China-Japan Ties: Upswing in a Business-Only Marriage

NEW YORK (TheStreet) -- Lawmakers from Japan are visiting their country's bitter rival, China, this week to start building back relations.

A better relationship with China would help Japan, which is Asia's chief source of cars and electronics. The countries' relationship -- though on an upswing now -- is cyclical, and both sides know it will break down again.

The delegation from Japan reached Beijing Sunday for a three-day trip that is expected to herald more trips like it. Fresh face-to-face meetings would offer relief from what China's official Xinhua News Agency calls a record low in official contacts since September 2012.

The two old Asian rivals want to mend ties largely for business, which is so used to political spats that some Japanese companies have quit pressing their government to work out the problems.

"Japanese business has always wanted to improve relations with Beijing, but there has been a noticeable cooling of ardor in the last couple years," notes Gordon Chang, author of the 2001 book The Coming Collapse of China.

Relations broke down in 2012, spawning a diplomatic feud and mass demonstrations, because Japan nationalized a group of eight islets that China also claims and that lie near undersea fossil fuel reserves.

Japanese Premier Shinzo Abe's visit in December to a Tokyo shrine that honors 14 war criminals further angered China, which bore Japanese aggression from 1931 through 1945.

The visiting lawmakers led by legislator Masahiro Komura met former Chinese foreign minister Tang Jiaxuan. Both sides indicated they wanted better relations, Xinhua says.

"China has always welcomed people from all walks of life in Japan, including both the ruling and opposition parties, to make positive moves to improve China-Japan relations," Chinese foreign ministry spokeswoman Hua Chunying was quoted saying this week in the state-run China Daily newspaper.

Both sides acknowledge that their political disputes hamper business valued as much in Tokyo as in Beijing. Their disputes caused a 4.3% drop last year in Japan's foreign direct investment in China, which fell to $7 billion, or 6% of the receiving country's total.

Japanese multinational companies such as Toyota Motors (TM) and Panasonic (PCRFY), for example, employ Chinese locals, supporting cities that depend on manufacturing.

"In the PRC, regional party officials who experience their region's economic growth and whose careers are tied to good relations with Japanese business tend to do their best to protect those businesses," says China specialist Edward Friedman, a political science professor emeritus at the University of Wisconsin.

Japanese companies keenest on restoring relations are ones that sell "visible consumer goods" in China, Friedman says. Companies in that category include electronics giant Toshiba (TOSBF), clothier Wacoal (WACLY) and retailer Uniqlo.

During anti-Tokyo demonstrations in 2005, pro-Beijing activists called for a boycott against Japanese goods until officials in Beijing urged them instead to see the two sides -- the world's second and fourth largest economies -- as economically interdependent.

The cycle swung hostile again in 2012 as China allowed mass protests over Tokyo's nationalization of the East China Sea islets. Japanese businesses such as the global camera maker Canon (CAJ) and Honda (HMC), and Nissan (NSANY) temporarily closed China operations then as share prices fell.

Another Japanese delegation is expected in China later this month, with higher-level contacts ideally to follow, but any pickup in overall relations would last only until a new flap pops up. Japanese leaders must look strong at home in China's face, while China is waiting for those chances to rally their people, who may otherwise question domestic leadership.

"Mao Zedong and Deng Xiaoping were strong leaders and maintained good relations with Tokyo," Chang says. "Their two successors, much weaker than them, demonized Japan because they needed to bolster their legitimacy. The same can be said of Xi Jinping, the current ruler."

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At the time of publication, the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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