Japan has developed economic relations with China through a policy that separates politics and economics, or seikei burning. However, amid intensifying US-China strategic competition, China’s economic coercion, and its long-term objectives to secure its core interests, Japan has become more concerned about its economic reliance on China. Japanese Prime Minister Fumio Kishida’s new ‘economic realist’ diplomacy has led to policy approaches such as selective diversification of supply chains, reshoring, friend-shoring, and national technological development.
Japan’s political leaders are focusing on enhancing economic security through selective diversification and reducing reliance on China, amidst concerns about economic coercion and supply chain weaponization. This includes adopting supplementary budgets for the domestic production of advanced semiconductors.
Despite the political and security complexities, the mutually dependent economic relationship remains largely intact, deepening, and highly complementary. Japan’s companies have invested heavily in China, particularly in the automobile, electronics, and machinery sectors, and China is a major source of low-cost goods and components for Japanese companies. To decouple the Japan-China economic relationship, untangling the complex and multifaceted mutual dependency that defines it would be necessary.
Tokyo is promoting reshoring, encouraging Japanese businesses to migrate production back to Japan from China or explore new production bases in Southeast Asia, India, and other countries. The government has introduced policies to support companies considering reshoring, including subsidies, tax breaks, and regulatory reforms. Japan has also emphasized the importance of diversifying supply chains, particularly for key components and materials like rare earth metals.
The Japanese government is focusing on sourcing rare earth metals from other countries through recycling and the development of new mines. Japan is also exploring the use of new materials that can replace rare earth metals. To enhance economic ties and agendas under the ‘Free and Open Indo-Pacific’, Tokyo has encouraged collaboration under the G7 Foreign Ministers’ statement on 18 April 2023. Strengthening domestic industries, including semiconductor materials, is also crucial. Japan has courted Taiwan Semiconductor Manufacturing Company to relocate to Japan and invest in the development of next-generation semiconductors.
China’s monopoly over rare earth metal extraction and exports makes Japan and other states vulnerable to rare earth supply chain weaponisation, exposing signature Japanese industries to possible coercion. Japan’s reliance on imports for rare earth metals makes developing new mines difficult and expensive, and recent initiatives with Canada remain financially unviable.
Japan is focusing on developing alternative sources of rare earth metals, which require the extraction and processing of ores and the development of downstream industries that can use the metals in products. This requires significant investment and time, which may not meet the current market demands. To enhance economic security and resilience against economic instability, Japan will need to develop new mines and processing facilities while meeting environmental standards.
The Kishida administration is working with Australia and African states, such as Namibia, in joint ventures. Japan’s efforts to reduce its dependence on China aim to enhance economic security and reduce vulnerability to geopolitical risks. The Kishida administration aims to balance economic opportunities with Japanese national interests in an increasingly complex and uncertain global environment.
