Power Shift and Power Transition: Case for Japan-China Relations
June 18, 2012
The rise of China is rapidly changing the strategic landscape in the Asia-Pacific region. As China becomes a leading power in Asia, China’s growing influence is shifting the strategic weight of bilateral and regional security relations. The rise of China is also a global phenomenon. The distribution of global wealth is further multi-polarized and diversified, as China’s nominal GDP is going to match the size of the United States and EU. China, along with other emerging economies in the world, may gradually alter the rules, norms and institutions of global governance. Thus, for policymakers in Japan, the days of old-fashioned management of Japan-China bilateral relations have become utterly obsolete. Accordingly, Japan’s strategy toward China should be readjusted as a core of Japan’s regional strategy in East Asia and a gateway of a strategy toward emerging powers in the world.
One leading view suggests that as China gets more powerful and the US position erodes, this will inevitably lead to serious strategic competition between China and the liberal order predominantly led by the United States.  The result of these developments will be tension, distrust, and conflict during the process of power transition. However, other views assert that while the “unipolar moment” will inevitably end, China can thoroughly accommodate the United States, since China has already been highly integrated into the liberal international order.  In this view, the US-China relationship will not necessarily be confrontational, and there is wide potential for peaceful co-existence between two leading powers. Indeed, the Chinese government has repeatedly proclaimed that China would be able to rise to prominence peacefully without challenging the existing order.
The peaceful rise of China, however, is not an easy goal to realize without bridging a crevasse between China and the liberal order. China’s fundamental claims on territorial integrity and “core interests” are giving rise to tensions with concerned states. China’s promotion of state capitalism, heavy involvement in the market, and tight currency control have been sources of economic friction with leading economies. China’s limited progress on democracy, human rights, and the rule of law also pose difficulties in sharing common values. In realizing a peaceful rise of China, the country needs to clarify it intends to bridge the gap between concept and reality.
Japan’s security strategy toward China has to be based on an assessment of the dynamism of China’s changing status in the Asia-Pacific power distribution, China’s perspective and strategy for the Asian security order, and how much Japan, the US-Japan alliance, and other regional partners can shape China’s strategic choices. The Tokyo Foundation’s Asia Security Project has proposed introducing integration, balancing , and deterrence as the core of Japan’s three-layered security strategy toward China.  This approach aims to overcome the simple binominal framework of engagement and hedging , as (1) China is no longer outside the international system, so the days of engaging China are over; and (2) in order to shape China’s strategic choices to cope with the liberal order, we need more proactive approaches that go beyond merely hedging . Japan should seek to integrate China in the building of bilateral, regional, and global orders, balance China to make it expansive and institutionalized so that China has no choice but become a full-fledged member of the leading nations, and deter China from advancing to change the status-quo by force.
For Japan, the year 2010 brought the dawn of full-scale encounters with the rise of China. China became the world’s second-largest economy in 2010 by overtaking Japan’s nominal GDP. China also became Japan’s top trading partner by replacing the US in 2009. As Japan-China economic relations become highly interdependent based on mutual interests, the two countries are now hardly separable. However, mutual distrust and tensions linger in bilateral security relations, as highlighted in the confrontation over the Senkaku Islands (in Chinese: Diaoyu Islands ) in September 2010. The incident also brought to light the fact that Japan and China had few shared effective mechanisms to reduce danger, manage crises, and increase common interests when bilateral security issues were at stake. With China advancing the level of military activity in the East China Sea and Japan correspondingly placing an emphasis on Southwest defense, there is a greater need to fill the vacuum of stability and crisis management in Japan-China security relations.
US-China-Japan GDP and Military Spending in 2030
Japan’s China strategy should be founded upon an objective assessment of the future distribution of power, especially among Japan, the US, and China. For this purpose, our project conducted research on economic projection and military spending trends toward 2030. Referencing the various economic projection studies of the IMF’s World Economic Outlook and Goldman Sachs reports, etc., we updated and modified the projection trends reflecting the changes after the global financial crisis in 2008.
Our estimate suggests that China will surpass the US GDP (in nominal terms, US dollar as of 2010) and become world’s number one economy in 2026. In 2030, it is estimated that nominal GDP in the US will be 28.4 trillion dollars, China 34.7 trillion dollars, and Japan 8.4 trillion dollars. The ratio of the size of GDP of the US to China to Japan will be 3.4 to 4.1 to 1.
Our study also discovered that future projections of China’s military spending would also challenge US primacy. Most previous studies argued that China would not be able to compete with the US in the military domain despite its economic ascendancy. Although military power should be measured in a comprehensive manner, our project decided to compile a long-term outlook on national defense spending based on the GDP projection. The assumption is simple enough. We have calculated defense spending as a fixed percentage of GDP, with high/low estimate paths for the US and China.
In the year 2030, the combination of the US defense-cut path and China's high-end path shows a reversing of their positions in the ranking of military spending. We are not suggesting that this would be the reality of the power transition based on a simple projection study, but we are calling readers’ attentions to the fact that a power shift is occurring at a much faster pace than the perception of most critics. The projection manifests in an even more drastic form in Japan-China relations. China's national defense spending is rising beyond Japan's defense expenditures at a rapid rate, and the bilateral military balance between Japan and China is expected to tip over to a state of overwhelming ascendancy for China. Chinese defense spending will be 4.8 times (6.5 times in the high-estimate) larger than that of Japan’s in 2020 and 9.1 times (12.7 times) larger in 2030. The power transition is a reality of the Japan-China relationship, and this foretells the coming era when Japan will find it increasingly difficult to deal with China's military rise on its own resources alone.
Japan’s Security Strategy towards China: Integration, Balancing and Deterrence
Against this background, Japan’s security strategy toward China at this era of dynamic power shift in Japan-US-China relations should be designed as the three-layered approach of integration, balancing, and deterrence .
Integration strategy should involve (1) deepening partnership and interdependence in both the economic and the security domains (extended engagement), (2) managing risks and crisis in the Japan-China security relations through cooperation and institutions (risk/crisis management), and (3) expanding strategic cooperation in the Asia-Pacific region. It is important for Japan to encourage China to play a constructive and proactive role in the regional economic and security architecture, while promoting bilateral cooperation based on common interests. At the same time, Japan and China should deeply institutionalize their dialogue and communication channels among defense officials in order to manage potential bilateral risks and crises. Further, Japan should promote China’s full-fledged membership in the liberal international order by encouraging representation and presence in international and regional organizations.
Balancing strategy should be promoted in a comprehensive (hard balancing, soft balancing, and institutional balancing) manner to shape China’s strategic choices. Balancing begins with diplomatic competition that weighs higher eventual costs for China in case of non-collaboration. Balancing further extends to forming coalitions without China (external balancing) while supporting the capacity of nations in the Asia-Pacific region to deal with China (capacity building for internal balancing). Balancing will be more vibrant when regional members do not share the confidence of being able to cooperate with China. However, it is critically important to confirm that the aim of a balancing strategy is to promote integration. We suggest that a balancing strategy should be regarded as a pilot for navigating China toward a path of cooperation. Such navigation needs a foundation in the balance of power. Our project asserts that the Asia-Pacific region needs regional preparedness and collective capacity to balance China.
Deterrence is the vanguard for national security. If China advances its creeping expansion of military activities in disputed areas, or if it decides to resolve conflicts by force, such actions to change the status quo will have to be deterred. Our project recommends that Japan needs to enhance the operational domain of the Self Defense Forces on the Southwestern front to promote intelligence, surveillance, and reconnaissance (ISR) activities. We also assert that the Japan-US alliance will need to adjust the new strategic reality under China’s anti-access and area-denial (A2/AD) environment. A new operational concept of the Joint Air Sea Battle should be explored in the alliance agenda. It is also highly important to increase the roles and capacities of Japan in dealing with low-level friction and conflicts with China, while maintaining the Japan-US alliance playing an indispensable role in escalation control and extended deterrence.
* This article is a revised version of the Executive Summary of the Tokyo Foundation Asia Security Project, Japan’s Security Strategy towards China: Integration, Balancing and Deterrence in the Era of Power Shift (October 31, 2011). The views expressed in this paper are those of the author.
 See John J. Mearsheimer, The Tragedy of Great Power Politics (New York: W. W. Norton, 2001); Aaron Friedberg, “The Future of U.S.-China Relations: Is Conflict Inevitable?,” International Security, Vol. 30, No. 2 (Fall 2005). For a prototypical form of the power transition theory, see A.F.K Organski, World Politics (New York: Alfred A Knop., 1958). A theoretical examination of how transitions of power from a hegemon to a challenging country tend to cause war can be found in Robert Gilpin, War and Change in the World Politics (New York: Cambridge University Press, 1981). A critical study of the theory of power transition in U.S.-China relations can be found in Steve Chan, China, the U.S., and the Power Transition Theory: A Critique (London and New York: Routledge, 2008).
 John Ikenberry, “The Future of the Liberal World Order: Internationalism After America,” Foreign Affairs , Vol. 90, No. 3 (May/June 2011); John Ikenberry, “The Rise of China and the Future of the West: Can Liberal System Survive?,” Foreign Affairs , Vol.87, No.1 (January/February 2008).
 The Tokyo Foundation Asia Security Project, Japan’s Security Strategy towards China: Integration, Balancing and Deterrece in the Era of Power Shift (October 31, 2011) See: www.tokyofoundation.org/en/articles/2011/china-strategy
 Assumption A : High per capita GDP states: Japan, US, Australia, and Singapore will maintain average nominal growth rate of 2011-2016 until 2020. Assumption B : High per capita GDP states’ 2020-2030 projection is based on the GS 2007 data that provides projection data for every 5 years (modified by the margins of error between GS 2007 and IMF/WEF 2011*). Assumption C : Emerging states: China, Korea, and ASEAN 5 (IMF definition of ASEAN 5 = Indonesia, Malaysia, Thailand, the Philippines, and Vietnam) correspond with the average growth rate of 2011-2016 but adjusted to the rate of GS 2007 provided for every five years. For example, the Chinese growth model calculus is shown below.
 Using data sets of the Stockholm International Peace Research Institute (SIPRI). Selecting countries from Asia-Pacific region and compare the data based on a constant USD as of 2009. Basic Assumption : The percentage of GDP allocated for military expenditures in 2009 will be maintained till 2030. Assumption on China 1 : It is widely recognized that the official Chinese defense budget announcement (CHN Yuan) does not match the international standard. SIPRI has estimated that the real budget is 150%-160% of the Chinese official announcement. Assumption on China 2 : US DOD claims that SIPRI even underestimates the Chinese military budget. US Department of Defense, Military and Security Developments involving the People’s Republic of China (August 2010), estimates Chinese military spending to be more than 150 billion USD (140% higher than SIPRI). Considering these views, this study also indicate a “high estimation path” by adding 140% to SIPRI standards. Assumption on the US : The United States has announced major steps to reduce military expenditures due to severe fiscal pressures. This study also considers the rate if US takes steps to reduce the budget to the level of the Clinton Administration in 1999 (3.0%), shown as the “low estimate path.”