Japan and China keep economic dialogue alive despite tensions — and India should pay attention – Firstpost

Even as geopolitical tensions continue to simmer across Asia, Japan and China are quietly keeping economic dialogue channels open — signalling that trade interdependence and supply-chain stability remain too important for either side to ignore.

The latest indication came on the sidelines of the Asia-Pacific Economic Cooperation (APEC) trade ministers’ meeting in Suzhou, where Japanese Trade Minister Ryosei Akazawa held a brief interaction with Chinese Commerce Minister Wang Wentao despite an ongoing diplomatic standoff between Tokyo and Beijing.

While the exchange fell short of formal bilateral negotiations, it reflected a broader regional reality: Asia’s major economies are increasingly trying to balance strategic rivalry with economic pragmatism at a time of slowing global demand, semiconductor competition, energy-security concerns and growing supply-chain fragmentation.

For India, analysts say, the evolving Japan-China equation presents both opportunity and caution.

Despite sharp tensions over Taiwan, export controls and critical minerals, Japan and China remain deeply economically intertwined. Bilateral trade between the two countries stood at nearly $293 billion in 2024, underlining how difficult a full economic decoupling would be.

“The Japan-China trade dialogue sends an unambiguous signal: economic gravity eventually overcomes geopolitical friction,” said Shrijeet Mishra, founding mentor at Crossmentors and former executive at Aditya Birla Group, and HUL.

“Neither side can walk away from that relationship without severe structural pain. What we are witnessing is selective cooperation — rivals protecting shared economic interests in industrial inputs and consumer supply chains while competing fiercely in semiconductors and critical technology,” he added.

The outreach comes despite growing friction over rare earths and strategic minerals.

China has in recent months tightened restrictions on exports of several heavy rare earth materials to Japan amid tensions linked to Taiwan, disrupting supply chains tied to electric vehicles, aerospace and semiconductor manufacturing. Tokyo has simultaneously been working to diversify sourcing and strengthen supply-chain resilience with partners across Asia and the Indo-Pacific.

Yet neither side appears willing to completely sever economic engagement.

That matters for India because much of the optimism surrounding the “China+1” manufacturing strategy has been driven by expectations that multinational companies would diversify away from China amid geopolitical tensions.

According to Professor Anwesha Basu, faculty of economics at FLAME University, Asia is not moving towards outright economic decoupling, but towards a more selective and cautious form of interdependence.

“Japan’s approach increasingly appears to be one of ‘de-risking’ rather than disengagement from China,” Basu said.

She argued that India could still benefit as global firms seek supplementary manufacturing locations in electronics, assembly-intensive industries and components manufacturing.

“India is unlikely to replace China as a manufacturing hub in the near term, but it can emerge as a supplementary node within a broader ‘China+1’ Asian production structure, particularly in electronics and assembly-intensive manufacturing supported by initiatives such as the PLI schemes,” she said.

India and Japan have already been strengthening cooperation in sectors including semiconductors, critical minerals, ICT, clean energy and pharmaceuticals as both countries attempt to build resilient supply chains amid geopolitical disruptions.

However, analysts warn that India’s strategic opening may narrow if Japan and China stabilise their economic relationship further.

“The risk is complacency,” Mishra cautioned.

“If Japan and China deepen economic complementarities, India could lose the urgency premium it currently enjoys. India must move from intent to execution — on infrastructure, ease of doing business and supply-chain scalability.”

Basu similarly argued that India’s long-term competitiveness would depend less on geopolitics and more on domestic execution.

“The main constraint is still execution: logistics, trade barriers and policy inconsistency,” she said.

“If Japan and China continue to stabilise their economic relations, it could also slow the pace of firms shifting supply chains outside of China.”

The broader regional trend reflects a more nuanced balancing strategy emerging across Asia.

Countries such as Japan and South Korea are simultaneously strengthening regional partnerships while maintaining deep economic engagement with China. The result is an Asian trade architecture that is becoming more diversified and strategically cautious — but not fully fragmented.

In that sense, Asia is not decoupling from China. It is recalibrating around it.

For India, that recalibration could still offer a major opening in manufacturing and supply chains. But the window may not remain open indefinitely.

To convert geopolitical goodwill into lasting economic gains, India will need to rapidly improve infrastructure, reduce logistics bottlenecks, deepen trade integration and build large-scale manufacturing competitiveness before regional supply chains settle into a new equilibrium.