JAPAN BETWEEN THE TWO CHINAS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00967A000300020010-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 27
• Document Creation Date: December 20, 2016
• Document Release Date: July 10, 2006
• Sequence Number: 10
• Publication Date: February 10, 1971
• Content Type: MEMO

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Secret
MEMORANDUM
OFFICE OF
NATIONAL ESTIMATES
Japan Between the Two Chinas
Secret
10 February 1971
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CENTRAL INTELLIGENCE AGENCY
OFFICE OF NATIONAL ESTIMATES
10 February 1971
MEMORANDUM
SUBJECT: Japan Between the Two Chinas
Japanese policy toward the two China's continues to be a
delicate matter conditioned by a complex of domestic and external
considerations pulling in different directions. The Japanese govern-
ment is not eager to take any irrevocable steps to resolve ambiguities,
and may not have to for some time to come. Nevertheless, a number
of trends and contingencies -- not only involving Chinese UN repre-
sentation -- will clearly call for readjustments in Japanese policy
of one degree or another, sooner or later.
The following memorandum assesses the question
in greater detail.
This memorandum was prepared in the Office of National
Estimates. It has been discussed with representatives
of the DDP, OCI, OER, and the DDI Special Research staff
who are in general agreement ~qlth. it.
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1. The Japanese probably have talked more than anybody
else about the necessity of "bringing China into the international
community" -- and by implication at least, about the harm done by
Washington's refusal to recognize Peking. But in fact Japan has
skillfully exploited the status quo to establish positions of
advantage in both Taiwan and mainland China. Recent moves by
several governments to recognize Peking, and the simple majority
in last autumn's General Assembly for giving China's UN seat to
Peking, have been greeted with genuine enthusiasm by many Japanese.
But this apparent trend, however welcome in theory, poses a deli-
cate problem of adjustment for Tokyo which involves the timing
and style as well as the substance of its China policy.
2. Japanese attitudes toward both the rival Chinas are
founded on a complex misture of sentimental ties, wishful think-
ing, and hard-headed calculations of practical interests. The
mainland holds, as Japanese keep reminding each other, those 800
million potential customers. And it is the cultural motherland,
now fallen on hard times. A compound of deference to their
ancient heritage, and pride when comparing Japan's current strengths
with China's weaknesses, makes the Japanese feel a sort of mission
to interpret China and the West to each other -- establishing, in
the process, something of a tutorial influence for themselves in
SECRET
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Peking. Other nations, in Asia and elsewhere, also like to talk
of "building bridges" to China. But the Japanese feel that their
cultural ties give them a special insight into the Chinese charac-
ter.
3. In practical terms, the sheer size and weight -- and
nuclear potential -- of China make it a central element in any
calculation of Japanese interests. It is the likeliest source
of foreign inspiration and support for radical Japanese elements,
the only serious competitor for "leadership" in Asia, and poten-
tially the most troublesome obstacle to peace and stability in
the region. Not that the Japanese. stand in awe of China; they do
not. But as they prepare to join the game of balance-of-power
politics in the uncertain Asian environment, the leadership in
Tokyo is acutely aware of the necessity, at some point, of
achieving a satisfactory relationship with Peking.
4. For the present generation of Japanese leaders the
claims of the Nationalist Chinese government on Taiwan also are
strong. They are grateful to Chiang Kai-shek for having facili-
tated the return of Japanese prisoners from China after World
War II and for waiving postwar reparations claims against Japan.
They further credit him with having helped to prevent Soviet
SECRET
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participation in the Allied Occupation, and with having argued
against proposals to abolish the Japanese Imperial institution.
The sense of loyalty and obligation which Japan's older generation
of leaders seem to feel toward the Nationalist Chinese government
is remarkably strong
On a more practical level, while Japanese
businessmen may eye potential profits on the mainland, they
already have developed a substantial economic stake on Nationalist-
ruled Taiwan.
5. The island of Taiwan itself has a special place in
Japanese affections and interests. It was Japan's oldest pre-war
colony -- a prize of the Sino-Japanese War in 1895 -- and the
Japanese are gratified by signs that the native Taiwanese, unlike
the populations of their other Asian domains, may actually have pre-
ferred the Japanese to their current rulers. Moreover, conventional
wisdom holds that Taiwan lies athwart Japan's economic lifeline
to Southeast Asia and the oilfields of the Middle East. Some
younger Japanese question this: other routes could be found to
the Middle East, albeit at some cost and inconvenience, and South-
east Asia as a whole is far less important to Japan's economy than
the more developed Pacific states. At the same time, however, with
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the reversion of the Ryukyu chain to Japanese cont'ol in 1972,
Taiwan will be on Japan's doorstep. Japanese leaders certainly
do not want to see it in hostile hands.
Clearly, a strong motive
behind Japan's continuing interest in the future of Taiwan is to
further its development independent of the mainland.
6. Given the unyielding hostility of the rival Chinese
governments to each other, Japan's interests in both, and its
contradictory stake in Taiwan itself, it clearly has been to
Tokyo's advantage to avoid too much logical tidyness in its China
policies. Successive postwar governments of Japan have affirmed
officially that "China is one", and that its only recognizable
government is in Taipei. They carefully stipulated, however,
that the Japan-(Nationalist) China peace treaty of 1951 should
apply only to those areas actually under control of the National-
ist government -- i.e., Taiwan and the offshore islands. Since
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1951, Tokyo and Taipei have developed all the relations which
might be expected of close friends and allies: numerous and
close official exchanges and consultations; Japanese support
for the Nationalists' United Nations role; and finally, in the
Sato-Nixon communique of November 1969 on Okinawan reversion,
a Japanese acknowledgement of interest in the security of Taiwan,
In the process, unusually strong personal and ideological affini-
ties have developed between Japanese and Nationalist Chinese
leaders.
The most easily measurable ties between the two countries
are economic, and these are strong indeed. Japanese exports to
Taiwan grew from $75 million in 1959 to about $680 million in
1970, when they represented nearly half of all Taiwan's imports.
Total trade between the two in 1970 was worth an estimated $925
million. (Japan's exports to mainland China in 1970 were worth
$571.7 million, of a total trade valued at over $825 million.)
Even in those pre-Cultural Revolution years when Japan's total
trade with the mainland was greater than that with Taiwan, Japan's
trade surpluses -- and hence its foreign exchange earnings --
were larger with Taiwan. Consumers on Taiwan have become habitu-
ated to Japanese goods over the years and certainly the market
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there is more stable, less plagued by politically-inspired
fluctuations, than that on the mainland.
8. Even more important to many influential Japanese than
an opportunity to sell their products on Taiwan is their consider-
able capital investment in the island's industry. As labor costs
in Japan have risen, export-oriented industries have entered into
licensing arrangements on Taiwan to take advantage of its still-
plentiful supply of cheap labor. In recent years a substantial
part of the capital -- as well as technical and marketing expertise
-- important to the development of Taiwan's textile, electronics,
household appliance, rubber, and plastics industries have come
from Japan. Japanese trading firms also are firmly entrenched
on Taiwan, handling over half the island's exports to the rest of
the world.
9. Still, the Japanese have very nearly managed to have
it both ways. Under the rubric of the "separation of politics
and economics", they have staked out a trade position on the
Chinese mainland far larger than any other power. Japan's great
opportunity in the China trade came with the deterioration of
Sino-Soviet relations which allowed Japan, by 1965, to replace
the USSR as China's chief trading partner. After a falling off
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during China's Cultural Revolution, trade between the two once
more is expanding.
10. The composition of Japan's exports to China is more
important than their total value. Japan is China's best source
of capital goods -- steel and other metal products, machinery
and instruments, transportation equipment -- which are important
for themselves and for the Japanese technological expertise which
comes with them. For instance: between late 1964 and mid-1968,
about 25 large electronics manufacturing plants in China were
constructed and equipped by Japan --
violation of
CoCom restrictions on sale of strategic goods to China and to the
great benefit of China's micro-electronic components industry.
Japan also is an important source for the chemical fertilizers
necessary to China's agricultural development. As with Taiwan,
the trade is of greater importance to the Chinese than to Japan
-- the mainland accounts for only 2% of Japan's total foreign
trade. But in 1970, China became the largest foreign buyer of
Japanese machine tools. It is the second largest export market
for Japanese iron and steel products, and buys about half the
total output of Japan's fertilizer industry. Japanese exports
to China during the first half of 1970 were two and one-half
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times the comparable figure for 1969 exciting Japanese visions
of a "mammoth Chinese market" in which Japan had to maintain its
"traditional share".
11. Japan's trade with China is handled either through
"friendly firms" -- companies which eschew all dealings with
Taiwan and formally subscribe to Peking's international line --
or through a channel known as the "Memorandum Trade Agreement".
The latter is an ingenious device for international relations,
especially in the economic sphere, which perhaps would only be
possible in a dirigiste economy such as Japan's. The Trade
Memorandum was first signed in 1962 by Chinese officials and
influential members of Japan's ruling Liberal Democratic Party.
It is renegotiated annually, much like the trade protocols China
makes with the governments with which it does have diplomatic
relations.
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12. The arrangement is far from perfect. The Chinese have
harassed Japanese trying to do business in their country, cancelled
contracts, failed to meet delivery dates, subjected the Japanese
to tedious polemics on the evils of Tokyo and Washington, and
forced them to go through the charade of setting up dummy sub-
sidaries so that the same firm will not seem to be dealing with
both China and Taiwan. Peking directs trade to the "friendly
firms" when it wants to show particular displeasure with Tokyo,
then switches it to the Memorandum Trade channel to signal a
desire for improved official relations. And whenever a contract
is given to a West European country which does recognize the
Peking government, the Chinese tantalize the Japanese with asser-
tions that the business could have been Japan's if only diplomatic
relations had existed.
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13. But most of the difficulties in doing business with
China are caused by China's own economic and political problems,
and probably would exist whatever the state of diplomatic rela-
tions. It is doubtful whether Japanese recognition of Peking
would make a significant difference in the growth of trade be-
tween the two. China's domestic scarcities, both in terms of
export availabilities and foreign exchange reserves, imply that
the Chinese market for foreign goods will grow only gradually.
And China already has demonstrated interest in getting the most
for its money when it does buy abroad, by buying the best quality
goods at the lowest possible prices. High shipping costs from
West Europe to Asia give Japan an important edge in the Chinese
market, whatever the state of diplomatic relations.
14+. There is no reason to believe that Japan's economic
activity has won it any measureable political advantage in China.
Indeed, the opposite may be more true: that at least some Japa-
nese have been persuaded that China's economic potential is
sufficiently attractive to justify meeting Peking's political
conditions for formal diplomatic ties. But at the very least,
with Moscow and Washington frozen out of Chinese affairs, Tokyo
has been able to reason that it was gaining something of a head
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start in economic influence and personal contacts, without
jeopardizing its profitable business with Taiwan.
The Changing Problem
15. For a variety of reasons, however, the Japanese
government is under new pressures for change in its China
policy. A desire to complete Japan's post-war rehabilita-
tion by coming to terms with the mainland always has been
strong among the Japanese public. So long as the Cultural
Revolution had China in such turmoil, it was relatively easy
to argue that nothing sensible could be done. Peking's more
moderate behavior of late has undercut that argument. The
international trend which Canada and Italy apparently started
toward recognizing Peking has added to the pressure of Japanese
public opinion for recognition and also has the leadership
worried that others are getting ahead of them in relations
with Japan's most important neighbor.
16. Finally, the China issue has become something of a
touchstone of US-Japanese relations. Those who have advocated
closer relations with Peking have traditionally been those who
chafe at Japan's post-war "subservience" to the United States.
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Now that Japanese of all political persuasions are talking about
a world role commensurate with Japan's economic strengths, the
government is very much on the defensive to demonstrate its
independence of the US in handling a problem so important to
Japan as relations with China, The government itself, convinced
that Washington is looking for its own way to deal with China,
certainly cannot afford to seem to be following in the American
wake.
17. But the Japanese are acutely aware that their recogni-
tion of China will be of far greater moment than recognition
by a Belgium or an Italy. Japan and the United States are the
remaining holdouts who really matter to Peking; recognition by
them would place the final seal of legitimacy on the Peking
regime and pave the way for a new kind of Chinese role in inter-
national affairs. Tokyo will not lightly play this trump card.
Moreover, Japan's problems in actually negotiating the establish-
ment of relations with China would be of far greater magnitude
than those of just about any other country. The future of US
bases in Japan, Japan's ties with Taiwan, possible Chinese claims
for World War II reparations, the rival claims of Peking and
Taipei to those putative East China Sea oil resources also
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claimed by Japan -- all these issues could cause negotiations
to drag on for years after a Japanese decision in principle to
recognize Peking.
The Domestic Political Environment
18. One advantage the present Japanese leadership has is
its relative freedom to orchestrate a China policy, within the
limits described above. Public opinion polls indicate that 70%
of the Japanese electorate favors recognition of Peking, and a
newly-formed pro-China Dietman's League claims a majority of
Diet members among its ranks. Nonetheless, there is no effective
political focus for this sentiment. The Japanese Communist Party
broke with Peking over the JCP's refusal to take sides in the
Sino-Soviet quarrel; now the JCP assiduously is demonstrating
its freedom from any foreign influence and its devotion to legal
processes. Some Japanese Socialists are willing enough to do
China's work in Japan, but the JSP is too weak, divided, and dis-
credited to be effective in pressing the issue. The militantly
Buddhist and nationalistic Komeito has called for more distance
from Washington and closer relations with Peking; but its leaders
now seem bent on competing with the LDP for the allegiance of more
"conservative" Japanese voters, and admiration for China is being
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muted. On this as on so many issues in Japanese politics, none
of the opposition parties nor any likely combination among them
offers a serious challenge to the ruling Liberal Democrats.
19. There are ambitious men within the LDP who are looking
for a way to exploit the China issue. All Sato's "rivals" for
party leadership -- the men who would like to contest the Prime
Ministership when he leaves office rather than let Sato will it
to another of the old guard -- have declared themselves in favor
of faster movement toward recognition of China. Even they, how-
ever, carefully avoid detailing their on scenarios for estab-
lishing relations. Persistent disloyalty to the government's
position could damage a man's standing within the LDP, which is
where power is won in Japanese politics. Thus the party hopefuls
who would like to challenge Sato over China can at present do
little more than remain alert to public sentiment and profit
from any slip he may make in handling the issue.
What are Japan's Options?
20. Some China experts
eager to move decisively toward normalizing relations with China,
even at considerable sacrifice of Japan's ties with Taiwan. Prime
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Minister Sato, however, and the mainstream of LDP leadership, are
far from ready for precipitous moves.
21. And indeed, drastic measures are not yet necessary.
There are smaller steps Tokyo can take to demonstrate flexibility
and progress, steps which also can serve to sound out Peking's
responses. The head of a newly-formed pro-China Dietmen's League
(LDP elder and former Foreign Minister Fujiyama) will visit China
this month for political soundings which will be concurrent with
this year's Memorandum Trade negotiations. Tokyo is trying to
get Ambassadorial talks going with the Chinese, perhaps in a
West European capital.
And various ambitious Japanese,
such as trade union leaders and opposition party notables,are
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trying to get to China to put themselves in the vanguard of
efforts to sound out Peking. We expect some of these attempts
to be successful. While demonstrating closer Sino-Japanese
contacts and temporarily taking the heat off the government,
such contacts also are likely to fuel desires for even more
movement on the China problem.
22. Aside from looking for ways to talk to the Chinese,
the most likely step for the government to take is on credits
for sales to China. Prime Minister Sato long has held that the
"Yoshida letter" (in which the former Japanese Prime Minister
promised Chiang Kai-shek that no long-term government credits
would be granted for sales to China) was a merely personal
undertaking and not binding on the present Japanese government.
So far, however, the government's "case-by-case review" of each
application for credits always has resulted in a refusal. Power-
ful Japanese business interests, backed by the export-conscious
Ministry of International Trade and Industry, have been pressing
for a change in this policy. When Sato feels some visible govern-
ment action is required to appease "pro-China" feeling in Japan,
and especially if Japanese exports should appear to be sagging,
approving government-backed credits for an important sale would
be a relatively non-controversial step to take.
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23. Talks and credits are only nibbling at the edges of
the problem, however. The next major test for Japan's China
policy is likely to come in connection with next autumn's United
Nation's General Assembly. Japanese officials have told the US
that) they will not be
among the sponsors of an Important Question* resolution on China
if they do not expect it to pass. They have suggested too that
if Japan does not sponsor the resolution, it will abstain from
voting on it. And they always have maintained that once Peking
is admitted to the UN, Japan will feel under strong moral com-
pulsion to recognize it.
24. Tokyo is, however, considering various other formulas
which might have a better chance than the Important Question
tactic of holding the line in the United Nations for another
year or so. They are interested in suggestions to begin by
The UN General Assembly first votes on whether a resolu-
tion to seat Peking should be an "Important Question"
and so require a two-thirds majority for passage, and
then on the substantive resolution itself. Last autumn,
when a simple majority of UN members voted for Peking's
entry, prior passage of the Important Question resolution
kept Peking out.
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bringing Peking into the UN's specialized agencies (where West
Germany and South Korea already are represented); or a package
deal whereby rival claimants to power in all four of the world's
divided states (Germany, Vietnam, Korea, and China) would be
seated in the UN, with no prejudice to the ultimate claims of
any; or seats for two "governments" of one China; or -- doubtless
the real Japanese preference -- separate UN membership for
separate. states of China and Taiwan, In considering these and
other suggestions, Tokyo is concerned.to sponsor only those
proposals which have a good chance of success. Japan's UN
ambitions, mainly its desire for a permanent Security Council
seat, make it eager to be with the Assembly majority. There is
no desire to champion a lost cause.
25. The problem with all proposals to have both Peking
and Taipei in the UN is that neither at present would agree.
Tokyo, along with Taipei's other friends, will use whatever
time is left to try to reconcile the Nationalist government to
acceptance of eventual defeat, at least for its claim to be the
sole legal government of China. The Japanese doubtless are
wondering what solace they could offer Taipei to mitigate its
hostile reaction to Tokyo's defection. We do not believe that
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Japan would contemplate any new or meaningful commitment to
Taiwan's security; it will continue to leave this in US hands.
Japan probably would offer
attractive developmental credits. But Tokyo cannot feel at all
confident that Chiang Kai-shek, whose voice would be pre-eminent,
would not sacrifice Taiwan's basic economic interests over this
important matter of principle. For their part, the Japanese
probably hope that it will be possible to delay decisive action
on the China problem until Chiang leaves power. They would not
feel troubled by the same sense of obligation to his successors.
And they would hope that a post-Chiang government would be more
attuned to economic concerns, and possibly amenable to the idea
of "two Chinas".
26. The problem, however, will in some ways become more
difficult the longer Japan does manage to delay. Recent indica-
tions that there may be sizable oil deposits in the East China
Sea present a case in point. Some of the area concerned is
claimed by both Peking and Taipei as being part of China's
continental shelf, while the Japanese view this sector as theirs
by virtue of its proximity to the Senkaku island group which
Japan expects to take over in 1972 as part of the Ryukyu settle-
ment. To further complicate matters, both Peking and Taipei
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have at times -- and with increased frequency since the discovery
of putative oil resources in 1968 -- laid claim to the Senkakus.
At the moment, attempts are being made to arrange a joint venture
by Japanese, Nationalist Chinese, and South Koreans to cooperate
in exploiting the resources. If these business negotiations
bear fruit, a new mutuality of interest could develop between
Tokyo and Taipei which would further complicate Japan's dealings
with Peking. Japan will have to do a very fine balancing act
if it is to avoid serious disputes with its friends in Taipei
and Seoul over these resources, and avoid foretlosing options in
its relations with Peking, and protect its on interest in
whatever oil is there.
Outside Influences
27. The behavior of China will have great influence on
the pace of Japanese moves. Peking could reverse the existing
trend altogether, just as the excesses of the Cultural Revolu-
tion took Tokyo off the hook when Japanese public opinion was
previously most agitated about China, shortly after DeGaulle
recognized Peking in 1964. Or Peking could badly overplay its
hand: if it should make modifications on Tokyo's security arrange-
ments with Washington a condition of diplomatic relations, the
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Japanese government almost certainly would refuse. At the moment,
Peking has convinced Japanese officials of its desire to be
reasonable. There are various steps Peking could take, at very
little cost to itself, which might greatly increase popular
pressures within Japan. If they proved accommodating in this
year's Memorandum Trade negotiations, or agreed to some form of
official talks, or ceased anti-Japanese polemics altogether, the
Sato government would be deprived of some arguments for going
slow.
28. The Soviets must be worried by the prospect of Chinese
rapprochment with Japan (even more so, with Japan and the US).
But Moscow has very few cards to play to keep the Japanese, at
least, from such moves. The Japanese always have deemed the
Chinese more congenial, less dangerous, and more important to
Japan, than Russia. There are potential economic opportunities
for Japan in the Soviet Far East, but these seem less attractive
to the Japanese than opportunities they believe exist in China --
and anyway the Japanese do not feel confronted by an "either/or"
choice between the two. Even if the Soviets were willing to
return the Northern Territories taken from Japan at the end of
World War II -- an extreme action which we do not expect -- the
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Japanese would not see this as a reason for refraining from
dealings with Peking. In sum, the Japanese can hope to be
courted by both their great Asian neighbors, without having
to choose betwden the two.
29. Tokyo is quite eager to have its China policy "influ-
enced" by Washington, in the sense of staying reasonably in step
on the issue. Japanese leaders sympathize with Washington's
problems in the Peking/Taipei tangle, and indeed feel some of
the same difficulties themselves. They probably hope Washington
will take the lead in bringing the Nationalists around. Cer-
tainly they want all the information they can get on Washington's
China-thinking before planning their own steps. Of course if
US-Japanese relations should deteriorate over some other issue,
Tokyo would see less reason to accommodate Washington on the
China problem. But as they now calculate their interests, the
United States is by far the most important power to Japan; Tokyo
does not want a falling out over China.
30. In sum, Japan's dilemma is this: it would rather not
jeopardize its relations with Taiwan by undercutting the latter's
international position, but it cannot let the problem of Taiwan
be resolved entirely by others, with Japan bringing up the rear.
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It would like to stay just far enough ahead of the US to avoid
being tagged as its follower, but not so far as to be exposed
to the full force of Taipei's wrath nor to get itself in actual
opposition to Washington. Thus the timing and style of Japan's
moves with respect to the China question will be a matter of
extraordinary delicacy.
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