Kerry’s trip to Asia puts the spotlight on an unlikely China rival

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Kerry’s trip to Asia puts the spotlight on an unlikely China rival

Of all the nightmares Chinese President Xi Jinping figured he would have to face, a resurgent Japan Inc. surely wasn’t among them.

A major slowdown in the Chinese economy? Yes. Social instability? Absolutely. Debilitating pollution? Check. Rampant corruption eating away at the Communist Party’s legitimacy? You bet. An economically vibrant Japan emboldened to challenge China for leadership in Asia? Hardly. With an assertive Shinzo Abe at the helm, though, Japan may be poised to do just that, in ways that could upend the dynamics of Asia’s future.

The emphasis here is on “may.” For all the excitement over “Abenomics,” it’s still a vague and unimaginative blueprint to end Japan’s 20-year funk. Still, let’s say the optimists prove right and Abe ends deflation and restores Japan’s economic clout in the region. It’s doubtful that the steady, “peaceful” rise to dominance envisioned by China includes sharing power with a renascent Japan. The Japanese recovery the world has long sought could well make Asia a much more dangerous place.

This is the minefield into which John Kerry will wander as he embarks on his maiden trip to Asia as U.S. secretary of state. In Seoul yesterday, Kerry was set to grapple with North Korea’s threats and try to reassure a key U.S. ally. In Beijing and Tokyo after that, he will encounter Asia’s budding cold war firsthand.

Kerry’s Beijing stop will be contentious as he prods Chinese officials to rein in Kim Jong-un, revise currency policies and shut down an army of hackers. Tokyo will be a love fest, with Abe keen on strengthening the U.S.-Japan alliance.

The yen’s 22 percent plunge against the U.S. dollar over the past six months, a drop that began with Abe’s candidacy, is bad news for Chinese exporters. While China’s economy is bigger, Japan’s still generates $5.9 trillion worth of output and features a stable of globally active technology, transport and pharmaceutical companies. Amid weak global growth and rising Chinese wages, a more competitive Japan could reclaim the export-market share that China now takes for granted. By opening the monetary floodgates as never before, Abe’s new Bank of Japan chief, Haruhiko Kuroda, could push the yen much lower still. China might even feel compelled to devalue the yuan, which would enrage the U.S.

Even more than Japan’s gross domestic product, though, the confidence that a recovery would lend to Abe, who has never forgotten his nationalist roots, is something that Xi should fear.

It’s hard to exaggerate how devastated the political establishment in Tokyo was to see China’s economy surpass Japan’s in 2010. That Japan shares the same credit rating as China is a sore point for the conservative lawmakers who make up Abe’s Liberal Democratic Party. Abe is anxious to restore the pride drained by two decades of economic stagnation, and in the postwar period before that. Visiting Washington in February, he pledged to “bring back a strong Japan.”

Anyone who thinks this process will go smoothly is dreaming. “This could be destabilizing in the region and further undermine prospects for improving relations,” says Jeff Kingston, the head of Asian studies at the Tokyo campus of Temple University.

It also would complicate U.S. President Barack Obama’s pivot toward Asia. No economic relationship is more important than that between the U.S. and China, the “Group of Two.” Yet no friendship in the region matters more to Washington than its bond with Tokyo.

As Kerry traverses the region this weekend, he’s sure to seek some kind of diplomatic mechanism for scaling down tensions on the Korean Peninsula. He should worry just as much about reconciling the ambitions of North Asia’s two giants, before the region faces a true nightmare.

Bloomberg

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