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International relations

Japan and China iron out currency swap revival ahead of summit

Finance chiefs decry protectionism but gap emerges on how to deal with US

Japanese Finance Minister Taro Aso, left, and Chinese Finance Minister Liu Kun co-chaired the annual bilateral finance dialogue on Friday in Beijing.   © Kyodo

BEIJING -- Japan and China agreed Friday to accelerate cooperation in financial areas, including the resumption of currency swaps, laying the groundwork for a formal deal at a summit that the two sides hope to hold in October.

"Both sides agreed to work expeditiously on the initiatives agreed between the leaders of China and Japan in May 2018," top finance officials said in a joint statement after the annual bilateral finance dialogue held at the Diaoyutai State Guesthouse here. The delegations were led by Japanese Finance Minister Taro Aso and his Chinese counterpart Liu Kun.

These measures include signing a currency swap agreement, which the two sides agreed to begin negotiating when Chinese Premier Li Keqiang visited Japan in May. The nations concluded a currency swap agreement in 2002 but this went out of effect in 2013 amid a worsening of ties due to Japan's nationalization of the Senkaku Islands, which Japan administers but China claims and calls the Diaoyu.

Designating banks in Tokyo to settle yuan payments and letting Japanese financial institutions invest directly in Chinese securities markets are other initiatives that the two sides agreed to speedily implement.

Japan and China will expand cooperation on markets and financial oversight, the statement said.

On trade, they "agreed that protectionism cannot be beneficial for any country, and agreed to maintain and promote the free, open and rules-based multilateral trading system," the statement said.

The Chinese side cultivated a friendly atmosphere, hoping to win over Japan as Sino-American tensions mount over the ongoing trade war. Chinese Deputy Prime Minister Liu He greeted Aso in Japanese on Thursday when the two met ahead of the dialogue, surprising those present. Senior Communist Party officials rarely speak other languages in public.

Asked on Friday about the most significant result of the talks, Aso cited "the best mood so far" and a lack of hostility.

The joint statement stressed warming ties as well. The premier's visit to Japan in May has helped return bilateral relations to normal, "which created favorable conditions for cooperation in various fields between the two countries," it said.

But Tokyo is in a tricky position. If it gets too close to Beijing, it risks angering Washington.

Though Aso and Liu He agreed on Thursday to fight protectionism, they differ on what this entails. Chinese state-run media reported that Japan and China will work together within the World Trade Organization framework to oppose U.S. dominance in trade. But a source who attended the talks with Aso said that was not the case.

The Japanese finance chief on Friday furthered the impression that Tokyo and Beijing are not quite on the same page. Even the word "protectionism" means different things to each side, he told reporters.

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