Quan hệ thương mại hàng hóa trung gian giữa nhật bản – trung quốc trong hai thập niên đầu thế kỷ XXI và một số kiến nghị chính sách cho việt nam tt tiếng anh

VIETNAM ACADEMY OF SOCIAL SCIENCE
GRADUATE ACADEMY OF SOCIAL SCIENCE

NGUYEN TUAN TU

TRADE RELATION IN INTERMEDIATE GOODS
BETWEEN JAPAN – CHINA IN THE FIRST TWO
DECADES OF XXI AND
A NUMBER OF POLICY RECOMMENDATIONS
FOR VIETNAM

Major: International economy
Code: 9.31.01.06

SUMMARY OF DOCTORAL THESIS IN
ECONOMICS

HANOI – 2019


The thesis is completed at:
GRADUATE ACADEMY OF SOCIAL SCIENCE

Supervisors: 1: Dr. Nguyen Binh Giang
2: Assos. Prof. Dr. Nguyen Xuan Trung

Referre 1: Prof. Dr. Do Duc Binh
Referre 2: Assos. Prof. Dr. Do Huong Lan
Referre 3: Assos. Prof. Dr. Chu Duc Dung

The thesis will be examined by an examination board of the

Academy at
at………..…. …………,

The thesis can be found at:

-

National library

-

Library of graduate academy of social sciences


INTRODUCTION
1. The necessity of subject
Intermediate goods trade has always accounted for a significant proportion in
developing countries and is very important in trade connection and vertical
production in East Asia. Over the years, Vietnam has always been seeking
answers to the question: Where is Vietnam now in the global value chain and how
can it engage deeply in the long-term value chain, which implies the increase of
the share of intermediate goods export.
According to assessments of domestic and international experts, trade in
intermediate goods between Vietnam and Japan; Vietnam and China is creating
many disadvantages for Vietnam. Up to now, Vietnam has been mainly involved
in short-term value chains, focusing on mining, raw and preliminary processing
industries, but has not firmly participated in long-term value chains (deepprocessing products, components, manufacturing products, RD, satellite).
Meanwhile, China, after several decades of economic reform, has emerged as the
most important trading partner of Japan and some ASEAN countries, joining
significantly the East Asian production network. The bilateral trade relationship

between Japan and China is both complementary and competitive, in which
intermediate goods play a very important role. Vietnam has still struggled to build
export strategies for intermediate goods to join the global value chain, so that
Vietnamese enterprises are still far behind many other countries’ enterprises in the
region. Moreover, in trade relations with Japan and China, intermediate goods of
Vietnam remain in a very low position, sometimes only as a one-way import,
leading to large trade deficits and unfavorable to the economy.
The bilateral trade in intermediate goods between Japan and China is not only
a typical example of trade in intermediate goods but also a typical example of
trade between a developed country and a developing country. In addition, China
has the same level of development as Vietnam and Japan and China are important
trading partners of Vietnam. Therefore, studying the trade relation of intermediate
goods between Japan and China will give practical implications, experiences and
useful lessons for Vietnam to promote trade in intermediate goods of Vietnam
with other countries and improve bilateral trade relations between Vietnam and
Japan; Vietnam and China in the direction of increasing benefits for Vietnam. By
participating more actively in the trade of intermediate goods in East Asia and in
the world, Vietnam has the opportunity to participate more deeply in the global
supply chain. For this reason, the topic: “Trade relation in intermediate goods
between Japan and China in the first two decades of XXI and a number of policy
recommendations for Vietnam” is necessary in both theory and practice,
supporting us to understand the nature of trade relation of intermediate goods
between Japan and China, factors affecting this relation, its impacts and some
lessons for Vietnam in promoting its trade relations with Japan, China and other
countries in East Asia.
1


2. Research goals and tasks of the thesis:
2.1. Research goals:

This thesis examines the trade relation in intermediate goods between Japan
and China from 2001 to 2017. By assessing factors that affect this relation, the
thesis will present experience lessons and policy implications for Vietnam in
boosting trade relations of intermediate goods with countries in the world in
general and with Japan and China in particular.
2.2.Research tasks of the thesis:
The thesis will address three following basis tasks:
- Clarifying the implications related to the trade in intermediate goods between
Japan and China. Based on that, analyse and evaluate the current state of trade
relations between Japan and China since 2001.
- Studying factors that affect the trade relation in intermediate goods between
Japan and China in order to provide successes, shortcomings and causes in this
relation in recent years.
- Presenting experience lessons from trade in intermediate goods between
Japan and China and seeking solutions to boosting trade relations of intermediate
goods with countries in the world in general and with Japan and China in
particular.
3. Research objects and scopes:
- Research objects: Trade relation in intermediate goods between Japan and
China.
- Research scopes: Japan-China bilateral trade policies, the status and
characteristics of trade relation in intermediate goods between Japan and China,
the factors affecting trade in intermediate goods between Japan and China, lessons
and policy implications for Vietnam.
+ Scope of space: The thesis studies trade relation in intermediate goods
between Japan and China in East Asia.
+ Scope of time: From 2001 to 2017.
4. Methodology:
- Research approach: The thesis uses an interdisciplinary approach based on
trade theories, bilateral cooperation to evaluate and analyse Japan-China trade

relation and factors such as: history, international relations, politics, and culture ...
to explain the nature of the relationship.
- Methodology:
+ Methodology of systematic analysis .
+ Methodology of comprehensive analysis.
+ Methodology of comparison.
+ Methodology of case-study.
5. New contributions of the thesis on scientific theory and meaning.
To systematise a number of theoretical issues on trade relation in intermediate
goods and examine the factors affecting bilateral trade in intermediate goods to
2


clarify related issues. This is an important content in modern international trade
relations but has not been studied comprehensively and systematically in previous
domestic and foreign studies.
6. New contributions of the thesis on practice and practical implications.
- The thesis concentrates on the context of East Asian where intermediate
commodity trade has taken place vigorously since the last decades of the
twentieth century, as a basis for studying the trade relations of intermediate goods
between Japan and China.
- Analysing the status of intermediate goods relation between Japan and
China. These are two important intermediary trade partners of Vietnam. JapanChina intermediate goods relation shows the interdependence of East Asian trade
links on the supply and value chain.
- Analysing the status of the trade relations in intermediate goods between
Vietnam and Japan, Vietnam and China, giving general assessments, drawing
practical lessons from the experiences of China and Japan to provide policy
recommendations for Vietnam in boosting trade relations in intermediate goods
between Vietnam and Japan, Vietnam and China.
- The thesis is meaningful in practice as studying the status of trade relation in

intermediate goods between Japan and China clarifies the interdependence of the
two countries in regional manufacturing network in East Asia, showing the
different roles and positions of these countries in regional connection
manufacturing network in East Asia. Understanding the nature, causes and
assessments on factors influencing this relation in the first two decades of XXI
will help Vietnam define its position and tasks in the regional system of
intermediate goods trade, from which it would be possible to upgrade domestic
manufacturing industries to avoid dependence and promote its trade relation in
intermediate goods with China and Japan.
7. Structure of the thesis
Apart from the introduction, conclusion and reference, the thesis has 4
chapters:
Chapter 1: Literature review.
Chương 2: Theoretical and practical basis on trade relation in intermediate
goods.
Chương 3: Status and factors affecting the trade relation in intermediate goods
between Japan and China.
Chương 4: Trade relations in intermediate goods between Vietnam and China,
Vietnam and Japan: A number of lessons and policy recommendations for
Vietnam.

3


CHAPTER 1
LITERATURE REVIEW
The objective of this chapter is to review the literature on issues related to the
thesis in order to evaluate the results of the researches, from which the author will
study the gaps of previous studies on the subject.
1.1. Domestic researches

Regarding theoretical issues related to the thesis, in Vietnam, trade in
intermediate goods is studied under few terms: semi-finished goods, vertical
trade, intra-industry trade... There is no complete concept of "intermediate goods
trade". In several research studies, the concept, nature, characteristics and
structure of the international production network are mentioned quite specificly.
However, intermediate goods trade has not been put into a complete concept, it
has only been implied in some analysis as objecst and scope of research of these
studies are relatively different from the research topic of this thesis.
Regarding Japan and China 's foreign policy and economic cooperation with
the region in the last two decades, research studies have shown that Japan and
China have had changes in foreign policy and economic cooperation, which focus
on Asian countries by forming multilateral and bilateral cooperation mechanisms,
signing FTAs and having diplomatic political views that compete against each
other as two big countries in Asia.
Regarding Japanese-Chinese intermediate goods relation, it is clear that the
research studies on this issue are quite limited. Along with the trend of forming
FTAs in East Asia, the flow of intra-industry trades is increasing and mainly
intermediate and semi-finished goods, in which trade relation between Japan and
China are interdependent and China is gradually replacing Japan to become the
largest trading partner of countries in East Asia. However, intermediate goods
relation is mentioned quite sporadically, unsystematicly and not following a
separate topic. Therefore, it is difficult to assess the role of intermediate goods in
bilateral trade relation between Japan and China as well as the nature of this
relation. It is necessary to have inherited and specialised studies.
Regarding the study of lessons for Vietnam from the trade relation in
intermediate goods between Japan and China, domestic researches only focus on
bilateral trade relations between Japan and Vietnam or China and Vietnam.
For the trade relations between Vietnam and China, a number of researches
have evaluated generally the development process of Vietnam-China relations
towards the impact of a rising China and analysing the situation of issues such as

political belief in Vietnam-China relations; Vietnam's trade deficit from China;
Chinese investment in Vietnam; Chinese cultural soft power; national defense and
security in Vietnam-China relations; the South China Sea issue in the relationship
between the two countries in order to provide policies for Vietnam-China relation
in the context of a China continuing to rise during the next decade of XXI. In
addition, other studies have described the current status of trade in Vietnam,
4


which is higly dependent on China, to provide several recommendations to limit
import of Vietnam from China.
Regarding Vietnam - Japan trade relations, some authors have analysed the
current situation of Vietnam - Japan trade relations since the two countries
established diplomatic relations. According to those authors, friendly relations and
multifaceted cooperation between Japan and Vietnam in many fields, especially
the commercial economy, have developed rapidly and achieved many positive
results. The relations between the two countries have currently been in a new
period with good prospects. However, this positive situation is still not
commensurate with the needs and development potentials of the two countries, so
it is necessary to propose feasible solutions to promote trade relations between the
two countries.
These studies have provided sufficient information on the situation and the
cause of Vietnam's commercial status with China and Japan. However, the
connection between Japan-China trade relations in intermediate goods and its
influence as well as lessons for Vietnam have not been mentioned by these works,
so it still needs to be researched.
1.2. Oversea researches
In terms of trade relations in intermediate goods, the thesis has studied a
number of works on the relationship between intermediate goods trade and
international production segmentation. Regarding these studies, if the production

process can be divided into differnet stages, each stage can be implementd in a
country with comparative advantages in producing products of that period.
Therefore, the more different resources countries have, the greater the share of
intra-industry trade is. Intermediate goods are exchanged based on the principle of
comparative advantages. Other studies have analysed the concepts and
characteristics of intermediate goods trade, the methodology of approaching and
evaluating trade in intermediate goods and services, the forms of trade in
intermediate goods and its impacts on labour productivity
Regarding directly Japan-China trade relation in intermediate goods, there are only
few studies focusing on this issue. Some studies have mentioned the influence of
Japan in trade relation in intermediate goods with China via an approach of flying
geese model, supply chain and the role of Japanese transnational cooperation in
developing intermediate goods trade in East Asia. For Chinese intermediate goods,
some studies have presented the influence of China’s policies in its intermediate goods
over the past three decades. Institutional change is the main factor behind the success
of China in the production system of East Asia.
Regarding the study of lessons for Vietnam from Japan-China trade relation in
intermediate goods, oversea studies mostly concentrate on bilateral trade between
Japan and Vietnam or China and Vietnam.
Regarding trade relations between Japan and Vietnam, some authors have
studied trade relations between the two countries in the first decade of XXI.
5


According to those authors, in the context of globalisation, the expansion of
cooperation in general and economic cooperation in particular is an essential need
of each country. However, each country based on its strengths has specific
cooperation views for each of its partner. Vietnam is on the process of
modernisation and industrialisation which require a lot of capital and technology.
While Japan has capital and technology, it is facing an aging population and a

lack of productive labor. Participating in international cooperation, the needs of
the two countries will be resolved. Determining comparative advantages and
characteristics of the two countries is essential to understand the need of
promoting their economic and trade cooperation.
Regarding trade relations between China - Vietnam, as well as domestic
studies, foreign articles on trade relations between China - Vietnam also focus on
analysing the commercial status between the two countries in import and export
and trade in goods. The works all claim that China is now one of Vietnam's most
important trading partners. With the steady growth of trade between the two
countries in the last 10 years, it has proved favorable factors in the trade relations
between the two countries such as the complementarity of economic structure and
conveniently geographical position for goods transfer, diversification in the form
of trade exchange so that it effectively promoted and brought practical benefits to
the two countries. However, it is undeniable that Vietnam's trade is heavily
dependent on China and is worried that trade deficit from China is on the rise.
1.3. The values of domestic and foreign studies, researach gaps and new
contributions of the thesis.
1.3.1. The values of domestic and foreign studies
In theory, the above studies have partly clarified the concept of intermediate
trade relations between two nations in various terms such as: semi-finished goods,
component goods, vertical trade, intra-industry trade.
The basic theories related to intermediate goods trade have clarified the
problems regarding production segments, production networks, and the reason
why a country participates in production networks, vertically and horizontally
international labour assignment, comparative advantages in intermediate goods
trade relations, the role of FDI in intermediate goods trade.
In practical terms, previous studies have clarified the East Asian economic
context, where China - Japan intermediate goods relations take place. In this
context, the authors have explained the geese model, the economic dependence
among East Asian countries, and the role of China-Japan bilateral trade relations

in the East Asian context. The status of bilateral trade relations between China
and Japan then has been mentioned by many authors according to different
aspects: policies and history of bilateral trade relations, the situation of import and
export between the two countries from 2000 to 2017.
1.3.2. Research gaps and new thesis’s contributions

6


First, previous studies have not clarified the content of evaluation criteria,
characteristics and factors affecting intermediate goods trade relations among
countries. These issues are only mentioned in a small and scattered manner.
Therefore, the task and new points of the thesis are to clarify the analytical
framework and criteria for evaluating intermediate goods trade among countries.
Second, the status of trade relations in intermediate goods between China and
Japan has only been mentioned mainly in trade relations in general goods between
these two countries or in the commercial relations of the intra-regional production
network of East Asia. Therefore, the research gap here is: there is no clarification
on the situation, characteristics and the nature of the intermediate goods trade
relations between Japan and China, as well as the policy intentions of the two
countries in exchanging intermediate goods and the factors affecting Japan-China
intermediate goods trade, the impact of intermediate goods trade on Japan and
China, on East Asia, and ASEAN.
Third, most of previous studies have not provided experience lessons and
policy proposals for developing countries (including Vietnam) in intermediate
goods relations with other countries; or some research projects offer some very
simple lessons by giving only recommendations in bilateral relations (Japan Vietnam and China - Vietnam), but not focus deeply on recommendations in
multidimensional relations (Vietnam in the relationship of intermediate goods
trade with Japan and China).
Fourth, technically, most of the above researches have only analysed the trade

relations in intermediate goods between China - Japan until 2010-2012. In a
currently and rapidly changing world and the increasingly complicated
geopolitical situation of North East Asia, regional connection of East Asia has
been changing as the CPTPP goes into effect, the dynamics of the trade relations
in intermediate goods of Japan - China, Japan - China - America, or Japan - China
- ASEAN will likely have to change to suit the actual situation.
CHAPTER 2
THEORETICAL AND PRACTICAL BASIS
IN TRADE RELATIONS IN INTERMEDIATE GOODS
2.1. Theoretical issues of trade relations in intermediate goods.
2.1.1. A number of basis concepts:
- Intermediate goods: are the goods used at a certain time in the production
process of other goods and not for final consumption.
- Intermediate goods trade (or parts and components trade): is closely related
to vertical division of labor (assigning the internal production segments among
countries) and international production networks, international supply chains.
2.1.2. Theoretical basis of trade relations in intermediate goods.
Since trade in intermediate goods is part of trade in general, the thesis presents
some theories related to international trade:
7


2.1.2.1. Theory of comparative advantage
The basis of the theory of comparative advantage is the differences between
countries, which are not only in natural and technical conditions but also in terms
of production conditions. That means any country in principle can find these
differences and specialise in producing certain products whether having natural
and technical advantages. In fact, the absolute advantage of each country is not
much, moreover, most countries conduct trade with not only the goods with
absolute advantage but also exchange goods based on relative advantage.

Therefore, every country can benefit from participating in international division of
labor on the ground of exploiting relative advantages and foreign trade allows to
expand a country's consumption capacity.
In addition, some countries have comparative advantages in exporting some of
their products as the production of those goods has used the factors of production
that are favored for them than other countries. It is the preference of natural
advantages of these production factors (including capital, labor, natural resources,
land, climate ...) and countries’s technology are equivalent, leading to some
countries having lower opportunity cost in producing certain products.
2.1.2.2. National competitive theory
The comparative advantage theory based on production factors cannot fully
explain commercial activities and does not give the answer why for different
countries there are similarities in economic scale, technology, resources, labor, ...,
but economic activities of one country is better than the other. The assumptions,
which are based on production factors to underlie comparative advantage, are
considered more persuasive in the 18th and 19th centuries when industries were
still fragmented, production mainly used workers and did not give prominence to
skills, and trade reflected many differences in conditions of natural resource
development and capital. However, in many present industries, comparative
advantages based on production factors cannot fully explain commercial
activities. This is particularly true in industries and industrial segments that
involve complex technology and require skilled workers. Those industries are the
most important sectors for national productivity.
Therefore, national competitive theory argues that success of a counrtry
depends primarily on two basic charecteristics: (i) advantages of production costs
(comparative advantages) and (ii) advantages of individual product manufacturing
(competitive advantage). M. Porter has built “national diamond“ model to analyse
a nation’s competetive capacity in international market. Regarding this model,
competetive advantages of a nation depends on four major factors:
- Production factor conditions include: basic factors and progressive factors.

Basic factors include natural resources, climate, geographic location, labor
(unskilled and semi-skilled), loans. Progressive factors include technology level,
modern telecommunications infrastructure, highly qualified human resources ...
- Demand conditions
8


- Supporting and related industries
- Company strategy, structure and domestic competition
In addition to the four main factors, Porter stressed two variables that could
affect a country's competitive advantage are: objective events and government.
2.1.2.3. Theory of global production networks
- Production segment theory:
The production segmentation is considered an important basis to explain the
development of international labor division, which are based on the production
process (vertical division of labor) rather than based on labor division of a sector.
This is one of the basic theories analysing FDI movement to underdeveloped
countries to create vertical economic connection and form an international
production system.
- Internalisation theory:
Internalisation theory explains the model of high-level internal transactions in
international production and distribution networks. A company never does all the
steps in the process of creating a final product, from the production of basic
materials to the retail of final product. They often import materials or components
from other companies, domestic or foreign suppliers. They then sold their
products to another company to continue the process of adding value to the
product, forming a new product. Moreover, even within the enterprise, the
production stages are divided and placed in different areas to take advantage of
each area in order to save production costs for the company.
- Flying geese model:

The flying geese model explains the take-off of the nation’s industry in the
region by assigning labor to international links. The original model is a model of a
country - a product. Initially the country has to import products. Then it developed
its own capacity based on its domestic market and produced the product itself to
replace imports. In the process of manufacturing, the capacity of the country is
further enhanced to the point that it can compete in the international market and
become the exporter of that product.
2.1.2.4. The inheritance of the thesis from the theories related to trade
relations in intermediate goods
By studying theories related to trade relations in intermediate goods, it can be
seen that trade relations in intermediate goods is primarily based on the traditional
theories of international division of labor and comparative advantages between
two nations.
As science and technology grows, competition has becomed a top priority.
Therefore, since the 1990s, theories of international trade have made a lot of
progress and changes, focusing largely on competitive advantages, linkages and
global production network. Trade relations in intermediate goods between Japan
and China are largely based on international trade theory, which were found and
developed from the 1990s to the present. In a simple way of understanding,
9


international production network, it is a type of international branch division
within the company created by multinational companies by foreign investment
and international trade. Through foreign investment, each part of production is
located in different countries, depending on the different characteristics of each
region (production segment theory). Most finalised products will be delivered to
other countries, not in the above production areas (internalisation theory). This
type of production network ensures the economic integration of East Asia and the
development of an export-oriented economy as all countries benefit from the

competitive advantage based on the division of labor. lợi từ lợi thế cạnh tranh dựa
trên phân công lao động.
2.1.3. Classification of intermediate goods:
Trade in intermediate goods is classified in two categories as follows:
- Classifying goods categories according to the broad economic sector (BEC)
of the United Nations.
- Classifying by following the input-output table for analysing bilateral trade
models in intermediate goods.
2.1.4. Criteria for evaluating trade relations in intermediate goods
- Import-export turnover
- The role of intermediate goods trade relations in the economy.
- Internal trade structure in intermediate goods.
- Quality of export (import) structure of intermediate goods.
- Opening level of intermediate goods trade realtions
- Opening level of foreign investment.
2.1.5. Characteristics of trade relations in intermediate goods
First, intermediate goods trade is an activity within the global supply chain
and value chain.
Second, intermediate goods trade appears due to the increasing level of
international production segmentation as well as the emergence of vertical supply
chains and global sourcing strategies of enterprises.
Third, trade in intermediate goods through backward and forward linkages
2.1.6. Factors affecting intermediate trade relations
- Market size
- Technology
- Differences in national resource factors.
- Distance: The distance between partners in intermediate goods trade includes
economic, cultural distance and organisational distance between partners.
- Economic development level.
- Governmental institutions and policies.

- Per capita income
2.2. Practical ground for trade relations in intermediate goods.
2.2.1. Flying geese model in East Asia.
The East Asian production network is mainly shaped according to the "flying
10


geese" model, which is based on international division of labor in the region. This
model initially describes a developed country's industrialisation model, but it then
extends the scope of application to the industrialisation and development model of
production and cooperation networks in the region.
In this model, Japan is considered a leading goose, with more advanced
technology, followed by NIEs and ASEAN4 countries, having a gradual decline
in technology levels. With such a sequence, the industrial structure of countries is
increasingly improved thanks to the strategy of pursuing technology through
attracting intra-regional FDI and international trade, forming a separate
production network in East Asia.
2.2.2. East Asia intra-regional production network and the role of
intermediate goods trade.
East Asia intra-regional production network was formed quickly thanks to the
role of international trade and investment. Since the mid-1980s, due to different
economic levels and scales, East Asian countries have implemented a deep
internal economic cooperation strategy. In the period from 1985 to 2000, East
Asian countries witnessed an export-oriented industrialisation strategy, which
benefits from the trend of globalization, deep economic liberalisation and
economic cooperation with countries around the world. Since 2000, East Asian
countries have strengthened economic cooperation inside and outside the region,
and by November 2010 East Asia has signed 43 FTAs with countries around the
world, accounting for 20.9 % of total FTAs signed by WTO member countries. In
the matrix connection of manufacturing industry, we can see the important role of

China, Malaysia and Thailand as major regional suppliers of component and
intermediate goods and China gradually becomes a factory of East Asia.
The internal production network of East Asia has the following basic
characteristics:
- First, the East Asian production network is decentralised and trade in
intermediate goods plays an increasingly important role
- Second, Japan and China play an important role in East Asia production
network and trade in intermediate goods.
- Third, the East Asian production network always suffers from the external
shocks.

11


CHAPTER 3
STATUS AND FACTORS AFFECTING THE TRADE RELATIONS IN
INTERMEDIATE GOODS BETWEEN JAPAN AND CHINA
3.1. Overview of the current status of bilateral trade relations between Japan
and China since 2001.
3.1.1. Overview of China-Japan trade relations since 2001.
Japan and China are the two major economies in the world, with huge bilateral
goods relations and considered one of the largest trading partners in the world.
The economic and trade relations between Japan and China has a history of ups
and downs. This relationship was normalized in 1972 and only really warmed
since 2001 after the visit to China of Japanese Prime Minister Junichiro Koizumi.
Japan has always suffered from a trade deficit with China since 2000s. It is
worth noting that China has always been one of the three largest trading partners
of Japan, and China's position in the Japanese trade balance has been continuously
improved.
Japanese exported goods to China are mainly textiles, computer components

and machinery, in which electronic devices account for the largest proportion.
During the last 16 years since 2001, China has always been Japan's largest
importer. The main imported products of China from Japan are electronic
machinery, especially mobile phones.
Although both countries have published bilateral trade deficit figures, on the
Chinese side, the dependence on trade exchanges with Japan has tended to
decrease since 2001, while for Japan this dependency is on the rise.
3.1.2. Policies of Japan and China in developing bilateral trade relations.
Regarding politics and diplomacy, after normalising diplomatic relations,
relations between Japan and China developed rapidly, especially in the economic
field, but at that time, the United States did not establish diplomatic relations. with
China, so Japan-China relations were still limited and only from the last years of
the 1970s when the US and China formally signed agreements to establish
diplomatic relations, Japan-China relations then developed more
comprehensively. With Japanese view that "China's stability and development has
a great significance for the stability and development of the Asia-Pacific region"
and "China's huge market is very necessary for Japan's economy, which is based
on foreign trade and Chinese view that "Japanese capital and technology needed
for economic development", they are the main reasons for the strong development
of bilateral relations.
In terms of economic policy, the two countries quickly became important
partners of each other, Japan became the largest trading partner of China and
China also rose to become Japan's second largest trading partner after the US.
Trade is the most important area of economic relations between the two countries.
Both countries have established mechanisms to expand trade as well as to resolve
trade-related disputes in a friendly way. Both sides try to maintain good relations
12


and explore new areas of cooperation. Economic ties contribute to tightening

relations to a level that both are dependent on.
In terms of trade policy, due to the ups and downs political-economic relation
between China and Japan during the past few decades, the bilateral trade
relationship between the two countries has only been a normal bilateral trade. This
trade relationship is based on bilateral economic cooperation agreements signed
by two parties in the economic field (as mentioned above) for the purpose of
sharing resources and comparative advantages in some commercial areas of
mutual interest. These agreements are often based on the principles of trade
cooperation specified in the WTO and for a certain period of time, only focusing
on some specific trade cooperation contents as well as on short and medium term
benefits for both parties.
3.2. Japan – China trade relations in intermediate goods.
3.2.1. Status of Japan – China trade relations in intermediate goods.
- Regarding import and export turnover of intermediate goods between the two
countries
On the Japanese side, in bilateral trade relations with China, Japan's
intermediate goods export has increased continuously. The value of Japanese
intermediate goods export to China and some ASEAN countries has always
increased faster than the value of final consumer goods export, suggesting that
Asia continues to be in the indispensable supply chain of Japan and China is one
of the important factors of supply chain of Japan.
On the Chinese side, in trade relations with Japan in intermediate goods, China
seems to continue to stand behind some other Japanese trading partners: the US,
South Korea, EU and ASEAN. Exports of China's primary goods to Japan
increased continuously.
It is easy to see that, before 2000, China always ranked after the US, EU,
Korea, and ASEAN in Japan's intermediate goods export turnover, but after 2000,
China's position has improved quickly and China has now become Japan's largest
export partner for intermediate goods, surpassing all traditional partners of Japan
such as the US or EU. However, since the global economic crisis in 2008, as the

Chinese economy has continued to expand production scale and improve
domestic supply capacity, Japanese export of intermediate goods to China has
tended to decline, including preliminarily processed and components goods.
- Regarding intra-industry trade structure in intermediate goods between the
two countries:
The index of intra-industry trade between China and Japan in the top 7-8 main
import and export groups all tends to increase and is at a balanced level. Japan is a
major supplier of intermediate goods to manufacturing enterprises in East Asia.
As intra-industry trade between Japan and China increased, Japan's input
intermediate goods exports to China also increased steadily. China's dependence
on Japanese intermediate goods from the 1990s to the present has been very high,
13


and China is still a major importer of intermediate goods from Japan. In intraindustry intermediate goods trade, China surpassed Japan to become the largest
intermediate goods exporter in East Asia, also becoming the world leader in
intermediate goods exports, followed by the United States, Germany, Japan,
South Korea, France, Malaysia, Italy, Mexico and the UK. In East Asia, Japan,
China and South Korea become important triangles in intermediate trade relations.
- Regarding the quality of import and export of intermediate goods:
Japan imports most of the intermediate goods, which are lower technology
items, from China. In the value of imports of Japan from China, 7 intermediate
goods with the largest import value account for 50%, including 1) Electronic
equipment and components (imported value of goods from China reach 46.7
billion USD); 2) Garment accessory products, knitted or crocheted (8.5 billion
USD), 3) Garment accessories, unknitted or uncrocheted (8.2 billion USD); 4)
Plastics ($ 5 billion); 5) Furniture, lighting, signage, construction equipment (4.7
billion USD); 6) Optical, imaging, technical, medical equipment components (4.7
billion USD), .7) Iron and steel (3.6 billion USD). Compared to 2010, import
turnover of key intermediate goods from China has increased in some items such

as electronic equipment and components; all kinds of plastics; but it tends to
reduce import turnover for other key intermediate goods
Imports of Chinese intermediate goods from Japan are mainly high-tech goods
or raw materials for production. In 2017, 8 key intermediate items imported from
Japan include: 1) Electrical and electronic equipment and components (imported
value from Japan reached 42.2 billion USD); 2) Optical, imaging, technical and
medical components (15.9 billion USD); 3) Plastics and plastic products (9.7
billion USD); 4) Organic chemicals (7.0 billion USD); 5) Iron and steel (6.0
billion USD); 6) Other chemical products (3.3 billion USD); 7) Copper and
products from copper (3.1 billion USD); 8) Iron and steel parts (2.4 billion USD).
In the import value of Chinese goods from Japan in 2017, these 8 intermediate
items reached 89.6 billion USD, accounting for 54% (of the total Chinese imports
from Japan in the year). 2017 is 165.8 billion USD). Compared to 2010, China's
major intermediate goods imports from Japan tend to increase in most
commodities, except for electric and electronic equipments.
- Regarding the role of trade in intermediate goods in the economy:
Intermediate goods trade always accounts for a large proportion of the total
import and export turnover of China and Japan and this proportion tends to
increase.
China has always suffered a deficit in the trade balance of intermediate goods
with Japan and this deficit has been expanding in recent years.
Most of China's imports from Japan are intermediate goods, while imports of
final capital goods and final consumer goods account for a relatively small
percentage. For Japan, most Japanese goods imported from China are final
consumer goods (with the highest import turnover and the highest increase in all
14


types of goods) as final consumer goods of China have competitive advantages in
price on Japanese market, while there have not been many kinds of Japanese

intermediate goods imported from Chinese market, especially semi-finished
products that tend to reduce imports from Chinese market in recent years.
- Regarding the openes of intermediate goods trade:
In Japan-China intermediate goods relations, it is clear that the two countries'
trade promotion policies have a positive influence on intermediate goods trade.
The Chinese government allows the import of input products (raw materials,
semi-finished goods, components and parts) that are exempt from tax. Moreover,
the export of goods as input products for FDI projects (components, equipment,
machinery) is also exempt from customs tax. These incentives have helped
Japanese businesses have favorable conditions to implement vertical trade and
investment links, supporting trade in intermediate goods between Japan and
China has experienced strong growth in recent years. As for Japan, the
government supports free trade policíe, encouraging Japanese companies to invest
in China. The flow of investment and commercial activities between China and
Japan is a confirmation to the strong development of these two countries in
Northeast Asia.
- Regarding the openness of foreign investment facilitating trade in
intermediate goods:
Japan-China intermediate goods trade is growing strongly thanks to Japanese
enterprises FDI continuously expanding their production to China. Japanese FDI
inflows to China reached 6.57 billion USD in 2005, continuously increasing and
reaching 12.6 billion USD in 2011, 13.4 billion USD in 2012, 9.1 billion USD in
2013, 10.3 billion USD in 2014 and 8.8 billion USD in 2015, in which Japanese
FDI into Chinese manufacturing industries accounted for the highest proportion
(77.5% in 2005 and 60.5% in 2015). Along with Japan's FDI inflows to China,
Japan's intermediate goods export to Japanese FDI enterprises in China reached
20.3 billion USD and imports of intermediate goods by Japan enterprises in China
reached 11.3 billion USD.
3.2.2. Characteristics of Japan - China trade relations in intermediate
goods.

Firstly, China-Japan trade relations in intermediate goods are in the supply
chain and the value chain of the East Asia production network, in which bilateral
trade in intermediate goods has a growing deficit, leaning toward China.
Secondly, China-Japan trade relations in intermediate goods are implemented
through backward and forward links.
Third, vertical links in intermediate goods trade between Japan and China are
also giving China many challenges.
3.2.3. Factors affecting Japan - China trade relations in intermediate goods.
3.2.3.1. Factors belong to China and Japan

15


- Market scale: For Japan, China is a huge potential market. China-Japan
relations were normalized in 1972, facilitating the signing of the Japan-China
trade agreement and many other cooperation agreements in the 1970s. China's
high economic growth over the past few decades has encouraged Japanese
businesses to export to China because demand for goods in China is always very
high, from low-quality to luxury goods of Japan and other countries over the
world.
In recent years, China is a very strong market for Japanese goods, especially
electronics, machinery, chemical products and transport equipment. Moreover, as
a developed country, Japan is lacking a lot of natural resources, materials and
energy to serve its economic development, while China is a country with great
potential in those fields.
In addition, China is also a potential market for Japan in textile products
(17.7%), agriculture and fisheries (5.4%), electronics (16.8%), machinery (15.1%)
and toys (8.1%). Since China joined the WTO, the Chinese market has always
been open to foreign goods because there are not many obstacles in tariff barriers
under WTO commitments, especially in the automotive industry, making

Japanese exports of goods very strong in China during this period.
For China, Japan has great potential in trade relations and plays an important
role in China's economy. First of all, the economy has a total GDP of USD 4,900
billion in 2013 (WB), showing that Japan is still the second largest economy in
Asia, after China. As a developed economy, the Japanese market has great
consumption capability.
- Technology level: The figures on bilateral trade deficit in intermediate goods
between China and Japan show that China still relies relatively on Japanese
goods, especially semiconductor, electronics, machinery and equipment. In
addition, Japan's manufacturing industry in China can help Chinese businesses
raise their brands to the global level. China exports to Japan mainly electronic
products, machinery, textiles, toys, food and seafood, handicrafts but these are
mostly labor intensive products and low value added, so Chinese goods on the
Japanese market face fierce competition from ASEAN goods. Having to meet the
quality and technology standards of Japanese enterprises has forced Chinese
businesses to be stronger and developed their markets faster.
- Differences in national resource factors: The scarcity of natural resources or
production factors such as high land use costs has caused Japan to face systematic
disadvantages in goods production. Therefore, Japan has enhanced its search for
natural resources and production facilities in countries with many favorable
conditions regarding this issue, notably China.
In contrast to Japan, China is a large country (ranked fourth in the world in
terms of area size) and has a rich natural resource, strong in the mining industry.
Especially, the country has the largest reserve of rare earth in the world
(accounting for half of the world's rare earth). According to many experts, rare
16


earth plays an important role in intermediate goods manufacturing industries. In
the structure of imports from China, oil and coal accounted for 24.8% of Japan's

imports of goods from China in 1990, down to 1.1% in 2011. Other sources of
raw materials such as cement, ceramic, steel and minerals account for 8.3% of
total Japanese imports from China.
- The distance between the two countries: China and Japan's geostrategic
positions in East Asia make these two countries increasingly closer to each other
for economic benefits, although there are still many barriers between the two
countries regarding political institution and historical disputes. Nowhere is clearer
than the Sino-Japanese relationship, although there are still many disputes left
behind by the legacy of World War II, bilateral trade relations and investments
between the two countries have still thrived. China and Japan have become each
other's leading trade and investment partners, dominating the East Asian
economic development trend. Having a close geographic distance and staying in
the most dynamic and developing region of East Asia have a positive impact on
the bilateral trade between Japan and China, bringing China and Japan to join
deeper the global production network in the region.
- Economic development level: Current countries with developed economies
(such as Japan) mainly focus on developing modern technologies and transferring
to developing countries with lower costs to implement production and import
finished goods. In addition, countries with prosperous and developed economies
tend to have more economic relations with countries having similar economic
level with them. Meanwhile, countries with less-developed economies (such as
China) often have trade relations with richer countries. This is explained by
competitive advantages, which here are price and cost. Countries with developed
economies producing high-tech and international-standard products will do
business in the similar market to maintain competitive advantages.
- Open door policy and international integration of China and Japan: Japan –
China trade relations in intermediate goods benefit first from China's tariff
structure. In 2001, China officially became a member of the WTO, the tariff rate
decreased significantly, especially for intermediate goods. The tariff rate applied
to intermediate goods is always lower than that of consumer goods and goods that

affect the Chinese-Japanese trade structure, in which intermediate goods play an
important role in intra regional trade.
The two countries' trade promotion policies also positively affect intermediate
goods trade. In China, imports of input products (raw materials, semi-finished
goods, components and parts) are all exempted from tax. Moreover, the export of
goods as input products for FDI projects (components and parts, equipment,
machinery) is also exempt from customs tax.
However, Japan and China have not signed a bilateral free trade agreement.
Japan-China trade relations in intermediate goods have been benefited from
ASEAN +1 such as FTAs between ASEAN and Japan, ASEAN and Korea,
17


ASEAN and China.... in which ASEAN is considered a bridge of free trade flows
in East Asia.
Japan-China economic and trade relations have been improved mainly through
mutual visits of the two national leaders, and through bilateral economic
cooperation support via mechanisms of WTO, through regional bilateral and
multilateral dialogue forums such as ASEAN Regional Forum, Japan - China
security dialogue forum, APEC, bilateral cultural and technical cooperation ...
- Historical and geographical disagreement: Stemming from historical issues
and sensitive statements from the leaders of two sides related to Yasukuni temple,
bilateral trade relations between the two countries have unusual "cold" times. In
addition, disputes around the Diaoyu/Senkaku island between China and Japan
have seriously affected bilateral trade relations and trade in intermediate goods
between the two countries.
3.2.3.2. Regional and international factors:
The global economic crisis has hit significantly on the world's economies,
including Japan and China, affecting bilateral trade growth in recent years.
Moreover, the complicated geopolitical situation in Northeast Asia such as North

Korea issue, South China Sea issue, the maritime dispute between Japan - China,
South Korea - China has made the establishment of China - Japan FTA face a lot
of difficulties, affecting Japan-China bilateral relations. The emergence of NIEs
and ASEAN has also significantly affected the intermediate goods trade between
Japan and China. If in the past, China imported intermediate goods primarily from
Japan and NIES, but many current integration outcomes from both sides have
benefited from the strong economic development of ASEAN and the process of
implementing the ASEAN-China Free Trade Agreement. In the other hand, this
relationship is also affected by ASEAN market, which gradually replaces Japan
and NIEs to become China's main regional importer.
3.2.3.3. Overall assessment of the importance of factors affecting Japan –
China trade relations in intermediate goods.
According to Porter, advantages are only maintained when the source of
advantages is expanded and upgraded. Some decisive factors create more
sustainable advantages than other factors. Conditions creating dynamic
advantages (technological innovation, pioneer advantage, level of pressure) will
be more important than those creating static advantages (production cost factor or
market in a big country). Therefore, competitive advantages lie primarily in the
difference of products, not in the minimisation of costs... Advantages of cheap
labor cost, raw and rare materials, and market size only create sustainable and
stable development, not create a foundation for the economy to develop to a
certain level. New modern technology is the factor that is able to get rid of natural
resources from international competitive trajectories and replace them with
products having more competitiveness and success. In addition, some experts
believe that, without technological advancement, a country can still improve its
18


standard of living thanks to the accumulation of capital or aid, but it cannot
maintain stable economic growth because technological progress is a key factor,

playing a decisive role in all areas and development stages. However the level of
technology's impact on each country's competitiveness depends on the wealth of
each country. Therefore, rich countries often promote technology to maintain and
improve competitiveness. In developing countries, competitive advantages of
technology depends primarily on the ability to receive technology through FDI
and technology transfer of broad channels, rather than creativity at least in the
short and medium term.
In Japan-China trade relations in intermediate goods, it is clear that the two
countries' trade promotion policies have a positive influence on intermediate
goods trade. The Chinese government allows the import of input products (raw
materials, semi-finished goods, components and parts) that are exempt from tax.
Moreover, the export of goods as input products for FDI projects (components,
equipment, machinery) is also exempt from customs tax. These incentives have
helped Japanese businesses have favorable conditions to implement vertical trade
and investment links, helping trade in intermediate goods in Japan - China grow
significantly in the recent years. As for Japan, the government supports a free
trade policy, encouraging Japanese companies to invest in China. The flow of
investment and commercial activities between China and Japan is a testament to
the strong development of these two countries in Northeast Asia.
Nonetherless, China-Japan economic and trade cooperation was heavily
influenced by the international financial crisis of 2008. The effects of the disputed
Diaoyu-Senkaku Island, historic disagreements and complex geopolitical situation
in Northeast Asia have caused trade cooperation between the two countries to face
unprecedented bad circumstance. Relations between the two countries have
changed from a "cold and hot economic" model to a "cold political and cold
economy" model.
CHAPTER 4
TRADE RELATIONS IN INTERMEDIATE GOODS
BETWEEN VIETNAM AND CHINA, VIETNAM AND JAPAN:
A NUMBER OF LESSONS AND POLICY RECOMMENDATIONS FOR

VIETNAM
4.1. Overview of trade relations in intermediate goods between Vietnam China, Vietnam - Japan
4.1.1. Overview of trade relations in intermediate goods between Vietnam –
China
Vietnam - China trade relations in intermediate goods have developed strongly
since 2000. Within 12 years, Vietnam's export of intermediate goods to the
Chinese market increased by 3.7 times and it has accounted for a larger proportion
of the total export turnover of Vietnam intermediate goods.
19


Vietnam's exports to China are mostly low value-added goods. In 2015, the
top 10 major export products of Vietnam to China are computers, electronic
products and components, various kinds of fiber, vegetables, cassava and cassava
products, camera and filming components, wood and wood products, rice, crude
oil, rubber, shoes. Most products are intermediate products.
Intermediate goods imported from China have increased at a faster rate.
Vietnam's leading intermediate goods imported from the Chinese market are
textile accessories, phone accessories, oil and petrochemicals, products from iron
and steel, machinery and equipment, common metal, plastic products. In general,
cregarding broad economic categories (BEC), it can be seen that imported goods
from China are mostly industrial supporting goods and materials of intermediate
goods for production.
Vietnam began to have trade deficit with China in 2001 and since then this
trade deficit has increased at a dizzying pace. In the CAFTA partnership, China
seems to be benefiting from low-cost intermediate products from Vietnam and reexporting intermediate products of higher and good value to Vietnamese
enterprises. The dependence of Vietnamese economy and manufacturing industry
on Chinese intermediate products has been growing, hurting Vietnamese economy
when there are fluctuations in commodity prices from China or when Chinese
economy is in a difficult situation in economic development.

4.1.2. Overview of trade relations in intermediate goods between Vietnam
and Japan
The trade relations in interrmediate goods between Vietnam and Japan have a
different nuace compared to China. First of all, Vietnam is not in a trade deficit of
intermediate goods with Japan and this trade relationship is relatively balanced.
Second, intermediate goods have only accounted for a relatively moderate
proportion of the total import and export turnover of Vietnam in the past years.
Third, Vietnam's intermediate goods imported from the Japanese market
accounted for about 67% of Vietnam's total import turnover in 2000 and stopped
at 69-70% in 2010-2012.
Japan is Vietnam's second largest importer after China and Vietnam's second
largest export market after the US. Unlike China, the intermediate goods structure
of Japan and Vietnam is complementary, not competitive. Japan is a big importer
of seafood, consumer industrial products, processed foods and imported low-cost
materials and accessories from Vietnam, while Vietnm is the country having the
absolute competitive advantage of these products. In contrast, most of Vietnam
imported products from Japan are machinery, equipment, and intermediate
products for production, helping Vietnam to participate well in the supply chain of
goods in ASEAN region with Japan. Importig intermediate goods from Japan
helps Vietnam diversify its export structure (with intermediate goods content from
Japan) in the direction of manufacturing exports in order to reduce raw material
exports and increase more added value products.
20


4.1.3. A number of evaluations.
First, the status of intermediate goods exchange between Vietnam and Japan
and Vietnam with China shows that the speed of trade in intermediate goods
between Vietnam and China is much higher than that of intermediate goods trade
between Vietnam and Japan.

Second, Vietnam's trade deficit of intermediate goods from the Chinese
market is placing many problems in Vietnam's economic structure. Many
manufacturing sectors in Vietnam are highly dependent on China for raw
materials, intermediate goods and output markets (product consumption).
Third, the balanced status of Vietnam trade relation in intermdiate goods with
Japan shows that Japan is having a positive influence on Vietnam's economic
restructuring.
4.2. A number of lessons for Vietnam from Japan – China trade relation
in intermediate goods
4.2.1. Lessons should be consulted and learnt
First, intermediate goods trade plays an important role in economic
development, so it is necessary to assess the economy's demand for this kind of
goods to avoid too much dependence on imported intermediate goods, which can
damage domestic economic development.
Second, selecting the right partner in the exchange of intermediate goods is an
important solution to help countries more conveniently participate in the supply
chain and improve the competitiveness of export products.
Third, to protect the domestic economy, protecting trade in intermediate goods
at a reasonable level is necessary.
4.2.2. Lessons to avoid: Do not rely too much on a market that provides and
imports intermediate goods as an important measure to control risk.
4.3. A number policy implications for Vietnam
First, it is necessary to quickly improve the quality of intermediate goods in
international trade exchange to avoid negative impacts on economic growth.
Second, it is necessary to adjust the market structure and product structure in
the exchange of intermediate goods, to avoid reliance on a single market and
importing intermediate products with low quality.
Thirdly, focusing on the development of supporting industries to effectively
participate in international production networks and reducing the dependence on
imports of intermediate goods as well as increasing product value of intermediate

goods for export.
Fourthly, improving the competitiveness of domestic enterprises in order to
create more favorable conditions for enterprises to participate in trade in
intermediate goods.
Fifth, choose the right solutions in promoting intermediate goods trade with
China and Japan
- For China, it is essential to limit the import of intermediate goods with low
21


quality or having quality similar to Vietnam, and also quickly improve the
production capacity of domestic enterprises to create export products with higher
added value to the Chinese market to balance the trade balance of intermediate
goods between Vietnam and China. In order to do that, we first need to review all
groups of imported goods: limiti low quality intermediate goods; strengthen the
management of imports of intermediate goods that can be produced domestically;
Tightening control activities at the border to minimize the smuggling of goods
from China; Develop and enforce mandatory standards and technical regulations
for products, especially food and machinery, thereby having a legal basis to
control and prevent poor quality products imported into Vietnam.
- For Japan: Vietnam needs to seek solutions to promote further intermediate
goods trade with Japan in the future to reduce the dependence on imports of
intermediate goods from China, and also increase rapidl proportion of Japanese
intermediate goods in Vietnam's trade balance, contributing more positively to
economic restructuring and creating higher added value for the final product. To
do that, Vietnam needs to focus on attracting FDI from Japanese manufacturing
enterprises, improve the investment attraction environment towards Japanese
investors; select priority industries in attracting Japanese investment, prioritising
Japanese technology; build a system of product catalogs that are encouraged in
the exchange of intermediate goods trade with Japan; monitor quality of imported

and exported intermediate goods to Japan market. Along with that, it is necessary
to actively carry out trade promotion to better exploit the potential of the Japanese
market and take full advantage of the opportunities brougt by the Agreements,
especially the Vietnam - Japan Economic Partnership Agreement (VJEPA).
4.4. Necessary and sufficient conditions to apply experiences lessons and
policy recommendations to Vietnam
4.4.1. Necessary conditions
Improving national competitiveness is a condition to ensure stable export
growth, shift production structure to economic sectors with higher technology and
added value. This condition is influenced and governed by many different policies
such as:
- Macroeconomic policies to create conditions for enterprises to feel confident
in long-term investment in technology development in production.
Macroeconomic policies need to be stable for a long time, including inflation,
exchange rates and interest rates policies
- National science and technology policies must create conditions for
enterprises to easily approach the research environment, effective technology
application and use, including policies to increase R&D investment and increase
financial support for enterprises in access to and application of new technologies.
- Trade policies that create conditions for enterprises to access new
technologies having trade defense forms to prevent the import of low and
outdated technologies
22


- Developing human resources, both in terms of work skills and management
skill ... to create capabiltiy of absorbing and applying modern technology.
- Technology transfer should be selected and oriented, prioritising the import
and transfer of high and medium technologies, resolutely refusing to grant import
and transferring permits for low and pollution technologies. Technology import

policies must have long-term orientation, focusing on priorities industries to
shorten technology gap with other countries.
4.4.2. Sufficient conditions
Restructuring the economy and transforming the model of economic growth
from width to depth under the influence and impact of following issues:
- This is necessary to have a comprehensive and long-term plan for
restructuring and transforming economic growth model. This plan is not a few
years, but a development phase; focusing properly on 3 phases: investment
restructuring (mainly public investment), restructuring state-owned enterprises,
restructuring the financial-banking system.
- The government should objectively recognise the defects of the growth
model and the old economic structure in order to eliminate defects and begin
innovations.
- The motivation for economic growth has to be determined clearly in the
coming period to have a plan to focus synchronously and effectively on resources
and policies.
- Need sufficient resources to transform the model of economic growth and
economic restructuring, of which the most important issues are financial and
human resources.
CONCLUSION
In East Asia, Japan and China are two major economies having an important
influence on international relations in the region. Since the two countries
conducted normalisation of diplomatic relations in 1972, the China-Japan bilateral
trade relation has developed strongly. Currently, China is Japan's largest trading
partner and Japan is China's second largest trading partner after the US. Along
with the initiatives that are being proposed on about the Asian Economic
Community (AEC), Japan - China - Korea Free Trade Area (JKCFTA), Regional
Comprehensive Economic Partnership Agreement (RCEP) ) etc., cooperation in
East Asia is increasingly expanding, which has particularly important roles of
Japan and China.

However, so far Japan and China have not signed a bilateral trade agreement
(FTA) between the two countries in the context that East Asia has becommed the
"pasta bowl" by bilateral trade agreements. There are many reasons to explain this
problem, but the unsigned bilateral FTA has shown that Japan and China have not
fully utilised their potential for commercial cooperation in the past. China's rise in
the past few decades has been both an opportunity and a challenge as well as a
threat to Japan's previous economic leadership in Asia. Moreover, the complex
23