Explainer: Why close trade partners China and Japan cannot get along
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Centuries of intense rivalry between China and Japan mean their economic embrace can never be taken for granted.
PHOTO: REUTERS
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BEIJING - China and Japan are two of Asia’s most powerful nations and the region’s biggest trading partners. Yet centuries of intense rivalry mean their economic embrace can never be taken for granted.
A number of issues continue to simmer between the two countries, including China’s increasing military activity around a disputed cluster of islands, trade restrictions and concerns over peace and stability in the Taiwan Strait.
Tensions flared in November after Japan’s Prime Minister Sanae Takaichi said that if China fought to take control of Taiwan, it could amount to a “survival-threatening situation” for Japan
The Chinese government accused Ms Takaichi of meddling in its internal affairs and demanded a retraction, but the Japanese leader defended her comments.
As the diplomatic spat escalates, China has taken retaliatory action, warning its citizens against travelling to Japan
What is the history of China and Japan’s relationship?
China and Japan have for centuries been the dominant political and cultural powers of North-east Asia. They have influenced each other’s language, economic development and culinary traditions.
Trade picked up from the late 19th century, but so did political friction, leading to a series of armed conflicts.
Japan invaded and annexed parts of China during this period, and from the 1930s through World War II, Japan’s Imperial Army launched brutal campaigns in China, including infamous mass killings in Nanjing.
These events – as well as ongoing territorial disputes – continue to overshadow relations between the two countries.
What is behind China-Japan tensions today?
Territorial disputes remain one of the biggest flashpoints.
Both countries lay claim to a group of uninhabited islands in the East China Sea – known as Senkaku in Japan and Diaoyu in China – that together cover 7 sq km.
China has been sending coast guard and government vessels into the area
The number of Chinese vessels entering the zone hit a record in 2024. China and Japan also have competing claims to a nearby gas field.
Beijing’s growing military clout is another source of concern in Tokyo, as is increased military cooperation between China and Russia, which includes joint naval and air force exercises around Japan.
Japan’s 2025 annual military white paper made more than 1,000 mentions of China, saying its neighbour had achieved a rapid improvement in military power and was Japan’s “greatest strategic challenge”.
Chinese President Xi Jinping has overseen a doubling of defence spending since taking office in 2013, according to the SIPRI Military Expenditure Database.
This has been one of the drivers of Japan expanding its own military.
A five-year Japanese defence build-up approved in 2022 is projected to cost 43 trillion yen (S$356.7 billion) and push defence spending to 2 per cent of gross domestic product, from just over 1 per cent previously.
Ms Takaichi has accelerated the timeline, targeting the 2 per cent goal by the 2025 fiscal year instead of 2027.
China has accused Japan of not learning the lessons of history and returning to militarism.
In 2024, a Chinese military aircraft breached Japanese territorial airspace for the first time and China said a Japanese destroyer had sailed into its territorial waters.
In June 2025, Japan said it observed two Chinese aircraft carriers and supporting warships operating simultaneously near remote Japanese islands in the Pacific Ocean.
How does Taiwan fit in with China-Japan relations?
China considers Taiwan part of its territory and has vowed to reclaim the self-ruled island of 23 million people some day – by force, if necessary. Japan does not have formal diplomatic ties with Taiwan but has spoken out against any unilateral attempts to change the status quo and insists that cross-strait issues must be resolved peacefully.
Japan’s concern stems partly from geography.
Taiwan lies less than 100km from Yonaguni, the closest Japanese island – a reminder of how quickly any conflict could spill across the East China Sea.
Japanese prime ministers have avoided discussing the details of a potential conflict over Taiwan, reflecting the sensitivities of the issue in both China and Japan.
Ms Takaichi’s comments made her the first sitting Japanese leader in decades to publicly link a Taiwan Strait crisis with a possible deployment of Japan’s Self-Defence Forces.
Ms Takaichi’s mentor, the late former Prime Minister Shinzo Abe, also took a tough line on China but was generally cautious about the hot-button issue of Taiwan.
In recent years, Japan has expanded its military installations, such as anti-ship missile bases along its south-western island chain, motivated by concerns about Taiwan and a broader regional conflict.
Chinese military and coast guard vessels, meanwhile, have been venturing into waters near the Senkaku/Diaoyu islands with increasing frequency.
Chinese ballistic missiles landed in Japan’s exclusive economic zone close to Taiwan in 2022, when China conducted one of its biggest exercises around the Taiwan strait in decades.
What is trade like between China and Japan?
As China gradually opened its markets from the late 1970s, Japanese companies including Panasonic Holdings and Toyota Motor set up production sites in the country to sell to a growing class of prosperous consumers.
Japanese businesses also latched on to China’s potential as a source of cheap labour for manufacturing. Firms such as clothing retailer Uniqlo set up factories there or sourced goods from Chinese companies before selling them in Japan and elsewhere.
China is now Japan’s top trading partner, while China counts only the US as more important in bilateral trade. But the relationship is evolving fast. Chinese businesses are starting to compete directly with Japanese companies in producing expensive items such as cars and electronics. And Japan is increasingly becoming a supplier of components to China rather than finished products.
Chinese consumer brands, including low-cost e-commerce giant Shein, are expanding in Japan, while electric car manufacturers such as BYD have emerged as a competitive threat to Japanese automakers, not only in China but around the world, too.
Some Japanese companies, including Mitsubishi Motors and Nippon Steel, have even pulled out of China or pared back operations there.
More generally, Japanese investment in China has been waning. Doing business there has long been unpredictable for Japanese firms, which have at times been drawn into political disputes.
Tighter restrictions – including China’s expanded counterespionage law – have made companies more wary of investing and individuals more cautious about visiting. The detention of several Japanese nationals in recent years has deepened those concerns.
In a further blow, Japanese technology companies including Tokyo Electron and Nikon have been hit by rules imposed under pressure from the US that restrict exports to China of machines and chemicals used in making cutting-edge semiconductors.
What is at stake if tensions between China and Japan escalate further?
Ms Takaichi and Mr Xi met in October
Chinese state media said in mid-November that the government had “made full preparations for substantive retaliation”, hinting that the possible measures could include sanctions, a suspension of economic, diplomatic and military ties and restrictions on trade.
China subsequently indicated it would halt imports of Japanese seafood
However, shipments remained subdued, totalling just US$500,000 (S$654,000) in the first nine months of 2025, according to Chinese customs data.
Much more significant concerns focus on the potential for China to weaponise its dominance of the rare-earths supply chain
When the two countries clashed over a territorial dispute more than a decade ago, China temporarily blocked exports of these critical materials, which are used in smartphones, cars and many other technologies.
The stakes are also high for Japan’s tourism industry after China’s Foreign Ministry warned that citizens should avoid travelling to Japan in the near term.
Some state-owned firms, including major banks, echoed this guidance and Hong Kong updated its travel advisory for Japan as well.
Meanwhile, Japan urged its nationals in China to take precautions
Chinese tourists account for about one in four visitors to Japan annually.
They were the top spenders among all foreign visitors from July to September, responsible for around 27 per cent of 2.1 trillion yen in total inbound consumption, according to the Japan Tourism Agency.
China’s Education Ministry also warned that Chinese students
The Japan Student Services Organization said in an April report that there were 123,485 Chinese students studying in Japan in 2024. They are the largest source of international students in the country, comprising 37 per cent of the total.
The diplomatic spat could also inflict damage on businesses operating across both economies.
While the number of Japanese-affiliated companies looking to expand in mainland China and Hong Kong was at a record low at the end of 2024, according to a survey from the Japan External Trade Organization, China remains a vital destination for exports of Japanese machinery, vehicles and chemicals.
And Japan is still an important source of high-tech products that Chinese firms are unable to produce domestically, including equipment and supplies for making semiconductors.
While China appears to have more leverage to deal an economic blow than Japan, it will also have to weigh its options.
Resorting to strong-arm tactics too quickly – especially if it imposes restrictions on critical minerals – could draw Japan’s ally, the US, into the fray. Rare-earth supplies have been a key source of friction between Washington and Beijing. BLOOMBERG
