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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Ilaine who wrote (22244)8/9/2002 10:35:33 PM
From: TobagoJack   of 74559
 
Without having to be enemies ...

stratfor.com

Japan, India Looking To Counter China
11 December 2001

Summary

Indian Prime Minister Atal Vajpayee began a five-day visit to Japan Dec. 7. In the short term, both countries hope increased cooperation will boost their respective economies. The meeting, however, is also part of a broad pattern of activity on the part of both New Delhi and Tokyo aimed at expanding their regional influence. China, their powerful neighbor, will eventually attempt to counteract the threat to its position.

Analysis

After arriving in Osaka Dec. 7 for a five-day visit, Indian Prime Minister Atal Vajpayee visited with his Japanese counterpart Junichiro Koizumi as well as the country's top business executives and foreign and finance ministers. Vajpayee's visit is the first to Japan by an Indian prime minister since 1992.

In the short term, New Delhi and Tokyo hope the visit will help strengthen cooperation between the two countries and boost their suffering economies. But economic considerations are part of a broader goal to broaden their roles in Asia and lower their dependence on the United States. However, China will do what it can to counteract the growing influence of its two neighbors.

Even amid their current slumps, Japan and India both carry a significant amount of economic weight. With their large populations, they present highly inviting consumer markets. Japan absorbs a large volume of exports from most Asian countries, and India does the same for many of its neighbors.

Economic cooperation would be especially beneficial as both countries have complimentary markets in the computer industry. India's command of the global software market is already significant and still rising. Indian information technology earned $8.67 billion from 1999 to 2000, up 50 percent from the year before, according to the National Association of Software and Service Companies. During the same period, software revenues comprised more than 65 percent of India's information-technology earnings.

Vajpayee urged Japanese businesses to take advantage of this market and gain access to India's copious high-tech human resources. Japan itself offers numerous advantages for Indian firms.

Japan's production of electrical equipment is among the largest in the world, with semiconductors its second-largest export, according to the CIA World Factbook. The country also exported more than $74 billion in electronics in the first nine months of 2001, according to the Japan Electronics and Information Technology Industries Association.

Japan and India will likely use each other's strengths in their complimentary computer markets to ameliorate the weaknesses in their own markets.

The Japanese government already gave India an economic helping hand when it lifted sanctions against New Delhi in October. Tokyo established the sanctions in 1998 to protest India's testing of nuclear weapons. The lifting of the sanctions served as a reward for India's participation in the war against terrorism.

But greater economic ties and benefits represent only the short-term goals India and Japan hope to accomplish. Both countries intend to use their association to strengthen their roles in Asia and maintain that influence, especially as China increases its power.

Beijing's official entrance into the World Trade Organization Dec. 11 could allow its markets to dominate those of Tokyo and New Delhi. China's unpredictability and large military have also always presented a security threat to both countries. A growing alliance between India and Japan will allow them to counter China's regional dominance by presenting stronger opposition from multiple angles.

The two countries have already worked to assert more influence in the region. India held naval exercises in the South China Sea in 2000, presenting a direct challenge to China, which claims the entire area as its territorial waters. And Japan has stretched its area of defense to include the Strait of Malacca, more than 2,000 miles away.

Because of their geographic locations, both countries will not necessarily have to compete with each other for influence. India is looking to expand its role in Southeast Asia. This aim originated with its "Look East" policy of building more military and economic links with nations such as Indonesia and Vietnam. Japan is seeking to broaden its influence from Northeast Asia to Southeast Asia. Last year it gained access to Singapore's military bases.

Greater cooperation between India and Japan will also affect their relationships with the United States. Although India, especially in the past two years, has worked to build stronger ties with Washington, it does not want to become a minion of the global hegemonic power. Japan wants to maintain its friendly relations with the United States while still asserting more independence.

Many in the country are calling for a rewrite of the constitution framed by the United States at the end of World War II in order to allow Japan's armed forces more leeway to respond to potential threats. If India and Japan have each other as allies, they can reduce their dependence on the United States while still preserving good relations with Washington.

China, though distracted with its entry into the World Trade Organization, will attempt to combat India's and Japan's efforts. Beijing holds two trump cards over New Delhi and Tokyo: Pakistan and North Korea. The communist country carries weight in both smaller countries. China can easily increase tensions between Pakistan and India and between North Korea and Japan, endangering stability in their respective areas.

Due to this possibility, Japan and India will tread carefully and slowly as they cooperate more closely. If they can maintain momentum, however, they will likely see the fruits of their labor in greater economic and military cooperation with countries in Asia.
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