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Leaders of the Quad from left: U.S. President Donald Trump, Indian Prime Minister Narendra Modi, Japanese Prime Minister Yoshihide Suga and Australian Prime Minister Scott Morrison. (Source photos by Reuters)
China up close

Analysis: With eye on 'Quad,' China steps up Japan courtship

Xi's 'dual-circulation' economic model needs a stable supply chain with neighbor

KATSUJI NAKAZAWA, Nikkei senior staff writer | China

Katsuji Nakazawa is a Tokyo-based senior staff writer and editorial writer at Nikkei. He has spent seven years in China as a correspondent and later as China bureau chief. He is the 2014 recipient of the Vaughn-Ueda International Journalist prize for international reporting.

TOKYO -- When the much-anticipated first phone call between Chinese President Xi Jinping and new Japanese Prime Minister Yoshihide Suga took place on Friday, the absence of one major issue made the headlines: Xi's visit to Japan as a state guest.

Suga himself told reporters that rescheduling Xi's Japan visit, initially set for April before being postponed by the pandemic, was not discussed. China's official media reports made no reference to the visit.

But perhaps lost amid that intrigue was a conversation that spoke volumes of how China and Xi see Japan in the years ahead.

"China is stepping up efforts to foster a new, dual-cycle development architecture," Xi told Suga, "with the domestic cycle as the mainstay and with domestic and international development reinforcing each other."

Xi said he hoped that the two sides will jointly safeguard stable and smooth industrial chains and supply chains, the Xinhua News Agency reported.

The first phone call between Chinese President Xi Jinping and new Japanese Prime Minister Yoshihide Suga took place on Sept. 25, but the two managed to communicate quite a bit before that. (Source photos by Reuters)

Seen through the lens of Pekingology, the art of reading between the lines of official announcements, the president's use of two economic terms stood out -- "supply chains" and "dual-cycle" development.

The latter is a highly political slogan that Xi and his administration began using around May. It portrays an economic model in which China combines its domestic advantages, such as the large consumer market, and the merits of interaction with the outside world.

Having a strong, stable supply chain with Japan fits the latter cycle.     

It is Xi's answer to China's economic woes brought on by the coronavirus and the confrontation with the U.S. It is meant to enable China to cope with supply chain disruptions and even with decoupling from the U.S.

Xi's words to Suga suggest Japan has been written into China's new development scheme.

Dual-cycle or dual-circulation development and what shape it takes will be discussed when China's top political echelon meets on Oct. 26-29 for the fifth plenary session of the Chinese Communist Party's 19th Central Committee. It will be part of larger talks regarding the next five-year plan, which takes effect in 2021. The leaders will also set numerical targets all the way out to 2035.

The Xi administration is looking to secure an average annual growth target of at least around 5% for the next five-year period.

Failure to hit the target would put in limbo the ultra-long-term goal of "basically realizing a socialist modernization by 2035," which Xi set in 2017. 

But if supply chains between the U.S. and China continue to be cut off, even annual economic growth of 5% will be tough to achieve. As things stand now, it will be difficult for China to set any long-term plans based on supply chains that connect directly with the U.S.

The battle is much larger than that, however. If Xi has turned Pekingology around to see whether there are any messages lurking between the lines of Suga's priority list -- the phone call with Xi was Suga's seventh to another leader as prime minister -- he will discover a new alliance taking shape.

Suga's telephone diplomacy reflects preparations for a quadrilateral meeting between the Japanese, U.S., Australian and Indian foreign ministers set for Tuesday, when U.S. Secretary of State Mike Pompeo will be in Tokyo.

The U.S. is poised to promote the four-nation Quad framework, widely regarded as an attempt to counter China's growing influence. The three other nations are eager to do the same.

In June, Chinese and Indian forces clashed in a Himalayan border area, leaving 20 dead. In apparent retaliation, India later banned video-sharing app TikTok, messaging app WeChat and many other Chinese apps.

TikTok then quickly disappeared in India, though it had been downloaded there more than 600 million times, exceeding the number of downloads in the U.S.

The Sino-Australia confrontation is also escalating, with both sides now at loggerheads on economic, human rights, press freedom and security issues.

In Japan, the government is providing financing for companies that bring their Chinese production back home. In its first supplementary budget for fiscal 2020, which started in April, the government earmarked 240 billion yen ($2.27 billion) to reorganize supply chains for important products for which Japan now relies on certain other countries.

The "China exit" subsidies were a response to the pandemic's disruption of global production and distribution. And it has won fans.

In a joint survey conducted recently by the Japan Center for Economic Research and Nikkei, about 60% of those polled said they support the government policy of encouraging domestic companies to bring production back home.

The survey covered 3,000 people working at listed Japanese companies, and more than 40% of them replied that China's importance as a manufacturing hub will decline in the future.

For Xi, who eyes an ultra-long-term reign, winning over Japan through the dual-circulation development plan is crucial.

The party's next national congress, which will determine Xi's political fortunes, is only two years away.

As he attempts to woo Japan on the economic front, Xi will find it difficult to separate trade and security, as evidenced by the Quad alliance taking shape.

Security has become a particularly big issue amid China's rapid rise as a military power, and Suga's telephone diplomacy demonstrates this.

After Xi and Suga spoke by phone on Friday, foreign diplomats stationed in Tokyo were talking about another phone call Suga had in earlier in the day -- with Indian Prime Minister Narendra Modi.

Suga and Modi talked for 25 minutes that afternoon. Four hours later, Suga and Xi spoke for 30 minutes.

Before his conversation with Modi, Suga had already spoken by phone with the leaders of Australia and the U.S.

Particularly meaningful is how Suga's talk with Australian Prime Minister Scott Morrison preceded the one with U.S. President Donald Trump. China is poised to thoroughly bash Australia amid the nations' intensifying confrontation.

"Suga's intentions are clear," one Asian diplomat said. "Security regarding China is important after all."

Before taking office, Suga expressed a negative view of an "anti-China" coalition. But his phone call priority list since then seems to contradict this view.

Japan's then Prime Minister Shinzo Abe and China's President Xi Jinping  in Beijing, 2018.   © Kyodo

On a side note, telephone conversations between the Japanese prime minister and the Chinese president have a very short history. The first such call took place in May 2018, between Xi and Suga's predecessor, Shinzo Abe.

Traditionally, it was the job of the premier, a figure lower in the Communist Party's hierarchy, to hold phone calls with Japanese prime ministers. Xi changed the longtime custom two years ago to signal an advancement in the bilateral relationship.

Friday's call was the second such phone discussion and the first held on the heels of Japan inaugurating a new prime minister, a sign that China continues to move forward relations with Japan.

At least publicly, neither Xi nor Chinese officials are complaining about being No. 7 on Suga's phone list.

China, embattled on many fronts, does not want to damage its relationship with Japan at this stage. It understands that Japan's entering into a security framework with the U.S., Australia and India is within expectations. Tokyo and Washington are decadeslong allies, after all.

What it must prevent is having the developments spilling over into its economic relations with Japan as well.

Chinese State Councilor and Foreign Minister Wang Yi will visit Japan in October. He served as ambassador to Japan and is well-versed in Japan affairs. There is no doubt that gauging the Suga administration's stance on China will be top on Wang's agenda.

Can China count on Japan to be part of the dual-circulation development? If yes, will Xi's postponed state visit to Japan reemerge? The answers to these questions will affect Xi's political power at home, as he lays the groundwork to stay in office after 2022.

Japan is also under pressure to make a difficult choice. How far can Tokyo go in accommodating Xi's blueprint for the future, even if only economically?

Suga, who is said to have little diplomatic experience, is being immediately tested.

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