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Japan may move jobs, funds to India as China fumes

Traditional Asian rivals Japan and China are at loggerheads again, and one country stands to gain the most from the chilly ties this time round: India. Pramit Pal Chaudhuri and Jayanth Jacob report.

delhi Updated: May 30, 2013 09:07 IST
india japan ties

Prime-Minister-Manmohan-Singh-and-his-Japanese-counterpart-Shinzo-Abe-shake-hands-after-exchanging-the-documents-of-their-joint-statement-at-Abe-s-official-residence-Singh-is-currently-on-a-four-day-official-working-visit-to-Japan-AFP-Toshifumi-Kitamura

Traditional Asian rivals Japan and China are at loggerheads again, and one country stands to gain the most from the chilly ties this time round: India.

Hundreds of Japanese companies may shift factories from China to India, bringing with them big investments and thousands of jobs, and a remilitarising Japan is likely to emerge as an attractive source of technology for India.

A deepening of joint military exercises between the two countries will offer India a chance to thumb its nose at China, which recently staged an audacious intrusion into our territory in Ladakh.

It's becoming increasingly clear that the Indo-Japanese relationship is now more than just exports and imports: It is about how Tokyo can transform India.

As Prime Minister Manmohan Singh said in Tokyo: "Greater investment by Japanese companies in India's large market will be in our economic as well as strategic interest."

As the Chinese fumed, Japan rolled out the honours for Singh.

In a rare gesture, the Japanese emperor hosted a private lunch for the PM and his wife, protocol usually reserved for visiting head of states only.

Singh and his Japanese counterpart Shinzo Abe enjoy a strong personal rapport.

Japan wants to build up India as an alternative, economic and military, to China, and Singh signalled strongly that India welcomed the idea.

The first phase of this is giving India a modern infrastructure: the Delhi Metro, the Delhi-Mumbai Industrial Corridor and now, bullet trains. The second is shifting the thousands of Japanese factories in China to India.

And on Wednesday, the two sides stepped up defence ties, with an offer from Tokyo for US2 amphibian aircraft, more bilateral naval exercises and defence technology cooperation.

The backdrop is deteriorating Sino-Japanese ties. Tokyo believes the Chinese regime is whipping up anti-Japanese sentiment to absorb rising middle class nationalism.

China's muscle-flexing over the Senkaku islands and anti-Japanese protests inside China are two sides of the same Beijing policy.

Beijing ultimately wants Tokyo to end its defence ties with the US and accept Chinese suzerainty, believe Indian and US diplomats.

One, as Chinese attack their employees and as labour costs keep rising, Japan Inc wants to move elsewhere. Japan is the second-largest foreign investor in China, with accumulated investment of over $70 billion.

But a Japan Export Trading Oraganisation survey last year showed India emerging as the most preferred alternative site for Japanese FDI.

India is seen as a difficult place to invest, but helping India's rise has a strategic benefit that is becoming increasingly important to Tokyo.

In the past decade, says an Ernst and Young study, Japan is already the second largest foreign job creator in India.

This is with only 300 Japanese firms in India. If a fraction of the 14,000 Japanese firms in China were to move, the result would be a job tsunami.

Two, Japan is preparing to re-militarise and India is a perfect partner. Abe will seek to increase defence expenditure and even change Japan's pacificist constitution this autumn.

India, which has begun bilateral naval exercises with Japan, will also be the first country to import military equipment from postwar Japan.

Because it has no hangups about Japan's World War II past, India would also provide legitimacy to Abe's re-militarisation.

Three, China does not fear its neighbours individually. But it is concerned about them ganging up. Japan is still the third largest economy in the world and technologically far ahead of China.

Abe seems to want to use Japan's capacities to enhance Indian power and make it a genuine geopolitical balancer to the Middle Kingdom.

A close Indo-Japanese relationship would also bring the US into the picture -- a trilateral equation that has Beijing gnashing its teeth.

"China's recent territorial actions only reinforce the logic of strong Indo-Japanese ties," says Hemant Singh, ex-Indian ambassador to Japan.

Singh's speeches, with their call for deepening Indo-Japanese ties and support for freedom of the seas -- a code word for opposition to Chinese maritime claims -- is music to Tokyo's ears and geopolitical din to Beijing's.

Hence the dark warning from the Chinese People's Daily to Abe that any attempt to make India part of an anti-Chinese alliance were doomed.

"The conspiracy of these petty burglars is doomed to fail," it said, pointing to how "successfully" New Delhi and Beijing settled the recent Ladakh border intrusion.