By Satoshi Sobatani [spelling not confirmed]

BUENOS AIRES – The leaders of Japan and China agreed at their summit talks held on Nov. 30 that the two countries will improve bilateral ties in areas including the economy. The move is expected to help Japanese firms, which are facing a declining birthrate and shrinking domestic demand at home, boost their China-bound shipments and expand their business forays into China as well as increase business opportunities. But in China, the economy is slowing down as a result of trade friction with the U.S. The inappropriate business practice of forcing companies operating there to transfer technology is also becoming problematic. “Over-reliance” on China is becoming a growing threat.

“We felt that Japan and China were finally able to hold candid and constructive discussions,” said a Japanese government source. In their latest summit, Japan and China agreed to work together for the construction of a free trade mechanism.

The economic ties between Japan and China ties are improving. Prime Minister Shinzo Abe also met with Chinese President Xi Jinping in October and agreed to cooperate in facilitating infrastructure investment in third nations. The Japanese business community as well as investors and analysts hail the accord as a move to “create more business opportunities.”

China’s presence in the Japanese economy is significant. According to trade statistics by the Ministry of Finance, Japan’s exports to China last year accounted for 19% of the total at 15 trillion yen. China was the second largest destination of Japanese goods, following the U.S. Data from the Ministry of Foreign Affairs also highlight that there were a total of 32,349 Japanese business offices set up in China as of October 2017 and that China is home to 43% of Japanese offices set up overseas. “The Japanese and Chinese economies are already integrated,” said a senior MOF official.

But China’s strong economic growth is showing signs of slowing down. China’s real gross domestic product (preliminary figures) for July-September grew 6.5% on the year, but fell 0.2 points from 6.7% registered in April-June. The International Monetary Fund projects that China’s GDP growth may fall by more than 1.6% if the trade friction lingers. If the Chinese economy slows down, Japanese shipments to China will stagnate. This will also affect Japanese firms operating in China. They will be forced to downsize their businesses or close up shop in the country, which may cause them to suffer from poor earnings.

China’s inappropriate practice of forced technology transfer is also causing problems for companies operating in China. If Japan’s “edge” in the high-tech industry continues to fall prey to China, Japan’s national strength may decline.