Confrontation of two big economies: Ukrainian implications

August 12, 2022

The author analyses current interaction and rivalry between the two big Asian and global economies — Chinese and Japanese — also from the viewpoint of their effect on Ukraine through the prism of the Russian invasion.

Political tension between China and Japan has been going on for decades, and the recent competition between the two countries has actualised economic challenges for both countries.

Economic implications. China and Japan are the largest, after the USA, world economies with extensive trade contacts. In recent decades, China has seized the "palm of primacy" in the production of a wide range of competitive industrial products and displaced Japanese exporters in emerging dynamic markets. In 1990s, Japan exported to China in great volumes machine-building products to expand production at Japanese-owned enterprises. Today, the situation has changed.

Japan provided Ukraine with significant financial and humanitarian aid and supported sanctions against the aggressor, against the background of risks associated with China's military escalation with respect to Taiwan and Russia's belligerent rhetoric about the "disputed" islands.

Japan's sanctions policy has two dimensions. First, the refusal of energy imports. Second, elimination of the best-favoured nation status in trade with Russia.

China did not officially support sanctions against Russia, but a number of Chinese companies stopped joint projects with Russia.

Security context. In summer, the relations between China and Japan changed significantly, with negative trends in two areas.

The first one concerns the aggressive intentions of China in relation to Taiwan. At the same time, China does not conceal its claims to the historically "disputed" islands of the Philippines, Vietnam, Malaysia, and the Japanese Senkaku Islands.

The second one concerns confrontation with Russia and largely depends on the Chinese willingness to support Russian imperial intentions.

For Japan, a military conflict will not be a shock. At the end of 2021 Japan adopted a record high defence budget for 2022 — 5.4 trillion yen ($47 billion).

Intellectual implications. The trend and dynamics of economic (and political) relations between China and Japan will be largely determined by technological breakthroughs, leadership positions and competitiveness of their economies. There is a direct relationship among economic growth, labour productivity, and the intellectual level of the population. Today, Japan is ahead of China in many indicators of labour productivity and the quality of the human capital.

Both countries pay more and more attention to the human capital building and strengthening.

Japan is a recognised leader in inventions and high technologies. Japanese corporations spared no expense to acquire patents, technological innovations and intellectual property.

China began to legally use intellectual property much later, and lagged behind in procurement of intellectual property for the national economy. However, today it is already ahead of Japan in payments for such products.

Current economic trends. China saw at least two shock waves in 2022. The first wave was economic and began in the summer of 2021, when the Chinese development giant Evergrande admitted the possibility of a bankruptcy. This caused a payment crisis, accumulation of debts not only in the construction industry but also in the banking sector, which, in turn, worsened the crediting terms of the real sector.

Economic troubles also aggravated due to a new coronavirus attack, when China reintroduced strict restrictive measures, the climax of which came in April.

Such negative economic manifestations may prevent the second negative wave — military/political. Abstention from the sanctions against Russia and aggressiveness against Taiwan caused significant damage to China's relations with the developed countries, and further aggravation of negative trends is undesirable for the country.

The thesis that the invasion of Taiwan can help with re-election of the Chinese leadership in the fall of 2022 does not look convincing.

Intermediate conclusions.

  1.  Global competition sharpens economic challenges for both China and Japan. Peace and development in Asia and Pacific and the whole world depend on how long they manage to preserve their non-confrontational relations.
  2. From the first days of the invasion, Japan strongly supported Ukraine, provided financial and humanitarian aid, and joined sanctions. Although China did not officially support sanctions against Russia, a number of companies, even state-owned ones, stopped joint projects with Russia. This gave reason to expect political benefits for Ukraine.
  3. Economic consequences of already introduced sanctions against Russia will be decisive in the foreign economic policy of both countries, along with the risks associated with escalation of China's military preparations and threats to Taiwan, with simultaneous resumption of Russia's bellicose rhetoric regarding the "disputed" islands. Growth of negative trends is highly undesirable for them.
  4. Japan is ahead of China in terms of labour productivity and the quality of human capital. Enhancement of competitiveness and human capital is only possible in peaceful conditions. A military conflict involving China and Japan looks unlikely.
  5. Ukraine is highly interested in peace processes in Asia and Pacific. This will contribute to mutual understanding and convergence of positions of China and Japan in relation to the war in Ukraine on democratic principles inherent in the civilised world.

This may offer significant economic benefits for Ukraine. Ukraine will be able to speed up economic recovery by expanding exports (of agricultural and food products) to China, not to the detriment of partner relations with Japan.

A peaceful atmosphere in Asia and Pacific will also contribute to the convergence of positions regarding investments. There is a clear trend to long-term flight of capital from Russia. Liberation of Ukraine from the aggressor will create positive preconditions for the capital that previously worked in Russia.

For more detail, see the full article (in Ukrainian):

Vasyl Yurchyshyn

Director, Economic Programmes

Born in 1955 in Kamyanets-Podilskyi.


T. Shevchenko Kyiv State University, Department of Cybernetics (1977).

Institute of Public Administration and Local Government at the Cabinet of Ministers of Ukraine (1994).

Professor in Public Administration. Author of nearly 100 scientific works.


In 1977–1993, worked at the Kyiv University as an engineer, research fellow and senior research fellow;

1994–1999 — head economic researcher at the International Centre for Policy Studies, Fund for Banking and Finance Development;

1999–2004 — Assistant Professor, Department of Economic Policy of the Ukrainian (currently, National) Academy of Public Administration, office of the President of Ukraine;

1999–2004 — Research Director at the Agency of Humanitarian Technologies, later — Agency for Social Analysis;

2002–2003 — advisor to the Minister of Economy of Ukraine;

since April, 2004 — Professor, Department of Economic Policy of the National Academy of Public Administration, office of the President of Ukraine;

since June, 2005 — Economic Programmes Director at Razumkov Centre.

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