POINT OF VIEW/ Toshiya Tsugami : With China rising, Japan must show its mettle

During the last couple of years, Japan has come to subconsciously accept that it might be eventually overtaken by China. Since the global financial crisis that started in the United States in 2007, China and other emerging economies have increased their presence while the clout has diminished not only for Japan, but also for every advanced Western country.

Under such circumstances, I think the Japanese people are now mentally prepared for China to turn the tables on Japan.

The influence of the United States, which has provided the international community with public goods, such as security and global rules, is weakening. Meanwhile, rising China has neither the will nor the power to fill the void. For this reason, I expect the international community to have difficulties in coordinating policies on environment, trade and other issues. It will take time before a new global order is established.

Amid such a situation, how should Japan act and what kind of order should it aim for? The real question is what should Japan do after it is surpassed by China.

First of all, Japan needs to prepare itself to maintain an equal relationship with China into the future. Many Japanese tend to think of international relations in terms of hierarchy. People who find it unpleasant to have China catch up could find themselves falling prey to the psychology of "currying favor with" China once it gets ahead of Japan.

Surrounding countries are also watching whether China will become the unipolar center of East Asia. If Japan fails to show its mettle, the trend could accelerate.

From now on, Japan-China business ties should be "interactive." Counting on wealthy Chinese tourists, the Japanese government has started to ease visa requirements. It should also swiftly ease requirements on multiple-entry visas for business trips.

For example, for applicants who have entered Japan a number of times in the last few years and who have no records of visa violations, the government should issue multiple-entry visas without requiring them to submit letters of invitation and guarantees by Japanese companies.

It will not take long for Japan to become a target of investment from China. Since I run a fund to invest in China, I frequently meet officials of Chinese local governments, as well as financial and other businesses. While they have high regard for Japanese technology and factory management, they have a poor understanding of Japanese affairs in general, including labor practices. With such a lack of insight, it is hard to make successful investments.

Japanese investors, too, are easily taken in by false investment information because they have few reliable sources of information concerning Chinese business. Policy support is essential to encourage Japanese and Chinese business people to more frequently visit each other's country to forge stronger ties.

The issue of a bilateral economic partnership agreement (EPA) has remained "a subject of study" for the Japanese and Chinese governments. They should clearly set a goal of concluding the accord to promote investment and trade.

For Japan, opposition by the domestic agriculture sector and consideration for Japan-U.S. relations stand in the way. On the Chinese side, the tariff on cars imported from Japan is a concern. Furthermore, Beijing remains lackadaisical because it thinks Tokyo is unable to overcome obstacles.

But such obstacles can be overcome. The administration led by the Democratic Party of Japan plans to provide direct income payments to individual farmers. The policy is intended to protect the nation's agriculture without relying on the tariff barrier. Lower customs will push down the prices of agricultural products, making it easier for Japan to conclude EPAs with China and the United States.

If so, I think the planned direct income payment program for farmers will pay off, although it will cost trillions of yen. But I find it questionable to introduce the policy without discussing what to do with the current prohibitive tariffs.

Some people fear that if Japan and China enter an EPA, it could upset the United States. But they don't have to worry. If a Japan-China EPA looms, the United States is sure to request that it also be a part of it. This is desirable for both Japan and China.

For China, the United States is far more important than Japan as a partner. Therefore, there can be no such thing as a "Japan-China axis."

The establishment of a Japan-U.S.-China EPA is a foregone conclusion. But who will take the initiative and how? It is time Japan makes its presence felt.

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The author is president of Toa Capital Corp. He had served as a diplomat at the Japanese Embassy in China and a director of the Northeast Asia Division of the Ministry of Economy, Trade and Industry's Trade Policy Bureau.