What is the effect of China's sanctions on Japan over the Diaoyu Islands dispute?
First of all, Sino-Japanese trade will be greatly affected. China has become Japan's largest trading nation since 2007. Today, China still maintains Japan's largest trading partner, largest export market, and import source country.
In the first half of this year, Japan imported 91.3 billion U.S. dollars from China, a record high. Imports and exports totaled 165 billion U.S. dollars, a year-on-year increase of 1.1%. According to statistics from the Japan External Trade Organization (JETRO), Japan-China trade accounted for 19.3% of Japan's total foreign trade, a year-on-year decrease of 1.3 percentage points. During the same period, Japan's trade deficit with China increased by 2.6 times compared with the same period last year, reaching 1.401 trillion yen, and its total exports to China decreased by 5.7% year-on-year. In 2011, the total trade volume between China and Japan reached 344.9 billion U.S. dollars, of which imports from China were 183.4 billion U.S. dollars and exports to China were 161.4 billion U.S. dollars. In 2011, Japan’s trade with China accounted for 20.6% of Japan’s total foreign trade.
Second, China holds a large amount of Japanese government bonds. According to the balance of payments statistics published by the Ministry of Finance of Japan and the Central Bank of Japan, China’s holdings of Japanese government bonds are rapidly expanding, reaching a record high of 18 trillion yen by the end of 2011, an increase of 71% over the previous year. In addition, by the end of 2012, Japan’s central and local governments’ long-term debt to GDP ratio will reach 195%, surpassing Italy (128.1%), which is deeply mired in the sovereign debt crisis. It ranks first among developed countries and is also the country with the highest government debt in the world. . China's holdings have grown rapidly since 2009, surpassing the United States and Britain in 2010 to become the largest holder of Japanese government bonds.
The government debt factor makes Japan inevitably have to take China's actions into consideration and avoid China's sharp sell-off.
Third, China's travel to Japan may be reduced significantly. According to the Japanese Government Tourism Agency (JNTO), the number of Chinese tourists to Japan in 2011 was 1.0435 million, a sharp decrease of 26.1% over the previous year (affected by the earthquake in Japan). From January to July this year, a substantial increase over the same period last year reached 947,600, an increase of 72.3%. The number of tourists in July more than doubled year-on-year, and the number of tourists in a single month exceeded 200,000 for the first time.
Fourth, China is one of Japan’s important investment destinations. In 2011, Japan’s actual investment in China was US$6.33 billion, a year-on-year increase of 55.1%. As of the end of June this year, Japan’s total investment in China has actually reached 83.97 billion U.S. dollars, ranking top among China’s foreign capital utilization countries. If economic sanctions impact Sino-Japanese investment, it will be a big loss to both parties.
Fifth, strategic resources are also an "economic card" that can effectively check and balance Japan. Taking rare earths as an example, strategic resources such as rare earths are essential raw materials for the development of high-end manufacturing and the production of high-end industrial materials. China's rare earth reserves account for about 23% of the world's total reserves, and it bears more than 90% of the world's market supply. Most of the rare metals in Japan's high-end manufacturing industry are imported from China. If economic sanctions begin, Japanese companies will rush to find substitutes.
