From “Special” Relationship to “Normal” Relationship?

From “Special” Relationship to “Normal” Relationship?
Issues in Japanese-Chinese Relations
Reinhard DrifteUniversity of Newcastle; London School of Economics, University of London

Summary
The paper analyses the development of the Japanese-Chinese relationship from being treated as“special” after the normalization of diplomatic relations in 1972 to becoming increasingly complex and tense in the
1990s. This is done with the help of two case illustrations: the ending of Japan’s ODA loan programme which theJapanese government decided in 2005, and the two territorial disputes in the East China Sea around the Senkaku
Islands (Diaoyu Dao) and the demarcation of the sea border. Although there are certain developments towards amore “normal” relationship, there are several characteristics of the current situation which do not warrant tospeak of a “normal” relationship. Despite Japanese attempts of adding more multilateral approaches to thebilateral relationship, China’s different concept of multilateralism and Japan’s close alliance with the US imposesconsiderable limits to this kind of normalizing relations. How to address to the satisfaction of both countries theissues of the past which was the core of the “special relationship”, has still not been agreed upon. The accumulationof failures to address successfully fundamental problems during the time of the “special relationship” (notably the
territorial issues) in conjunction with other domestic, regional and global changes has created in Japan a backlashwith public opinion as well as decision-makers which has made the bilateral relationship even more difficult tohandle.

Key words: Japan-China relations, Japanese ODA, East China Sea

INTRODUCTION

After the normalization of diplomatic relations in 1972, Japan and China often treated theirbilateral relationship implicitly or explicitly as a “special”. From the Chinese perspective it was meant
to remind the Japanese side of the past, to warn the Japanese government against any policies whichmight again lead to such aggression or to oblige the Japanese government to adopt pro-China policies
as atonement for the past. The Japanese side often tended to conform to China’s expectations of
pro-China policies as long as there were no overriding alliance or domestic interests at stake.
Sometimes pro-China policies were adopted in one area in order to compensate for policies in otherareas which were not to the liking of Beijing.
However, since the 1990s the Japanese side gradually started to extricate itself from a stancewhich tried to treat relations with China as “special” and became more willing to assert its national
interests or simply insist on a particular point of view as in the case of the history issue. Thisdevelopment is, of course, part of the general discussion about Japan becoming a “normal” country.
The focus of this paper is to analyse this process with particular attention to the territorial disputes inthe East China Sea and to the ending of the Japanese loan programme to China. These two disparate

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but somehow also linked issues lend themselves very well to illustrating this process because both
symbolized at the beginning the “special” relationship while in the end they became expressions ofJapan reasserting itself more strongly. The territorial issues refer to the ownership of the Senkaku
Islands (known in China as the Diaoyu Islands) and the demarcation of the maritime border in the
East China Sea. In the latter case, both sides tried until the middle of the 1990s to keep it underwraps despite fundamental bilateral dissent and changing circumstances which was bound to lead
ultimately to confrontation. In the case of the ODA loan programme which has been Japan’s major
foreign policy tool since 1979 towards China, the government decided unilaterally in March 2005 to
end it by 2008, the year of the Olympics in Beijing, in response to China’s economic development anddissatisfaction with various Chinese policies.

JAPANESE ATTEMPTS TO ACHIEVE “NORMAL” JAPANESE-CHINESE RELATIONSThe normalization of diplomatic relations between Japan and China in 1972 was a difficult

process although it happened very fast and both sides showed remarkable willingness to succeed. In
many ways the “1972 structure” (1972 taisei) was built without first establishing a thoroughfoundation. Some fundamental issues, notably how to deal with the past but also the territorial
dispute over the Senkaku Islands, were not fully addressed or shelved for the time being. (See thediscussion in Mori 2006, pp. 87-94). There were good reasons for proceeding in this way, but it would
have considerable costs later as we will see in the following. Despite an enormous wave of popular
good will immediately after 1972, it took six years of difficult negotiations to conclude the 1978 Treatyof Peace and Friendship. One of the most difficult issues was Taiwan which had still many politicalfriends in the LDP and which bedevilled the negotiations of several technical agreements in the 1970s.
It would seem understandable that against this background, relations came to be considered by bothsides as “special” which required a high degree of attention, a willingness to compromise, or at least to
paper over fundamental differences and to defer hard decisions and issues. This was helped by aleadership on both sides which had committed individuals, or “pipes” as the Japanese call it, who
could intervene and solve acute problems. These individuals on the Chinese side were motivated by arecognition that China needed all the help it could get to catch up, and who saw in Japan a partnerwith the necessary economic and technological prowess as well as a political and economic leadershipwhich recognized economic opportunities in China’s market, political necessity to stabilize China, but
who also felt the need for atonement for the past. The concentration of power in the hands of few
decision-makers on the Chinese side helped to exploit these conditions, assisted by the circumstancethat the routine handling of the relationship was delegated to the Ministry of Foreign Affairs andparticular its group of China experts.
The first major external challenge to treating the relationship with China as “special” cameat the end of the 1980s and beginning of the 1990s. The global changes since the end of the Cold War
in 1989, in particular the end of the Soviet Union in 1991, faced Japan with the need, but also theopportunity, to adjust and broaden its foreign and security policy. With the Soviet threat gone, therecasting of the strategic landscape in Central Asia and the rising challenges in the Middle East,
Japanese diplomacy became more active (“nodoteki”) and multilateralism was perceived as a muchneeded supplement to its focus on Japanese-American relations. Developments in China encouraged
a stronger stance towards Beijing and the use of multilateral diplomacy. However, the repression of302

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the student revolt on Tiananmen Square in 1989, despite its negative impact on Japanese public
opinion, led ironically to a temporary amelioration of the bilateral relationship because Japan actively
worked for an end of European and American sanctions which had been imposed against China in a
multilateral approach. Japan was concerned that sanctions would only push China back into an
isolationist policy from which it had emerged after having embarked on a course of opening thecountry since 1978. But there was also the core element of the “special relationship”, i.e. Japan’s past
aggression, which made Japan’s leaders feel morally not entitled to punish China with sanctions. The
new diplomatic openings after the end of the Cold War and China’s need for Japan as a partner tohelp the country overcome its post-Tiananmen isolation, led to Japan providing China the largest
share of bilateral ODA and made it one of its most important trading partner. These developments
offered Japan the opportunity to extend its more active post-Cold War diplomacy approach also to
China. It was the beginning of Japan’s attempt to extricate itself from the “special relationship”.
One major tool to do so was the policy of embedding the bilateral relationship into the wider
framework of multilateralism. Multilateralism is understood in international relations as‘coordinating behavior among three or more states on the basis of generalized principles of conduct’(Ruggie 1998, p.83). Multilateralism reduces transaction costs, enhances transparency andpredictability and socializes countries around generally accepted norms of behaviour (On the
Neo-liberal school’s view of multilateral security see Keohane 1998, pp. 82-94). These goals all
coincided with the goals of Japan’s (as well as other Western countries’) policy of engagement towards
China, i.e. offering Beijing political and economic incentives while still hedging its policy by politicaland military power balancing (Drifte 2003). To promote China’s involvement in multilateralism Japan
has been active on its own as well as by supporting similar endeavours by other countries.
Multilateralism became for Japan not only an instrument to support its general policy of engagement
towards China, but it helped Tokyo to extricate itself from the “special relationship” since interaction
at a multilateral level is part of more “normal” international relations. The multilateral levellightened the ‘political baggage’ which is still burdening the bilateral relationship (i.e. the past)
because it became diluted in the multilateral framework. This proved to be particularly valuable to
Japan when it came to security discussions. Compared with bilateral security dialogues andexchanges between Japan and China, the process of multilateral security approaches like in the
ASEAN Regional Forum (ARF) facilitates addressing sensitive security issues. A Japanese diplomat
beautifully described this instrumentalization of multilateralism to achieve “normality” by saying
about the ARF in this context: ‘Japan wants to say nice things to China bilaterally and bad things
multilaterally’(Green and Self 1996, p. 52.)
The beginning of putting the bilateral relationship on a more “normal” footing and the
instrumentalization of multilateralism can be traced back to the start of the 1990s. A first step was
made when Prime Minister Kaifu visited China in August 1991, the first head of a Westerngovernment after the Tiananmen revolt. He proposed to deepen the bilateral dialogue on issues ofimportance for the whole international community like arms control, disarmament and environmentand referred to this international society-relevant level of bilateral relations as ‘Japanese-Chinese
relations in the global community’ (‘sekai no naka no Nitchu kankei’) (Ishii 1995, pp. 30-42; Nakai, p.
119; Soeya 1998, p. 205.) Japan’s motivations were manifold: In order to enhance Western acceptanceof Japan’s conciliant policy towards China after the suppression of the Tiananmen revolt and to do
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away with the special character of the Japanese-Chinese relationship, the government was keen to
project ‘Japan-China relations which contribute to the international community’, thus prompting

China to become a responsible power (Diplomatic Bluebook 1992, p. 183.) It was an attempt to submit
the bilateral relationship to the international rules which are valid for all countries. But it was also a
recognition of the fact that relations could not be further developed by merely relying on the bilaterallevel and that this could only be done by cooperating on a multilateral level (Interview with a senior
official of the Ministry of Foreign Affairs, 7 May 1999).
A concrete example of this normalization process was the promulgation of the Four ODA
Principles in April 1991, even before Kaifu went to China. These principles were meant to apply to all
ODA recipients of Japan, making future ODA contingent on the extent of the recipients’ military
expenditures, the production of weapons of mass destruction and their delivery vehicles, the level of
democracy and market economy, and the degree of adherence to human rights. When the policy was
finalized in June 1992, the compatibility of economic development and the environment was added.
From a Chinese perspective this policy was an infringement of the principle of the non-interference
into the domestic affairs of another country and must have been seen with some alarm since Japan
was China’s biggest bilateral ODA donor. But China did not protest because at the time Japan was
too important as a partner. Moreover, the Japanese government applied the new ODA principles very
selectively without any direct impact on China. The major exception in the 1990s was Japan’s
temporary suspension of grant aid after China’s second nuclear test in August 1995.
On the Chinese side “sekai no naka no Nitchu Kankei” was, however, understood as Japanwanting to translate its status as a big economic power into that of a big political power. It alsointerpreted it as an emphasis of the strategic importance of Japanese-Chinese relations (Takagi 2000,
pp. 107-8). The Chinese commentators agreed that for Japan to attain these goals it would have todepend on China’s help and good will (Takagi Seiichiro, 2000, pp. 112-3). Thus the difference inunderstanding of “sekai no naka no Nitchu kankei” meant in reality that China somewhat
neutralized the Japanese intention of a more normal relationship by adding a new “special feature” tothe bilateral relationship, without completely deleting the previous one centering on the past. Thiswas soon illustrated by China’s lukewarm (and later militant opposition) attitude towards Japan’s
renewed attempt since 1992 to become a permanent member of the UN Security Council. Since China
is a veto-carrying permanent member, any Security Council enlargement will need China’s
agreement. China has not only shown its opposition to Japan’s desire, but has argued that its attitude
towards the past has not yet enabled it to fully regain the confidence of Asia (Drifte 1999, pp. 150-51).
The Japanese desire for a more resolute diplomacy (kizen gaiko) and thus “normal” bilateralrelationship was greatly promoted by the rise of a series of security issues between Japan and China
and changes in the Sino-American relationship. During his first term President Clinton took a rather
critical stance towards China and frictions arose over China’s human rights and other issues.
Japanese public perception of China had already taken a bad turn as a result of the Tiananmen
repression in 1989. Generational change in Japan amplified this development which meant that the
go-betweens on both sides were disappearing and a new Japanese generation was taking over which
no longer felt the same about China as the previous one. The territorial dispute about the Senkaku
Islands was revived by a series of incidents. Tensions rose in the Taiwan Strait in 1996 with Chinese
missile tests. Japan reacted to these developments and the more immediate concerns about North304

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Korean nuclear developments with reinforcing its alliance with the US which China perceived as athreat to its security interests.
In February 1992 the Chinese legislative passed the ‘Law of the People’s Republic of China
on its Territorial Waters and their Contiguous Areas’ that included not only the South China Sea, butalso explicitly the Senkaku Islands. China’s military modernization which - according to Chinese
official figures - has shown since 1989 annual double digit increases started to have its effect on Japan.
The new series of nuclear testing in 1995 prompted the Socialist Prime Minister Murayama to
temporarily suspend ODA grants to China, an unprecedented measure. The year 1995 saw also
another escalation in the textbook dispute. Japanese nationalism had increased, and a vocal minority
was no longer willing to accept Chinese criticism of how Japan approached its past. Instead, teaching
children about negative aspects of Japan’s recent history was perceived by this minority as
masochistic and not conducive to making children love their country.
These global, regional, external and internal developments all contributed to a gradualabandonment of China policies which accounted for the “special relationship”. Before, Japan had often
reacted to China with what may be called deference or restraint, although it has had the upper handin terms of power and/or resisting would not have involved much political cost. One source of thisrestraint has been Japan’s general post-war pacifism. There are other sources as well which are either
China-specific or not (e.g. cultural affinity, war guilt and a general tendency towards conflict
avoidance), and which often reinforced each other (war guilt, pacifism, the sympathy of the JapaneseLeft for Chinese communism). As a specialist of Chinese history Yokoyama Hiroshi refers to China’s
demand for “kowtow diplomacy” (dogeza gaiko) from Japan, which reinforced Japan’s deferential
inclinations (Yokoyama 1999, pp. 250-3).
The long survival of restraint in Japan’s China policy and thus the “special relationship”
would not have been possible if the day-to-day operation of the bilateral relationship had not been
almost exclusively in the hands of the Gaimusho and particularly the so-called China school. These
diplomats attempted well into the 1990s to shield the relationship from the vagaries of Japan’s
domestic politics which produced inconsiderate remarks on the past by idiosyncratic politicians or
textbooks with sometimes dubious references to or simply omissions of Japan’s past. It is fair toassume that these occurrences and forces in domestic politics which were outside of the Gaimusho’s
control (e.g. the Ministry of Education) often prompted the diplomats to avoid addressing otherpending issues in the bilateral relationship (like the territorial issues) which were of national interest
but at the time not pressing enough to risk further complications in the relationship by addressing
them. Moreover, the complexities and inherent contradictions of Japan’s engagement policy towards
China as well as the impact of the Japan-China-US dynamics had to be played down. This was
naturally exploited by the Chinese side. But the diplomats also attempted to play down the vagaries
of China’s domestic and foreign policies and its negative repercussions for Japan, be it the insufficientpublic recognition of Japan’s huge ODA or the increase of incursions of Chinese survey vessels into
Japanese waters as we will see further down.
However, the Japanese restraint inherent to the “special relationship” became increasingly
perceived as outdated, ineffective and even counterproductive. The restraint and deference shown byJapan’s leaders in the face of China’s assertive security policy has bred resentment in Japan, and anegative backlash was caused which generated pressure for radical shifts. One can also assume that
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Japanese deference bred Chinese distrust of Japan’s true intentions because of their own Realist
approach to international relations and because of their inability to fully appreciate Japan’s changes
since 1945.

JAPAN’S ODA PROGRAMME TO CHINA AND THE DECLINE OF THE “SPECIAL
RELATIONSIP”
Japan’s ODA programme to China can well be considered in the context of the “special

relationship” but has experienced considerable changes with the growing Japanese desire to“normalize” relations and assert Japan’s national interests in a more determined way. The
programme started when Tokyo granted Beijing in December 1979 $200 million for six construction
projects as well as a grant of $61 million to assist in the building of the China-Japan Friendship
Hospital. The reasons at the time for embarking on the ODA programme were the wish to overcome
the immediate crisis of China’s cancellation of many plant orders from Japan, to open a new market
for Japan, and to help China with its transformation to a capitalist economy as the basis for apeaceful China.
Another reason had more to do with the core of the “special relationship”, i.e. atonement forthe past. China had greatly facilitated for Japan the normalization of diplomatic relations in 1972 byrenouncing reparations, a decision which had been motivated by the desire to win over the Japanesepublic, to avoid antagonizing the still very strong pro Taiwan forces in the Japanese ruling party, tostrengthen China’s strategic position against the Soviet Union by establishing diplomatic relations
with Japan and to avoid appearing less generous than the Taiwan government which had earlier
done the same. Later, with the opening of China in 1978, this renunciation led to Japan offering ahuge amount of ODA. The ODA programme was clearly, although not officially, linked by both sides toJapan’s past aggression against China. ODA would correspond to a normal relationship between
developed and developing country, whereas reparations would not have been perceived as such.
However, despite this morphing of reparations into ODA, it did not diminish the past and it had
moreover considerable costs for both sides. It considerably diminished China’s gratitude for Tokyo’slargesse in the following years because the aid was seen as something China was “owed” for its
generosity after having suffered so much from Japan’s encroachment before 1945. On the Japaneseside the opportunity to undo the harm of the past by providing ODA which Japan gives to many othercountries as well may not have helped many Japanese to come to terms with its past, or at least not toa degree which would satisfy the Chinese side. ODA has not the same emotional impact as
reparations. Thus atonement for the past as the core issue of the “special relationship” was still verymuch alive. These specific circumstances of the beginnings of ODA would later be invoked by the
Chinese side when faced by Japan’s decision in 2005 to end the ODA loan programme. Even before
the issue of ending loans came onto the agenda, the Japanese felt often annoyed or embarrassed
when the Chinese side reminded them about this link in order to extract more assistance and/or
better conditions. For example, in 1987, at a moment of Chinese dissatisfaction with Japan’s export
surplus and other economic grievances, Deng Xiaoping reminded Komeito Secretary General Yano

Junya that China had renounced reparations and that in the Eastern order (toyou jori) this meantthat Japan should make more contributions to China’s development. This was rebutted by a

Gaimusho statement which aroused great emotions in China, and in which it is said that Deng
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Xiaoping was seemingly already sitting on a cloud (Suh 2004, p. 129)‫ ޕ‬When Japan suspended the
major part of its grant aid in 1995 in protest against China’s resumption of nuclear tests, the People’s
Daily wrote that Japan’s grant aid had a special historical background.( Katada 2001, p. 47).
One of the most important changes leading from 2001 onwards to a curtailment of Japan’s
ODA to China but also to a general reassessment of China and Japan’s relationship with the country
has been China’s impressive economic development. Since the middle of the 1990s public opinion, themedia and the political-economic leadership in Japan became increasingly aware of China’s fast
economic progress and its various direct and indirect implications for Japan itself and for the region.
Particular lighting rods have been China’s own aid programme and iconic achievements like the begin
of manned space craft launches. The Chinese space flights in October 2003 and 2005 exerted aparticularly negative influence on Japanese public opinion because of the budgetary extravagancy fora country beset with so many developmental problems and the lack of anything comparable in Japan.
Some of the implications of China’s economic achievement have been perceived as negative for Japanand have therefore become arguments to support an end to the ODA loan programme from 2008:
China’s economic development carries the seeds of self-destruction in terms of ecologicalunsustainability, political unsustainability (the creation of social imbalances and dislocations), andeven economic unsustainability (for example the possibility of a collapse of the underlying economic
model of export-led and FDI-driven development due to an international recession). These negative
developments have started to affect Japan by way of transboundary pollution, illegal immigration,transboundary crime and the loss of competitivity in many manufacturing sectors. The success ofChina’s economic development generates also increased international competition for scarce raw
materials, food and energy resources on the international market. Finally, China’s economic successwith its demographic and geographic dimensions will not fail to affect Japan’s relative economic
position and identity as the world’s second largest economic power. It is also recognized in Japan that
China’s economic success has become a prerequisite for Japan’s economic recovery and in 2004 China
overtook the US as Japan’s biggest trading partner. Prime Minister Koizumi declared already in April
2002 at the Boao Forum on Hainan island that China’s economy was not a threat but an opportunity
and this has been consistently Koizumi’s official line. On the other hand, all this raises the question in
Japan why the country should any further provide China with ODA.
Another reason leading to a decline of ODA to China was the gradual loss of Japaneseleverage over China as a result of its huge ODA. One of the major objectives of Japan’s ODA
programme towards China has been to gain some leverage over the direction of China’s economic andpolitical development. Economically, these objectives have been achieved to a considerable extent, and,
together with the competition of ODA from other countries (notably in some sectors like theenvironment where thanks to international ODA competition the Chinese government cansometimes chose the donor and/or conditions) and the increasing availability of loans at commercial
rates, Japan’s leverage is naturally declining. With China’s economic strengthening, any politicalleverage is also rapidly declining. In addition, political-economic conflict and rivalry have increased
since the second half of the 1990s while Japan’s dependence on the China trade has become crucial for
Japan’s economic revival. Against this changing background, any political operationalization ofJapan’s ODA would only inflame Chinese political opinion.
Closely linked to Japan’s loss of leverage is the lack of Chinese recognition for Tokyo’s
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economic assistance. The relative ignorance of the Chinese people about Japanese aid or at least theirincomplete understanding of the character of ODA as explained above has naturally also limited its
political fungibility. Moreover, this lack of gratitude and recognition has become a major argument in
the public discussion about the ending of ODA to China.
Among the above-mentioned global, regional, external and internal changes it wasparticularly China’s military rise and its military policies which not only fed the argument that China
was now rich enough and no longer in need of ODA but also that Japan was ill advised to nurture a
growing military threat through its aid programme. In the end, the territorial conflicts in the East
China Sea around the ownership of the Senkaku/Diaoyu Islands and the demarcation of themaritime border, the Chinese naval buildup as well as its military incursions into EEZs claimed by
Japan became important arguments for demands to end the loan programme and to shift theemphasis of Japan’s ODA to the interior provinces, to poverty alleviation, to the protection of theenvironment and even to the improvement of the Chinese Japan perception (e.g. through youth
exchanges).
At the beginning of the new millenium a series of demands related to various Chinese
military policies emerged from some of the media and from within the ruling LDP. In May 2000
Foreign Minister Kono Yohei told his Chinese counterpart Tang Jiaxuan that the government would
review its policy on official development assistance to China, citing Tokyo’s concern about a steep
increase in China’s military spending to which Tang responded that ODA should not be discussed in a‘political context’.(Asahi Shimbun 11 May 2000, Japan Times 13 May 2000).

In addition Japan’s ODA in general started to be reassessed since the beginning of the 1990s,
and this had also implications for China being treated less generously than before. Japan’s budgetary
constraints (by 2006, the state’s debt burden in relation to the country’s GDP amounted to 170 %)prompted the government to slash the ODA budget by over 30 % since 1999. The ODA budget for FY
2006 was cut by 3.4 %, a decrease for the 7th straight year, i.e. down to 759.7 billion yen ($6.5 billion),from 786.2 billion yen in the previous year.
The change of decision-makers had also an important impact on Japan’s ODA to China andled to a more standard donor-recipient relationship. The major development was the relative decreaseof influence by the Ministry of Foreign Affairs to the benefit of a much stronger role by politicians of
the ruling coalition and public opinion, both having become much more critical of China. Whereas thestart of ODA to China in 1979 was also mainly driven by pro-China politicians (supported by a pro
China public opinion), and then for over 20 years carried out by bureaucrats under MOFA leadership,
the situation had now changed back again to a politician-driven policymaking process, but no longer
with a China-friendly approach. Moreover, ODA has generally become of greater interest to politiciansbecause of the government’s budgetary constraints. The deterioration of Japanese-Chinese relations
has politicized ODA as a foreign policy tool. The role of the bureaucracy in general has become apopular target of criticism, and the China School of the Foreign Ministry has been singled out forbeing too soft on China. As a result, some diplomats of the China School became China policy
hardliners themselves. The future of ODA and the role of the Foreign Ministry in it has become acritical issue for the latter because most of its budget is ODA-related. Whereas the ODA share in its
budget was less than 20 % of the Ministry’s total budget at the beginning of the 1960s, this increased
to over 70 % in the 1980s.
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These developments affected directly policies towards the Chinese ODA programme. One of
the earliest consequences was the shortening of the allocation period. As a symbol of the “special
relationship” China had not only been for many years the top recipient of Japan’s ODA, but had also
been the only Japanese aid recipient which received ODA loans on a multi-year commitment basis
instead of on a single-year basis in order to accommodate China’s five year planning system. But toregain more control and leverage over its loan programme, the Japanese government agreed in 1998
with its Chinese counterpart to end this system from Fiscal Year 2001. However, in reality MOFA is
still trying to work within the Chinese long-term time framework which is also often more natural
because of the duration of many projects.
These changes affected notably the quantity of the Japanese loan programme to China which
has by far the largest share, followed by grants and technical aid. Having achieved their highest levelin 2000 with Y2,144 bn, they declined to Y859 bn in 2004 and Y748 in 2005 (see Table 1). This put
China fourth after India, Indonesia and Turkey whereas for a long time China was either 1st or 2nd
after Indonesia. However, one should not overlook that the cumulative total is still growing, so is therepayment total. Moreover, actual disbursement of loans to China has been increasing because of thetime lag between commitment and disbursement: The gross disbursement to China in 2003 wasYen1,149 bn which increased in 2004 to Yen1,271 bn.
Table 1  Japanese Yen Loans to China on a Commitment basis (Unit:Yen100 million)
2000

2,144

2001

1,614

2002

1,212

2003

967

2004

859

2005

748

Source: JBIC Press Release
It is against this background of a general as well as China-specific reorientation of ODA,
mounting grievances against China, and a significant drop of new loan commitments to China thatthe official discourse from 2004 onwards began to refer to the ending of Japan’s ODA. The year 2004
had seen a further deterioration of the bilateral relationship, with China still refusing a summit
meeting in either country because of the Prime Minister’s Yasukuni Shrine visits, anti-Japanese
outbursts at the Asian Cup soccer matches in the summer, the ratching up of the territorial conflicts
in the South China Sea, the Chinese refusal of accepting an EEZ around Japan’s Okinotori island in
the Pacific, and the November intrusion by a Chinese submarine into Japanese territorial waters.
In March 2005 the government finally let it known that it had told China about plans tobegin cutting the size of its low-interest yen loans from this fiscal year, aiming to phase them out
entirely by fiscal 2008, while grants and technical aid would be given for training and environmental
protection programmes (Asahi Shimbun 3 March 2005). Grant aid was also to be phased out at somepoint in the future. The year 2008 was obviously chosen because of the Beijing Olympics which in
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Japanese eyes marks a country’s graduation from ODA loans as it has done for Japan when it staged
the Olympics in 1964. The following year, on 23 March 2006, the Japanese cabinet even suspended
the signing of the yen loan programme for Fiscal Year 2005 because of the current disputes with
China, notably about the East China Sea and the past (Mori 2006, p. 201). The agreement for Yen74.8
bn (a further drop over 2004) was finally signed on 23 June 2006, almost three months after the endof the fiscal year.
Interesting in our context is not only the vehemence on the Japanese side which led to thedecision to end the loan programme without referring to the usual guidelines about graduating
developing countries from ODA in stages as well as the highly visible suspension of signing the yenloan programme for FY 2005, but also how the Chinese side tried to cling to the “special relationship”
in arguing against the end of the loan programme. The Deputy Spokesman of the Chinese Foreign
Ministry declared on 30 November 2004 that he hoped that ODA would play an active role in thedevelopment of the bilateral relationship. ‘Irresponsible discussions will only damage
Japanese-Chinese relations’ and ‘We cannot understand the Japanese domestic discussions. ODA has

to be seen against a special political and historical background’.(Jiji Press 3 December 2004.) The
Chinese official news agency Xinhua published an editorial on the abandonment of the loan
programme in which it mentioned that the Chinese Foreign Ministry considered that there was still
today a special historical background to this issue, thus indirectly referring to the Chinese perceptionof Japan’s ODA being reparations.(Kyodo 17 March 2005).

TERRITORIAL DISPUTES AND THE COSTS OF THE “SPECIAL RELATIONSHIP”

The territorial dispute about the ownership of the Senkaku Islands (or Diayu Islands in

Chinese) between Japan and China surfaced with the publication of a seismic survey report under the
auspices of the UN Economic Commission for Asia and the Far East (ECAFE) in 1968 which
mentioned the possibility of huge oil and gas reserves in the East China Sea and which was confirmed
by a Japanese report in 1969. Beijing stated its claim to the Senkaku Islands for the first time in 1970,
after the Japanese government had protested to the government in Taiwan about its allocation of oilconcessions in the East China Sea, including the area of the Senkaku Islands. The Senkaku Islands
are eight uninhabited islands and barren rocks which have a land area of only 6.3 square kilometers,
situated approximately 120 nm northeast of Taiwan, 200 nm east of the Chinese mainland, and 200
nm southeast of Okinawa. They are under de facto control of Japan since the end of the 19th century
and most non-Japanese and non-Chinese specialists give more credence to Japan’s claim than to
China’s. The dispute also affects decisions between Japan, China and Korea on the demarcation of theContinental Shelf and the Exclusive Economic Zone (EEZ) of the whole area of the East China Sea.
Without an agreement on the sovereignty of the Senkaku Islands, it is difficult to agree on thedemarcation of the sea border between Japan and China which also has still not been agreed upon.
Whereas China invokes the extended continental shelf theory of the Law of the Sea (LOS) which
would situate the maritime border close to the Okinawa Trough, i.e. near Okinawa, the Japanese
government applies the median line between the overlapping 200 Exclusive Economic Zone of bothcountries which would put the border further away from Japan towards China. The median line
theory has become the standard approach of the LOS since around 1985 for countries withoverlapping EEZs.
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The two territorial disputes were shelved by both countries for most of the time of the 1970s
and 1980s. The Senkaku issue was, however, raised by the Japanese side during the negotiations of
the normalization of diplomatic relations in 1972 as well as those of the Treaty of Peace andFriendship in 1978. When the Japanese government wanted to raise the Senkaku Islands issue in the
1970s, the Chinese government refused to do so. When Prime Minister Tanaka Kakuei tried to raise
the issue in 1972, Zhou Enlai declined to discuss it, dismissing the importance of the islands (Welfield
1988, p. 319.) In 1975 the Chinese side made it known that the issue of Taiwan as well as theterritorial ownership of the Senkaku islands was not to be discussed for the conclusion of the Peaceand Friendship Treaty (Asahi Shimbun 14 November 1975.) In 1978, when the treaty was finallyconcluded, both sides seemed to have accepted that the solution of the issue should be left to ‘future
generations’. That year Deng Xiaoping declared that the two sides (!) had agreed to shelve the issue
and leave it to future generations to solve it, but there was no official Japanese confirmation of thatagreement, but nor was there a denial. Deng repeated in 1983 that he wanted the issue to be decided‘at another time’ (Suganuma 2000, p. 138).
In addition to shelving the issue for the time being the Chinese side proposed joint
exploration of the continental shelf and/or of the area around the Senkaku Islands. In October 1978
Deng Xiaoping mentioned it when proposing to shelve the Senkaku issue for the time being. Deputy
Premier Yao Yilin proposed in October 1980 joint oil development around the islands which could also
include the US (Asahi Evening News 11 October 1980). In October 1990, China suggested ‘joint

development’ of the islands but the report is not clear what exactly was meant (International Herald

Tribune 1 November 1990).

It is obvious that the Chinese side never renounced its claim to the Senkaku Islands. In 1972
and 1978 the government was keen to conclude negotiations on the normalization of diplomatic
relations and on the Treaty of Peace and Friendship as quickly as possible and showed considerable
flexibility also on other issues which had been standing between the two sides. When Prime Minister
Uno Sosuke claimed in May 1989 that the territorial dispute had been settled because Japan enjoyedde facto control over the islands, the Chinese government rejected the statement, saying that the
dispute was only shelved. (Suganuma, p.139). Although it started to explore for oil and gas in the East
China Sea in the mid 1980s, China has respected de facto the Japanese-claimed median line as thecommon sea border until today by at least not erecting oil and gas extraction structures on theJapanese side of the line although its surveys were conducted on both sides. The Chinese side did nothesitate in the 1970s and 1980s to exploit the territorial dispute around the islands to show
displeasure with Japanese policies. In April 1978, just at the moment of difficult negotiations on the
inclusion of an “anti-hegemony clause” into the Treaty for Peace and Friendship, over 200 Chinese
fishing boats entered from two Chinese harbours the territorial waters around the islands (Sugimoto
2006, p. 57).
The Japanese government clearly did also not renounce its claims to the Senkaku Islands
but agreed until the beginning of the 1990s with the Chinese side on shelving the issue. Chief Cabinet
Secretary Sakamoto Misuji declared his agreement with Deng Xiaoping’s 1978 statement in 1990 tocalm Chinese protests against Japanese right-wing activities on the Senkaku islands (Suganuma, p.
140). This was not too difficult since Japan has always been in de facto control of the islands.
Even early attempts at joint development failed to materialize because Japan put the
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clarification of its territorial claim first. It is interesting to remember that in 1970-71, after the
ESCAP report had came out and diplomatic relations existed only with Taiwan, officials from Japan,
Taiwan and South Korea formed the China (=Taiwan), Japan, Korea Oceanic Development andResearch United Committee, chaired by former Prime Minister Kishi, but that venture was soonabandoned in view of the PRC interests. After 1972 the Japanese government did not even allow any
Japanese companies to explore oil and gas around the Senkaku Islands or in the East China Sea

despite the applications from several Japanese companies since 1969 (Japan Times 8 September 2001,

Japan Times 22 October 2004). Japan did not allow Japanese companies to agree to Chinese
proposals for joint exploration as long as the territorial issue was not solved. In the 1980s suchnegotiations took place, and it is significant that the Chinese side was only interested in joint

exploration around the Senkaku Islands, but not any further north ( Yarita 2005, pp. 23-29). Thisshows that the Japanese side was interested in keeping the wraps on the territorial disputes as longas its territorial claim to the Senkaku Islands was not affected. But this meant also that any
compromise like joint development could also not be explored. Moreover, the Japanese government
considerably compromised a solution of the disputes when it ratified in 1978 an agreement with
South Korea on a joint development zone in the Northern part of the East China Sea where Japanese,
Chinese and Korean sea areas meet, against China’s protest and without having consulted with
China. Japan had waited for four years with ratifying the 1974 agreement because of Chinese
protests but still went ahead in the end.
The careful stance by both sides lasted well into the 1990s, and survived in particular thepassing in February 1992 of the ‘Law of the People’s Republic of China on its Territorial Waters andtheir Contiguous Areas’ that included not only the South China Sea, but also explicitly the Senkaku
Islands. According to reports, it was the PLA which insisted over the objections of the Chinese
Ministry of Foreign Affairs to explicitly refer also to the Senkaku Islands (Austin, p. 313). The
territorial law raised great concern with all maritime neighbours of China, including Japan which
officially protested it. In April of the same year, a Chinese navy deputy commander was quoted in the
Chinese press as saying that it was high time for China to readjust its maritime strategy and to makemore efforts to recover the oil and gas resources in the South China Sea, thus reinforcing theseriousness of Chinese motives and highlighting its energy problems (International Herald Tribune

19 June 1992.) But the Chinese top leadership was not interested in pushing the issue any further:
When Jiang Zemin, then Secretary General of the CCP, visited Japan in April 1992, Prime Minister
Miyazawa raised the issue of China’s new territorial law, but Jiang referred back to the statement
made in 1978 by Deng Xiaoping about leaving the issue for the future (Mendl 1995, p. 82). The 1992
Law complicated the preparation for the first Tenno visit to China, an event which Japan as well as
China desired very much to occur without incidents. For this reason, as well as to calm the concerns ofcountries disputing territory with China in the South China Sea, the Chinese Foreign Ministry statedthat the law did not represent a change in Chinese foreign policy and would not affect the joint
development of contested territories (Ma 1992, 10-11) Hashimoto Hiroshi, the head of the Gaimusho’s
Information and Cultural Affairs Bureau, demonstrated the Japanese side’s interest in not letting the
new law interfere with the Japanese-Chinese relationship when he explained that the Chinese
legislation was ‘merely a matter of China’s tidying up its domestic legislation institutions’ and ‘thedispute would remain shelved as previously agreed’ (Wakamiya 1999, p. 284). This careful treatment
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of the territorial conflict was also apparent in how it was dealt with in the Japanese Defence White
Paper. While it had been mentioning China’s new territorial law and its inclusion of the Senkaku
islands since the 1992 edition, it is only since the 1997 edition that there is mentioning of China
conducting ‘oceanological research’ in the East China Sea beyond the median line between the twocountries.
However, as shown above in the context of the ODA loan issue, since the middle of the 1990s,
the bilateral relationship declined and the territorial disputes in the East China Sea propelled thisdeterioration which in turn made a solution even more difficult. In addition to all the political andmilitary issues mentioned above, China had become a net oil importer in November 1993, and with
its rapidly growing economy still mostly based on highly polluting coal, it is desperate to develop oiland gas fields. The territorial disputes has been fuelled by nationalistic zealots on both sides, by
episodic reaffirmation of official territorial claims by the Japanese and Chinese governments, and by
the rise of incursions of so-called Chinese ‘research ships’ as well as warships into the EEZ andsometimes even 12 sm territorial waters around the Senkaku Islands and into Japan’s EEZ in the
East China Sea in general. Japan’s declaration of an EEZ (a zone of 200 miles or cir. 370 km around
its territories) around the islands in June 1996 (taking effect on 20 July 1996) became anotherflashpoint for the dispute. Both countries moreover differ on the entitlement of the Senkaku Islands
to a continental shelf and EEZ. For the Chinese government, encouragement of incidents involving
Chinese activists in 1996 was also a means to indirectly protest against the Hashimoto-Clinton Joint
Declaration of April 1996 and the resulting Guidelines as well as the Taiwan issue. However, as in asimilar case in 1990, China carefully controlled the outburst in order not to jeopardize Japanese ODA.
On 12 October 1996 Foreign Minister Qian Qichen declared to a group of Japanese media
representatives that the Senkaku issue should be shelved and that joint development should beundertaken (Mori 2006, p. 141). In return, Chinese officials came under domestic attack for‘kowtowing to Japan’ (Funabashi 1999, p. 407). It has become known that the PLA was very
dissatisfied with the Chinese Ministry of Foreign Affairs for downplaying the crisis in late 1996 andearly 1997 and for vetoing the PLA’s intention to protect activists from Hong Kong and Taiwan(Scobell 2000, p. 239.) But more radical decisionmakers did not only assert themselves in China, butalso in Japan where the Gaimusho and particularly its China School had to increasingly give way tomore assertive policymakers and opinion leaders. The LDP did not shy away from playing thenationalistic card to win elections as it did at the end of September in 1996 when it made thecampaign promise that the Senkaku Islands and Takeshima (under South Korean control and called
Dokto in Korean) are Japanese territory.
Since then the two disputes have become more explosive as the Chinese side is on the vergeof or has already started to exploit gas from the Chunxiao field which is only 5 km from the medianline. The Japanese side became officially alarmed about this in 2005 because the situation raised
concerns that because of the nature of the relevant geological features in the area it is highly likelythat the field extends on to the Japanese side of the median line. Steps like sending a geologicalsurvey ship into the area on the Japanese side as well as giving Japanese names to the various fields
on the Chinese side have been taken to pressurize the Chinese government to provide information on
the fields adjacent to the median line and to agree to an equal exploitation of the fields on both sides ofthe median line. So far the Chinese side has refused and the Japanese measures have only raised the
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temperature between Tokyo and Beijing.
In the case of the Senkaku Islands the Japanese government took from the end of the
1980s/beginning of the 1990s the public position that there was no territorial issue to negotiate about
with the Chinese side. The delimitation of the maritime border in the East China Sea was seriously
addressed in bilateral talks only from 1998 after the ratification of UNCLOS and the declaration byboth sides of a 200 sm EEZ. Until August 1998 the negotiations were mainly focused on the
conclusion of a fishery agreement and called “Japanese-Chinese Talks on Issues related to the Law of
the Sea and Fishery” (Kaiyoho oyobi Gyogyoto no mondai ni kansuru Nitchu Kyogi). The title wasthen changed to “ Japanese-Chinese Talks on Issues related to the Law of the Sea “ and only in 2005
elevated from Deputy Director-General level to Director-General level. As one senior official of the
Gaimusho explained to the author, until the 6th round in 2005 the territorial issue was only “on thetable” (Interview with a senior official of the Ministry of Foreign Affairs 20 October 2005). It seems
that the Chinese side was initially reluctant to discuss the delimitation of the sea border.
With the end of the “special relationship”, the atmosphere needed for a negotiated settlementof the territorial disputes has became increasingly poisoned on both sides and it is not clear yet how
far the disputes will bring the bilateral relationship to the brink. It turned out to be counterproductivethat both sides had tried for such a long time to obfuscate the issues and to keep them off the agenda
instead of using the earlier better atmosphere to attempt a negotiated settlement. During that time
China had not only become richer and more nationalistic, but had created faits a compli in the East
China Sea with its drilling for oil and gas near the median line. It becomes every day more difficult tofind an equitable compromise because of China’s investment into the exploration and exploitation of
the oil and gas fields in the area. China is now also technologically able to go it alone as the ending in
September 2004 of the August 2003 agreement between Royal Dutch/Shell, Unocal on the one side
and CNOOC and Sinopec on the other side to jointly explore, develop and market gas, oil andcondensate in the East China Sea (including the Chunxiao field) proved. If China had thought that
postponing a solution would put it later into a better position to negotiate with Japan, then it was now
proved right. The two territorial issues should have been squarely addressed after the normalizationof diplomatic relations in 1972, instead of being considered only of secondary importance and/or an
unnecessary complication of an already difficult relationship. On the Japanese side bureaucratic
control of the issues until recently and the absence of wise political leadership did not help and played
into the hands of the Chinese tactic of winning time. Shielding the “special relationship” from yet
another fundamental dispute has proved in the end extremely costly.

CONCLUSIONSThis analysis has traced the development of the Japanese-Chinese relationship from being

treated as “special” after the normalization of diplomatic relations in 1972 to becoming increasingly
complex and tense. This development in Japanese-Chinese relations has to be seen as part of thegeneral discussion about Japan wanting to become a “normal” country although space limitations do
not allow to further investigate this background. We can see a development towards a more “normal”
relationship in terms of China no longer being dealt with as a special ODA recipient (in terms ofquantity and disbursement modus) and Japan clearly voicing its concerns and interests (e.g.
territorial interests) in the face of a China which is rapidly modernizing its economy as well as its
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military. Moreover, it is no longer that rewarding for China to invoke the past to gain “special”
treatment. Japan simply went ahead with announcing the end of the loan programme, even ignoring
its own normally adhered to criteria for doing so. Japan’s efforts to deal with China not only on abilateral but – like its Western partners- increasingly also on a multilateral basis can equally beinterpreted as a move to a more “normal” relationship.
However, without attempting any futile definition of a “normal” relationship, one can at least
point out several characteristics of the current situation which do not warrant to speak of a “normal”
relationship.
Although this paper concentrates on the problems and difficulties of the relationship, there isa very high level of economic interactions which has led to an increasingly interdependent
relationship, restraining both sides to some extent and gradually assuming more equal features (e.g.
exchange of manufactured goods whereas in the past it was exchange of Chinese raw materials
against Japanese high technology goods). However, the intensity of the economic relationship stillgoes parallel with a deteriorating political and security relationship. Moreover, closer economic
interactions, particularly during the transition phase towards more comparable economic andsocio-political conditions, generate tensions of their own. The recent case of concerted action in the
WTO by Japan, the United States, Canada and the European Union against China’s violations ofintellectual property rights is a good illustration of these tensions (as well as an example ofmultilateral approaches to China).
Secondly, we seem to be in a phase where the accumulation of failures to address successfully
fundamental problems during the time of the “special relationship” has created in Japan a backlashwith public opinion as well as decision-makers which has made the bilateral relationship even moredifficult to handle. This backlash has to be seen not only against the sometimes misguided efforts inthe past to maintain a ”special relationship”, but also against the changing domestic, regional andinternational changes as mentioned above. Japanese decision-makers are now much more willing toassert their opinions and invoke Japan’s national interests, even if it may be judged by outside
observers as motivated by short-term electoral considerations and exaggerated nationalistic impulses,
or to be morally questionable or politically counterproductive. The repeated visits by former Prime
Minister Koizumi to Yasukuni Shrine even at the expense of Japanese-Chinese relations at a time ofmounting bilateral problems may be judged as morally questionable or at least as politicallyunhelpful. The abrupt ending of the ODA loan programme deprives Japan of an important policy tool
towards China, and the punitive atmosphere of the decision-making process will not foster greater
Chinese appreciation of this impressive loan programme. The greatest loss for Japanese-Chinese
relations may be in the longer term that the decline of ODA – along with the very much China
threat-motivated reinforcement of the Japanese-American security cooperation - will further
disequilibrate Japan’s engagement policy towards China, by putting more emphasis on political andmilitary power balancing to enhance Tokyo’s deterrent and leverage over China at the expense of thepolitical and economic enticement elements of that policy. This will also reinforce Japan’s dependence
on US policies and naturally limit the scope of multilateral approaches by Japan to China.
As we have seen in the analysis of Chinese policies and in particular in the two case studies,
the Chinese side cannot escape its share of responsibility for Japan’s change. China also has become
more nationalistic and its decision-making process more complex. In the case of the territorial issues,
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economic interests (e.g. need of energy) and military interests (protection of the oil and gas
installations or surveys for military purposes in the East China Sea) have made dealing with China
much more complex than in the past when there was a relatively small and coherent leadership. The
allocation of China’s scarce financial resources for space exploration, for single-handed development oftechnologically more complex off-shore oil and gas fields or for strengthening its military forces werebound to test Japan’s willingness to continue its ODA programme in the same way as before.
Moreover, China is increasingly developing its own version of multilateralism which is more based on
declamatory and consensus-oriented processes (the ASEAN Way) rather than binding andenforceable procedures, is competitive to US-led multilateralism (e.g. the Shanghai Cooperation
Organisation), and aims at power balancing through the creation of multipolarity.
Third, the core of the “special relationship” was the issue of how to deal with the past andChina’s dissatisfaction with Japan’s response to this challenge. The inability of some leading membersof the political establishment and of certain parts of the bureaucracy to appropriately address the past
(textbooks, “slips of tongue”) had to some extent contributed to the circumstance that the Gaimusho
as the strongest protector of the Japanese-Chinese relationship was willing to make concessions to
China in other fields to “compensate” China. The implicit and sometimes explicit link between ODA
and the past did not facilitate the necessary start of a process leading to the scaling down of ODA, letalone the existence of concerns about other issues, thus adding to the many existing bilateral
problems. The same compensation concept certainly also contributed to the reluctance of theJapanese side to address early on the territorial issues although in the case of the Senkaku Islands it
was more the tactical consideration of negating the very existence of a territorial issue. In recent years,
however, a “reverse compensation” complex seems to exist in the minds of many Japanese as there isthe concern that conceding on one issue of the past (notably the Yasukuni Shrine visits) would only
lead to China picking up another history issue like the issue of the forced war prostitutes (ianfu) or
the revision of Japanese text books.
China’s rising nationalism is not helpful to solve the issues of the past since both sides haveto compromise. Many Chinese seem unwilling or unable to accept that Japan has radically changed
since 1945. The Chinese government is still willing to invoke Japan’s insufficient acknowledgement of
the past to oppose e.g. Japan’s quest for a permanent UN Security Council seat. In other words, theChinese government is unwilling to part with those elements of the “special relationship” which it
considered useful to make Japan adopt pro-China policies. As we have seen in the case of Japan’s
policy of “sekai no naka no Nitchu kankei”, China is even adding a new “special” element to thebilateral relationship by reminding Japan how much it depends on China’s help and good will toachieve its wider regional and global ambitions. It will demand a much more astute Japanese China
policy to counteract attempts of replacing the bilaterally supported “special relationship” of the pastwith a China-imposed “special relationship” and US-led multilateralism with Chinese-led
multilateralism!
The author gratefully acknowledges the support of the ICCS of Aichi University to do some of
the research in 2006!

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