s month-by-month and year-by-year data on import/export trade relations demonstrates significant impact on the sales of Japanese brands in China as the dispute intensified in the fall of 2012. Second, Japanese companies located in China that were victims of anti-Japanese vandalism of their businesses had to temporarily shut down to avoid further damage and accrued the cost of repairing their business as the violence dissipated. Third, some Japanese companies in China temporarily closed their businesses to wait out anti-Japanese sentiments and protect their interests. Fourth, there was a decrease in travel between Japan and China affecting businesses associated with the tourism industry. Fifth, Japanese businesses investing in China have deliberately slowed down and are “exercising caution regarding future investments in China as the Sino-Japanese relations normalise.”36

• 37 “Japanese car sales fall in 2012 amid island spat,” Bloomberg Businessweek, 7 January 2013, www.bus (...)
• 38 “Sino-Japan Trade Affected by Disputed Islands Turmoil,” ChinaScope Financial, 14 September 2012, w (...)
• 39 He Wei, “Japanese Car Sales ‘Back on Track’ as Customers Return,” China Daily, 27 November 2012, ww (...)

18In terms of import/export relations, the territorial disputes between China and Japan have affected short-term trade relations between the two countries. For example, at the height of the anti-Japanese movements, the sales volume of Japanese-made cars in China dropped 2% year-on-year.37 Sales of cars produced by Germany, US, South Korea, and France went up 25%, 19%, 12%, and 4% year-on-year, respectively.38 In response, Japanese car manufacturers have already implemented strategies to restore their brand images in China by selling models tailored to the Chinese market and offering discounts or programs such as free repair of cars damaged during anti-Japanese protests in an effort to avoid another nationalistic backlash against their products.39

• 40 Andreas Fuchs and Nils-Hendrik Klann, “Paying a Visit: The ‘Dalai Lama Effect’ on International Tra (...)
• 41 Brooks B. Robinson, Asia-Pacific Economic Update 2012, Vol. 3, Honolulu, U.S. Pacific Command, Sept (...)
• 42 Ian Traynor, “China cancels EU summit over Dalai Lama visit,” Guardian, 27 November 2008, www.guard (...)
• 43 Jamil Anderlini and Clare MacCarthy, “China snubs Norway in visa reforms,” Financial Times, 6 Decem (...)

19This reduction in trade with Japan, whether officially sanctioned or spontaneous, seems to have a precedent in China’s dealings with other countries that do not follow Chinese wishes. In a study employing the “gravity model” of exports to China from 159 partner countries between 1991 and 2008 to test the extent to which bilateral tensions affect trade with autocratic China, it was found that countries that deviated from the political imperatives of Beijing, in this case meeting with the Dalai Lama at high political levels, were subject to punitive economic measures. They caused trade to decrease between 8.1% and 16.9%, depending on which measure was being used.40 Other recent examples of the use of punitive economic tactics related to political disagreements include China stopping the import of Philippines’ bananas; disruption of travel by Chinese tourists to the Philippines,41 France,42 and Norway; and stopping the import of Norwegian Salmon and removing Norway from the list of countries allowed visa-free visits to Beijing after the Nobel Peace Prize was awarded to Liu Xiaobo.43

• 44 “Uniqlo, Aeon Shut China Stores as Island Spat Escalates,” Bloomberg News, 18 September 2012, www.b (...)
• 45 Stuart Grudgings, “Hedging China risks, Japan firms turn to booming Southeast Asia,” Reuters, 5 Nov (...)

21Anti-Japanese vandalism occurred in the fashion and technology industries: UNIQLO shut down 42 stores in China, AEON shut down 30 of 35 stores, Nissan Motor stopped manufacturing in two factories, and Canon, Sony, Panasonic, and Hitachi all temporarily closed factories.44 Although they were only temporary shut downs, the business leaders in each of these sectors continue to express reservations about bolstering investment in China until relations normalise or stabilise.45

• 46 For example, “Shiseido Co., Japan’s largest cosmetics maker, says several hundred shops out of its (...)
• 47 “The number of tourist visas issued to Chinese visitors fell 15% from 129,900 in July to 109,700 in (...)
• 48 Karon Snowdon, “China loses favour with Japanese tourists,” Australia Network News, 5 February 2013 (...)
• 49 Michiyo Nakamoto, “Chinese tourists give Japan wide berth,” art. cit.

22Businesses in sectors other than manufacturing, such as retail46 and tourism,47 were also affected by territorial friction. Significant drops in tourism from and to China/Japan are a case in point. Following the Anti-Japanese riots that took place in cities in China in the fall of 2012, Japanese tourists cancelled their travel plans out of fear of violence,48 and Chinese tourists to Japan cancelled their travel plans to Japan, resulting in a significant impact on tourist-related industries in both countries.49

• 50 Yorizumi Watanabe, “China’s interest in Senkaku is recent,” Financial Times, 6 November 2012, www.f (...)

24The impact of the territorial dispute on trade relations needs to be put into historical perspective. Examining the relations between China and Japan since the end of WWII and their interest in the disputed territories, it is clear that China showed little or no interest in the islands until their official reversion to Japan and the discovery of energy resources.50 Even with the discovery of resources, conversations between Chinese and Japanese leaders at the time came to an understanding that the territorial dispute would not deter economic relations.

• 51 Ezra F. Vogel, Deng Xiaoping and the Transformation of China, Cambridge, MA, Belknap Press of Harva (...)

25When a reporter asked about ownership of the Senkaku islands, the audience became tense, but Deng replied that the Chinese and the Japanese held different views, used different names for the islands, and should put the issue aside so that later generations, who would be wiser than those present, could solve the problem.51

• 52 Comments to this effect were a part of the discussions at the Salzburg Global Seminar “China in the (...)

27As Hyer, Nie, and others demonstrated in their studies cited above, China has sought advantages and has taken a more aggressive stance vis-à-vis other states in territorial disputes when that state is perceived to be in a weaker or disadvantageous situation. Based on this evidence and considering the timing, the recent more aggressive approach by the Chinese vis-à-vis the Senkaku/Diaoyu islands can be related to the perceived weakness of Japan and the US Security Alliance in light of the 2008 financial crisis, the prolonged stagnation of the Japanese economy, the political instability in Japan resulting from frequent leadership changes, the need of the Communist regime to demonstrate its strength through a refusal to compromise over the "core" issue of territorial integrity, and the rapid growth of the Chinese economy.52 Critically, domestic instability within China and growing internal discontent associated with corruption, growing social inequality, and environmental degradation have also emboldened China in its handling of territorial disputes such as the one with Japan, and they provide us with some insight into the future direction of trade and economic relations in the region.

• 53 James Parker, “The Dangers of a China-Japan Trade War,” art. cit.
• 54 Takashi Nakamichi, “Japan trade suffers amid China dispute,” art. cit.
• 55 Allison Jackson, “Island dispute disrupts Sino-Japanese trade,” art. cit.

28In addition to the immediate effects of both spontaneous and government-encouraged abstention from purchasing Japanese brands,53 trade was disrupted by physical damage to Japanese-owned companies manufacturing or providing services in China,54 and confidence in China as an attractive destination for Japanese Foreign Direct Investment (FDI) has been undermined at best and shattered at worst.55

• 56 Yang Xing and Zhu Ni, “Zhong-Ri zhengduan buli Zhongguo jingji fusu” (How hard will the China-Japan (...)
• 57 Kaname Akamatsu, “A Historical Pattern of Economic Growth in Developing Countries,” Journal of Deve (...)

33In the short term, Japanese businesses will continue to be at a distinct disadvantage as Chinese consumers, both voluntarily and under encouragement from the Chinese government, abstain from purchasing Japanese brands. This may be sustainable in the short term in China; however, there are important caveats that need to be mentioned. Japanese exports to China do not just include Japanese brand-name goods such as electronics, cosmetics, and other items used in everyday life. At a deeper level, Japan also exports key materials, parts, and machines used in Chinese industries, and thus abstention from the purchase of Japanese goods may affect Chinese industries as well.56 From this point of view, the symbiotic relationship between the two economies based on a hierarchal, flying geese model may give Japan leverage in the midterm to stay engaged in the Chinese economy.57 As long as China remains dependent on Japanese technology, small machinery parts, and investment, further escalation on the Chinese side over these disputed territories could significantly harm its economic interests. That being said, China could seek to by-pass its dependency on Japanese technology and related materials by establishing its own domestic supply.

• 58 Weng Kin Kwan, “Abe’s trip highlights importance of Asean,” Straits Times, 21 January 2013, www.sta (...)
• 59 Ministry of Foreign Affairs of Japan, “The Bounty of the Open Seas: Five New Principles for Japanes (...)

34This advantage on Japan’s part is not guaranteed and could expire sooner than later, and as a result, we may continue to see a shift from a China-centred production network to a less centralised production network or ASEAN-centred network. PM Abe’s January visits to ASEAN countries are already illustrative of a more proactive diplomacy aimed at building reliable partners in the region based on shared interests.58 During his visit to Jakarta, PM Abe outlined his five principle-based approach to diplomacy with the ASEAN states: (1) expand and enshrine universal values such as freedom, democracy, and basic human rights; (2) protect the seas, which should be open, free, and controlled by laws and rules; (3) prosper together by promoting economic networks for enhanced trade; (4) promote investment and exchanges of goods and people; and (5) protect and nurture Asia’s diverse cultures and traditions.59 Principles (3) and (4) stand out as strong commitments to expanding trade and investment in the region with countries that share similar values.

• 60 Jean M. Cordero, “Philippines, Japan boost strategic partnership,” Asia Pacific Defense Forum – Fea (...)
• 61 American Chamber of Commerce in Vietnam, “Japan’s Prime Minister Abe Visits ASEAN,” 16‑19 January 2 (...)
• 62 Japan, Thailand ties get boost: PM Abe visits, reaffirms Dawei port investment,” Bangkok Post, 17 J (...)

35This commitment to ASEAN partners was further exemplified in the cementing of stronger bilateral ties through trade and the supply of technology. For example, PM Abe signed an agreement to supply coast guard vessels to the Philippines,60 offered ODA that included a special allotment of $500 million to fund three Vietnamese development projects in trade, investment, and infrastructure,61 and made a commitment to economic cooperation with Thailand, including joining Bangkok and Myanmar in developing the Dawei deep-sea port.62

• 63 Hongyi Nie, “Explaining Chinese Solutions to Territorial Disputes with Neighbour States”, art. cit.(...)

39Returning to Nie’s assertions that “China resolved disputes with states that did not have expansionary territorial designs through negotiations that emphasised mutual understanding and tolerance, and worked towards a mutually beneficial and equitable solution,”63 the shift in trade between Japan and China in the wake of the fall 2012 territorial disputes represents a turning point in their traditional seikei bunri relationship.

• 64 Amitendu Palit, “The Trans-Pacific Strategic Economic Partnership (TPP): Implications for the Asia- (...)

41These tools of analysis demonstrate that the territorial dispute did have an effect on trade relations between Japan and China and that the traditional understanding between them that economics should be prioritised over political issues has collapsed in the short term and perhaps shifted in the mid and long term. This conclusion seems to be bolstered by the voices of Japanese business leaders conducting business in China and their growing concerns over the risks associated with this. The shift of the Japanese government and Japanese businesses’ interests towards ASEAN states, and the growing investment and commitment to cooperate with ASEAN partners further buttress the argument that trade relations based on the separation of politics and economics is no longer viable. Inclusion of Japan in the Trans-Pacific Partnership (TPP) would provide further evidence that Japan is decreasing its economic dependence on China while strengthening and broadening its economic engagement with other regions of the world by joining a trade agreement that stresses the protection of intellectual property rights (IPR) and “cross-cutting issues like competition, capacity-building, e-commerce, financial services, investment, environment, government procurement, intellectual property, investment, labour, technical barriers to trade (TBT) and trade remedies.”64