China-Japan Relations

China and Japan are increasingly inter-linked commercially. But their age-old political animus is reviving too.

If you want to think that Asia's two greatest powers are edging closer to one another, you can find plenty of supporting evidence. Last year, China overtook America to become Japan's biggest trading partner. Japan has been China's biggest trading partner in three of the past four years. Trade rows, common in the 1990s as Japanese producers grew afraid of Chinese competition, have virtually disappeared. The two economies are increasingly integrated, with cheap Chinese goods delighting Japanese shoppers and sophisticated Japanese equipment humming away in Chinese factories.

Moreover, China and Japan are taking part in the effort to launch an East Asian Community, bringing together South-East Asia with themselves and South Korea. They share an interest in preventing the dollar from declining rapidly and in keeping the exchange rate between the yuan and the yen fairly stable, and are therefore the two biggest buyers of American Treasury bonds. They also take part in broader regional co-operation between central banks and finance ministries under the so-called Chiang Mai agreement.

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