As relations warm with both Taiwan and Japan, China is resuming its centuries-old position as the linchpin of east Asia

Observers have long agreed that the two most difficult foreign policy questions that confronted the Chinese leadership were relations with Taiwan and with Japan. The last few years have seen both deteriorate markedly. The election of the nationalist Chen Shui-bian as president in 2000 and his re-election in 2004 was a nadir in the relationship between Taiwan and the mainland. The premiership of Junichiro Koizumi heralded a serious deterioration in Sino-Japanese relations, with Koizumi’s insistence on an annual visit to the Yasukuni Shrine in his official capacity. Such was the growing antagonism between the two nations that in 2005 there was a wave of anti-Japanese demonstrations in major Chinese cities. This year, however, there has been an extraordinary turnaround in China’s relations with both Taiwan and Japan which has exceeded all but the most optimistic expectations.

Although relations between Japan and China have been steadily improving since Koizumi left office in 2006, there has, until now, been little progress on the substantive, rather than symbolic, matters that have divided the two countries. The Japanese prime minister Yasuo Fukuda has declined to visit Yasukuni, as did his predecessor Shinzo Abe, while high-level contacts between the two countries have been resumed with clear signs of growing warmth. Yesterday, however, came the big breakthrough. As Sino-Japanese relations worsened, the most obvious flashpoint was their conflicting offshore claims in the east China Sea where significant oil and gas reserves are believed to exist. Ignoring Japanese protests, the Chinese had already begun exploration, including in waters claimed by Japan. Now the two countries have announced that they will undertake joint development of two gas fields in the disputed waters, while setting aside their territorial claims to be resolved at some point in the future. As a result, the most dangerous potential source of conflict between the two has been removed.

The delicacy of relations between the two countries is obvious. They are the two great powers in east Asia. They are the world’s second and third largest economies in the world. Ever since the Sino-Japanese war in 1894-5, relations between the two have always been acrimonious, climaxing in the Japanese occupation of China. For over a century, Japan has had an extremely dim view of its neighbour, but China’s rise is rapidly transforming the balance of power between the two countries in China’s favour. Japan has grown increasingly anxious in response. The key question is whether Japan will be able to reconcile itself to China’s emergence as the increasingly dominant power in the region. The agreement is the first positive sign so far that the two countries may be able to find a modus vivendi.

If 2008 has witnessed a serious improvement in relations with Japan, then those with Taiwan have been utterly transformed. The recent election of Ma Ying-jeou as president, and the sweeping victory of the KMT in the parliamentary elections in March, have created an entirely different atmosphere between the two countries. While Ma refuses to entertain the idea of reunification, he is determined to pursue much closer co-operation with China. Economic relations are likely to grow increasingly close while last week a new agreement was reached on extending tourism and enabling a major increase in direct flights. The Taiwanese public had grown weary of the nationalist Chen’s desire to constantly provoke China, and increasingly concerned about the malaise that was engulfing the previously dynamic Taiwanese economy and its failure to foster closer relations with the soaring Chinese economy.

It is now not inconceivable that the China-Taiwan relationship can, for the foreseeable future, enter a relatively benign phase. It is unlikely that the longer-run problem of Taiwan’s sovereignty can be resolved, but short of that it seems entirely possible that the two will enjoy an increasingly close relationship. Tourism could grow apace, flights across the Taiwan Straits become commonplace, and increasing economic integration appears inevitable. With the constant threat of a declaration of independence posed by the nationalists sidelined, then the Beijing leadership can pursue an increasingly pragmatic attitude towards Taiwan. In that context, it might even begin to entertain more imaginative solutions to the sovereignty question, other than simply a modified version of the Hong Kong “one country, two systems” formula. That lies far off in the future, but it no longer seems quite such an exercise in fantasy as it did before.

With relations between Japan and Taiwan improving rapidly, China’s position in east Asia has been through a rapid metamorphosis compared with the situation that existed a decade ago when it was still largely isolated. It already enjoys an extremely good relationship with the Asean countries of south-east Asia, while South Korea has moved much closer to China. China is resuming its centuries-old position at the centre of east Asia.