Japan’s decoupling attempts to hurt its trade with China

▶ S.Korea may surpass Japan as No. 4 trading partner

As Japan and South Korea pursue different paths in supply chain cooperation with China, with one drifting toward weaponizing trade, while the other is trying to keep it on a business-to-business basis, Chinese analysts said the different approaches may have an impact on trade and possibly result in South Korea overtaking Japan as China’s fourth-largest trading partner, a position Japan has held for years.

The comments come as the US and Japan held the “Economic 2+2” forum on Friday, which expanded the two allies’ strategic coordination on economic issues with an eye to diversify supply chains from and intensify competition with China.

The US has been pressuring Japan and South Korea to join its platforms for supply chain “security.”

A White Paper released by the Japanese Chamber of Commerce and Industry in China on Friday noted that, in the field of software, there is concern that more and more Japanese companies in China will feel the situation is beyond what they can handle, as the US and China are entangled in fierce competition over advanced technologies.

Li Tianguo, an associate professor at the National Institute of International Strategy, told the Global Times on Friday that the US has been trying to drive a wedge through the close, decades-long industry chain cooperation among China, Japan and South Korea by inviting the two latter countries to join a series of exclusive mechanisms.

Japan’s active stance in the various forums, which have supply chain decoupling with China as a theme, is in contrast to South Korea’s more cautious approach, Li said.

Experts said Japan’s newly passed economic security law has caused its investment in China to slow down, while South Korea led in foreign investment in China with a 37.2 percent year-on-year increase in the first six months of this year.

The cooling of Japanese investment and trade with China has been largely affected by the economic security law, which imposed some restrictions and required tougher investment scrutiny for Japanese companies to carry out high-tech cooperation with China, said Chen Zilei, an expert with the Shanghai University of International Business and Economics.

“In the current trend, it is expected that South Korea’s trade with China will surpass that of Japan’s with China soon.”

In the first half of 2022, South Korea overtook Japan as China’s No.4 trading partner, trailing ASEAN, the EU and the US.