‘Japan, China need to work together for the sake of Asia’

Tokyo, May 15:

Japan and China, consumed by quarrels over the past, really need to work together for the sake of Asia on economic challenges including massive global trade imbalances, experts said. “We are at a crossroads in Asia,” Kishore Mahbubani, the former Singaporean diplomat known for his writings on the rise of Asia, told a weekend forum in Tokyo.

“The common interests between China and Japan are so big that it is amazing the two countries are not more focused on it,” said Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore.

Several members of Prime Minister Junichiro Koizumi’s cabinet took part in the Japan Roundtable 2012, a closed-door gathering of leading economic experts and officials.

China is Japan’s largest trading partner, providing an ample base both of cheap labor and middle-class consumers.

However, political relations have steadily deteriorated, with China furious over Koizumi’s visits to the Yasukuni shrine which honors war dead, including war criminals from Japan’s militarist era. Chinese economist Fan Gang told the forum that Japan and China had common concerns related to the United States.

“How can we work together to make an impact in reforming the global imbalances in a monetary system that has been centered around the US dollar?” asked Fan, director of China’s National Economic Research Institute.

“We have a common problem with the US regarding currencies and foreign exchange reserves issues,” he said. China surpassed Japan with foreign reserves of more than $875 billion at the end of March and Beijing is under intense US pressure to speed up the revaluation of its currency, which Washington says is kept artificially to boost exports.

At the same time, China and oil exporting nations have run up mammoth trade surpluses with the United States, whose yawning current account deficit has been identified by the International Monetary Fund as a threat to global growth. “We are learning very hard from the history of yen revaluation after the Plaza agreement,” Fan said.

He was referring to 1985 accords that weakened the dollar in bid to correct US trade imbalances with Japan — but which some blame for speeding up Japan’s “bubble” boom that crashed so disastrously in the early 1990s.

Former US trade negotiator Clyde Prestowitz, who heads the Economic Strategy Institute in Washington, said that a correction to the current colossal US trade deficit would mean a 60 percent drop in the dollar’s value — and “the bulk of the adjustment will come from the Asian currencies.”

Asia’s two largest economies have maintained dialogue on economic issues even though China refuses top-level talks with Japan in protest of Koizumi’s visits to the Yasukuni shrine.