The evolution of trade between China and Japan

On 9 November 1989 Berliners began hacking into the wall that had divided capitalist West Berlin from the Soviet-controlled East since 1961. This action was to have far-reaching consequences, not least on trade relations between China and its immediate neighbours.

The Berlin Wall's

collapse became a metaphor for the fall of the Soviet Union. In the years that followed, former Soviet states became independent republics, ranging from Lithuania on the Baltic coast to new Central Asian nations such as Kazakhstan. As far as China was concerned, one of the most fundamental effects of the dissolution of the Soviet Union was that it became forced to seek alternatives to what was once a potent trading partner.

In the 20 years since the demise of the Soviet Union, Chinese trade with Japan has increased dramatically. The nature of this economic traffic has not only grown quantitatively, it has evolved into radical new markets, with Chinese traders interested in many contemporary products that were only a pipe dream when they were dealing with counterparts in Moscow.

There is no denying that China and Japan are economic giants. Both nations are well aware of the market trends and the areas which are ripe for investment in 2013. Indeed, trade between the two has specifically expanded into many high technology sectors: up until 2008 this amounted to well over $210 million. As long ago as 2004, Japan surpassed even the USA in terms of its annual trade figures with China.

Although China sold Japan textiles and raw materials up until the mid-1990s, this trade has altered radically with China now sending far more consumer goods across the East China Sea. There was a dip in trade during the worldwide economic downturn of 2008-9, but this has been rebounding, mainly based on Chinese state spending on machine equipment from Japan.

Approximately 20% of Japan's total trade is conducted with China. There are many reasons for this, not least the fact that China has industrialised at a fantastic rate. China has also liberalised its trading policies with the global markets, joining the World Trade Organisation in 2001. The third reason would be the fact that direct foreign investment in China has increased significantly, signalling to investors that China is now very much an investment-friendly environment. All these factors have led to China becoming the primary target for Japanese investment. This is underlined by the fact that Japan now employs more than 1 million Chinese workers.

China's entrepreneurs: statistics

With China making huge inroads into many diverse sectors of the global economy, there are many individual success stories. There are several particular individuals whose drive and ambition truly spotlight the extent of the country's economic progress in recent years. One illustration of the strength of the entrepreneurs comprising China's most successful business people is the net worth of their assets. Of the top 50 recently listed in terms of their estimated net holdings, the combined figure of their accumulated wealth, even at a conservative estimate, stands at around $10 billion. The average wealth of each of China's top 50 entrepreneurs is around $200 million.

Typical amongst this affluent business community are the family of Rong Yiren (formerly of China International Trust and Investment). Rong Yiren was Vice President of China from 1993 to 1998, and was at the forefront of the opening up of the nation to Western investment. His entrepreneurial drive led to his nickname of the ‘Red Capitalist', and he was strongly influential as China began to emerge from the sidelines of the global marketplace. From relatively humble belongings, Rong eventually managed a chain of family mills, surviving the turmoil of the Cultural Revolution to become an astute economic advisor to the Communist Party. Although he passed away in 2005, aged 89, his family wealth is estimated at $1.9 billion.

When the overall pool of talent in China's entrepreneurs is analysed, the average age is revealed to be considerably younger (43). Prior to his death, Rong was the oldest of China's multi-millionaires, while the youngest was William Ding. The latter entrepreneur was born in 1971, and is the founder and Chief Executive Officer of NetEase, the large internet company responsible for 163.com. This is an extremely popular web portal – in one month in 2005 it received over 546 million page views. Indeed, at one point Ding (born Ding Lei) was China's single wealthiest entrepreneur.

Other interesting statistics relating to China's super-rich include the fact that 21 of the top 50 did not even go to college. The main reason for this is the fact that their emergence coincided with the Cultural Revolution, when further education was cut short in many instances. Six of the top business people were educated outside of China, although 88% of them received education in Chinese institutes. Almost 28% of the entrepreneurs made their millions through the internet or other fields of technology, while 10% owed their tremendous success to endeavours in agriculture, and 58% in manufacturing.

China: the world's top manufacturing nation

While the United States of America has enjoyed premier position as the world's top manufacturing nation for over a century, this prestigious spot is now claimed by China. According to a report by the American consultancy firm HIS Global, the 110-year reign US came to an end in 2010. While American manufacturing output accounted for 19.4% of the global total, this figure was eclipsed by China, who enjoyed a 19.8% the share of the market.

Traditionally, China's manufacturing base has been dependent on relatively cheaper products, like appliances and textiles, with American companies producing higher denomination groups such as aircraft, medical and scientific equipment, industrial machinery and media industry-related items. In recent times there has been a seismic shift in China's manufacturing potential. While recognising the continuing appeal of the traditional output, especially for emerging countries, China is increasingly embracing the latest technological advances and innovations.

Partially driven by its strong trade links with Japan, a nation which has been at the forefront of technological innovation for some time, Chinese manufacturing output is now spreading into all manner of contemporary areas. Advances in the way the pharmaceutical industry operates in China have led to a boom in drug research and other health-related scientific investigation. This has prompted increases in the production of many drugs and medicines previously seen as a sector dominated by Western companies.

Another area where there have been change is in electronics. China has long been dominated by foreign owned firms. Again, this is a situation which is evolving constantly changing as China continues to forge its own identity in potentially lucrative global markets.

Economic historians have stated that China enjoyed around a third of the world's manufacturing output in the mid-19th century. By 1990 this had dipped to 3%. However, China has been successfully utilising its labour cost advantage and manufacturing skills to attract considerable overseas investments. This has created a massive shift in the nation's manufacturing potential. Government subsidies have helped this situation considerably, helping to push resources towards a domestically based manufacturing sector.

China expands its fracking program

As the world's oil resources continue to dwindle, or be affected by the sometimes severe fluctuations provoked by the volatile political situations in the oil-producing regions, more and more countries are being drawn to natural shale gas exploration. China is currently one of the world's leading authorities on the technology required to source shale gas.

Hydraulic fracturing, or ‘fracking' as it has been termed colloquially, has been labelled with certain scaremongering stories. The process involves drilling down into shale rock and creating explosions which shatter the solid sedimentary seams in order to release the trapped natural gas. Afterwards, water, sand and other chemicals are injected into the fissure at high pressure, allowing the prized shale gas to flow from the well head. This is actually straightforward, compared to many of the potentially hazardous techniques having to be applied to extract fossil fuel from ocean beds.

As recently as a decade ago, the production of shale gas accounted for a very small percentage of any country's investment into drilling for gas. That has changed, with China becoming the world's leading power in this type of natural gas production. In fact, according to estimates, over the next two decades shale gas will account for a huge percentage of China's energy requirements. As China contains the planet's richest reserves, the production of shale gas is regarded as a potentially rewarding aspect of the country's resources extraction.

Of the many benefits to the Chinese economy, the fact that this type of natural gas is stored in such extensive pockets under China is one of the key incentives for the energy devoted to perfecting the fracking process. With a strong natural gas industry of its own, China will be less susceptible to the ebbing and flowing of the fossil fuel prices dictated by Russia or the Gulf states.

Geologists have estimated the recoverable reserves lying beneath Chinese soil could be as high as 25 trillion cubic meters. The fracking of this fuel is of particular interest to Chinese engineers because it is such a viable alternative to the burning of coal, which currently accounts for around 70% of the nation's combustible energy. Since shale gas can generate electricity at 50% less greenhouse gas emissions than coal burning, this will be one way for China to considerably reduce its carbon footprint.