In a show of what is clearly undisguised dissatisfaction with Japan, China’s most senior finance official, Mr. Zhou Xiaochuan, the Governor of China’s central bank has pulled out of the International Monetary Fund (IMF) and World Bank held in Tokyo from October 9 to 14. He was originally slated to deliver the Per Jacobsson Lecture, a closing keynote lecture on Sunday. Taking his place would be vice-governor of the People’s Bank of China. Mr. Yi Gang.
The announcement comes after China’s four state-owned banks, the Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank, and the Agriculture Bank of China, similarly pulled out.
The decision by the banks and Mr. Zhou to pull out from the meetings has been attributed to the deteriorating relationship between China and Japan over territorial disputes in the East China Sea.
Beyond straining political ties, the dispute over the Diaoyu/Senkaku Islands has also affected China-Japan economic ties. For instance, the call to boycott Japanese goods in China has affected car sales tremendously, with Toyota, Honda and Nissan reporting a 49%, 40% and 35% decrease respectively since Japan nationalised the disputed islands in September. A report by J P Morgan has projected that Japanese car exports to China is likely to fall by 70% during the October to December period. Additionally, the Japanese economy is likely to shrink by 0.8% in the fourth quarter as a direct result of the dispute.
The fallout between the two nations is also likely to have global economic consequences, with China and Japan being the second and third largest economies respectively. “Tensions between the two countries, with annual trade worth $350 billion, will definitely put pressure on the world economy,” said Jiang Yuechun, director of the Department for World Economy and development at the China Institute of International Studies. The current situation has also been likened to a miniature Lehman Brothers collapse, creating ripple effects before eventually hurting the global economy.
With the recovery of the global economy weakening, it is imperative that China-Japan relations improve and that both countries engage amicably. According to IMF Head, Ms. Christine Lagarde, “Both China and Japan are key economic drivers that do not want to be distracted by territorial division”.
Report: Top China delegate pulls out of IMF meet amid islands row [TODAY, 10 October 2012]