China-Japan ties, including economic and trade cooperation, have been gaining positive momentum since last year. During their meeting in Beijing in October 2018, Chinese President Xi Jinping told visiting Japanese Prime Minister Shinzo Abe that Japan is welcome to participate in China's progress in the new era. In response, Abe expressed Japan's desire to beef up cooperation with China in a number of areas while calling the China-proposed Belt and Road Initiative "promising." The initiative, consisting of the Silk Road Economic Belt and the 21st-Century Maritime Silk Road, aims to build a trade and infrastructure network connecting Asia with Europe and Africa along and beyond the ancient Silk Road trade routes.

Against this backdrop, cooperation between China and Japan in third-party markets under the framework of the Belt and Road Initiative has stepped up.

Cooperation priorities

During Chinese Premier Li Keqiang's visit to Japan in May 2018, both countries signed a memorandum of understanding on third-party market cooperation. Six months later, on October 26, Li and Abe attended the first Forum of China-Japan Cooperation on Third-Party Markets in Beijing, during which Chinese and Japanese local governments, financial institutions and enterprises concluded 52 agreements with a combined value of $18 billion, covering fields from infrastructure, finance, logistics to information technology.

Some cooperative projects in third-party markets have proceeded smoothly. China's Sinopec Engineering (Group) Co. Ltd. and Japan's Marubeni Corp. have already worked with local Kazakhstan companies and signed a general contract for an equipment construction project worth $1.68 billion.

China CITIC Pacific Co. Ltd. and Japan's Itochu Corp. jointly participated in an offshore wind power project in Germany, which will deliver electricity to 370,000 German families. While in Oman, Japan's Mitsui & Co. Ltd. is involved in three major natural gas-fired power projects, with China's Shandong Electric Power Construction Corp. III its core EPC (engineering, procurement and construction) contractor.

More third-party market cooperation between the two countries is expected in fields such as energy, high-speed railway, environmental protection, urban planning, elderly care, healthcare, medicine and pharmaceuticals, and culture.

Chinese Minister of Commerce Zhong Shan said the Chinese and Japanese governments should innovate an open and mutually beneficial model of cooperation, and integrate the role of businesses, the market and government in exploring priority areas of cooperation. They should also build more platforms for trade promotion and develop cross-border e-commerce and other new business models. The establishment of long-term support and facilitation mechanisms is also much needed. According to Zhong, the two countries should give full credence to the role of economic groups and trade promotion agencies, build an information-sharing platform and a training mechanism, and facilitate collaboration between enterprises through organizing trade fairs and joint exhibitions.

Zhong's proposals can be regarded as the priorities for China and Japan in the initial stage of third-party market cooperation. If positive progress can be made, the cooperation will expand to more spheres and become self-powered.

Difficulties remain

At this primary stage, the cooperation still faces difficulties that need to be overcome with concerted efforts.

Pragmatic cooperation is welcome, while vicious competition needs to be avoided. Against the backdrop of globalization and the wider market economy, all countries and markets are part of the competition to some extent, owing to market rules. But vicious competition will result in failures for the parties involved. Both China and Japan have indicated that they have realized the seriousness of this.

The cooperation between Chinese and Japanese enterprises shows that there has been substantial progress in this regard. This includes not only projects in developing countries but also in some developed countries. More importantly, as the two countries cooperate on these projects, the host countries can no longer make use of the competition between China and Japan or make profits out of it.

However, this does not mean that vicious competition between China and Japan in third-party markets has been eliminated. Both the governments and enterprises of the two countries need a long-term strategy to deal with possible problems. As Li put it, China and Japan will not engage in vicious competition in third-party markets but will give greater play to their complementary advantages and expand cooperation for a win-win situation.

Japan's long-standing reluctance to participate in the Belt and Road Initiative was due largely to the United States' attempts to pressure its allies to boycott the Asian Infrastructure Investment Bank (AIIB), which was initiated by China to finance infrastructure projects across Asia, and more importantly, the Belt and Road Initiative. Japan chose to side with the United States until it realized that this would only damage its own interests and then commenced cooperation with China in third-party markets. On the other hand, China is actively promoting the alignment of the Belt and Road Initiative with development strategies of other countries to ease skepticism in the international community about its true intentions.

Currently, China and Japan still diverge on some major issues concerning the building of regional free trade areas. Although the signing of free trade agreements does not necessarily fall in the arena of third-party market cooperation, the two overlap in terms of territory and content and are therefore interrelated. Compared with the complexity in cooperation at the governmental level, it is easier for enterprises from both countries to cooperate in third-party markets. As they abide by the agreements signed, tangible benefits are attainable.

A broader vision

Japan used to actively participate in the U.S.-led Trans-Pacific Partnership (TPP) multilateral trade deal, with the implied intention of containing China. After the withdrawal of the United States in 2017, it continued its efforts to establish the Comprehensive Progressive Trans-Pacific Partnership (CPTPP) with the 11 countries involved, forming a trading bloc representing 495 million consumers and 13.5 percent of global GDP. Other CPTPP members include Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Viet Nam.

It might be hard for China to join the CPTPP because of both technical and political reasons. But China's entry, if realized, will undoubtedly give Japan access to a greater market and strengthen its role in promoting trade liberalization and facilitation in the Asia-Pacific region. China, in turn, will also benefit greatly from entering the CPTPP market.

In addition, negotiations on the Regional Comprehensive Economic Partnership (RCEP) free trade agreement are ongoing between the 10 members of the Association of Southeast Asian Nations (ASEAN) and the six Asia-Pacific states with which ASEAN has free trade agreements—Australia, China, India, Japan, the Republic of Korea (ROK) and New Zealand. If China and Japan can work jointly to promote the early completion of the process, the construction of the free trade area in East Asia and even the Asia-Pacific region will make great strides, with China and Japan being major beneficiaries.

Multilateral free trade agreements and regional integration are more powerful than bilateral agreements and cooperation mechanisms in terms of efficacy and effectiveness. So third-party market cooperation between China and Japan should never be limited only to parties directly involved. More attention should be focused on signing multilateral free trade agreements, including a deal between China, Japan and the ROK and the RCEP, and building the free trade area in East Asia and the Asia-Pacific region. Substantial results will not only boost the economic development of China, Japan and the region as a whole, but also consolidate the mutually beneficial relationship between the two East Asian neighbors.

Copyedited by Craig Crowther

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