Sun & Star: China and the Japanese Multinational – Politics and the Risk of Doing Business

With our highly globalized world, it seems that every country is interconnected through trade, diplomacy, or both; even those that might otherwise prefer to refrain from building a relationship due to historical tension. It seems that China and Japan are the perfect examples of this sort of relationship: connected by necessity. Kristin Vekasi, Associate Professor of Political Science at the School of Policy and International Affairs at the University of Maine, talked about the business interplay between these two countries despite a turbulent relationship. With a strained past that continues to cast a shadow on their political, social, and economic interactions, Professor Vekasi hoped to answer the question of how Chinese-Japanese politics affect business relations with Japanese multinational corporations in China.

She described the relationship as “cold politics and hot economics,” in which while Japanese business with China usually thrived, political shocks posed a consistent threat to this strong economic bond. Yet, in analyzing the three most significant political shocks from 2000 to 2018, once in 2005 related to the UN protests, once in 2010 with the Japanese Coast Guard incident, and once in 2012 when Japan nationalized an island in a contested zone, Professor Vekasi finds that aside from slight drops in the imports and exports graphs, business continued as usual even as politics heated. In fact, both China and Japan tried to curb physical altercations motivated by political shocks in order to keep Japanese firms and corporations in China. This is because Chinese consumers are highly valuable to Japanese firms, and maintaining a neutral relationship with China is beneficial to both the Chinese and Japanese economies.

Sometimes though, the political turmoil does hurt Japanese interests in China, and when this happens, there are three options for Japanese multinational corporations. First, they can “exit” China. This presents advantages such as supply chain diversification for Japanese companies, allowing them to move to South East Asian countries instead. After the 2012 shock, this strategy was utilized by some corporations and created a market shift to SE Asia. Conversely, leaving China means losing market access, and China’s consumer market is essential for many Japanese MNCs so exiting is not always a viable option. The second option is to use their voice, working to mend the citation from the inside. This means changing hearts and minds and attempting to counter anti-Japanese sentiment in China. Again, this is not always a realistic option as Japanese lobbying for policy changes in China is difficult and limited. Finally, Japanese corporations can show loyalty. This implies keeping their heads down and continuing business as usual. This approach indicates Japan’s recognition that China is necessary for economic growth. Loyalty is the most common response to tension and shocks in China-Japan politics despite many firm’s concerns in security.

This Sun & Star event was especially interesting in that it highlighted the separation in politics in economics, which is so difficult to do in the highly polarized international political climate we see today. It poses intriguing questions about how much a country is willing to tolerate in the interest of economic progress and whether or not the prioritization of economic relations can actually help improve strained relations.

Watch the entire event below:

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This post was written by Saavni Desai ’23, a President’s Scholar and Tower Scholar. She is double majoring in Political Science and International Studies with a focus on the Middle East and North Africa and triple minoring in Arabic, Philosophy, and the Tower Scholars Public Policy and International Affairs minor. She also does research alongside Professor Takeuchi and is involved in Mock Trial, Indian Student Association, and the Alpha Chi Omega sorority.