In an era marked by shifting geopolitical tides and deepening economic interdependencies, the relationship between China and Japan stands as one of the most consequential in Asia. While headlines often dwell on the China-United States rivalry or regional disputes in the South China Sea, it is Sino-Japanese relations that may well determine the trajectory of Asia’s economic prosperity and strategic balance over the coming decades.

China and Japan, as the world’s second and third largest economies are deeply entwined in a complex web of economic, political and especially historical interactions.

Their bilateral relationship, while often strained by lingering memories of the Second World War from the Chinese perspective, and contrasting visions for regional leadership, remains the bedrock of Asia’s economic landscape.

More importantly, Japan plays a critical, although often understated, role in tempering Beijing’s ambitions regarding Taiwan, as it acts as both a buffer and a proxy for broader global and American interests in East Asia.

Economic interdependence

Trade between China and Japan has long been a pillar of East Asian economic growth. In 2023, bilateral trade between the two countries exceeded $317bn, highlighting Japan’s role as one of China's largest trading partners. Japanese companies are deeply embedded in China’s industrial ecosystem, particularly in high-tech manufacturing, automotive components, and advanced machinery. On the other hand, China provides a huge consumer base for Japan, and is a vital supply chain hub for Japanese firms.

In the automotive sector Toyota, Honda, and Nissan all maintain extensive operations in China, not only in manufacturing but also in R&D. China is Toyota’s second largest overseas market after the US, accounting for more than 20% of its global sales. Conversely, Japanese precision parts and robotics remain critical inputs for China's own industrial growth, particularly in its push toward smart manufacturing and to boost its burgeoning electric vehicle (EV) market.

In the field of semiconductors too Japan provides China with critical components, including photoresists and wafer-processing equipment, and despite recent US efforts to restrict China’s access to advanced chipmaking tools, Japan has struck a balance, complying with certain export controls while maintaining commercial relationships that serve its own economic interests.

Furthermore, regional trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) of which China and Japan are both major players demonstrates a shared commitment to multilateralism and economic integration in the region. The success of RCEP hinges, in no small part, on stable Sino-Japanese ties with both countries serving as anchors for this enormous trade bloc. Any disruption in this relationship could ripple across Southeast Asia and into the Subcontinent, derailing the economic momentum of emerging economies like Vietnam and Indonesia while imposing similar economic pain upon sectors of the Indian and Bangladesh economies.

Japan as a military check on Taiwan tensions

Beyond economics Japan’s geopolitical positioning plays a subtle but vital role in maintaining regional stability, particularly concerning Taiwan. As China continues to aggressively assert its claims over the self-governing nation off its east coast, Japan stands as both a frontline state and a symbolic deterrent. While Tokyo maintains official ambiguity on Taiwan’s status, recent years have seen a notable shift in rhetoric and posture.

Militarily this has seen the development of ports in Japan’s southern Okinawan islands to accommodate British naval vessels as well as US ships over the past 20 years, according to sources in Tokyo.

And in 2021, Japan’s Defence White Paper made explicit reference to Taiwan for the first time, describing its stability as “important for Japan’s security.” This was no great surprise given that Japan and Taiwan are just 110 km apart at their nearest point.

This reference marked a significant departure from decades of silence on the part of Tokyo and is supported more and more by Japanese political party visits to Taiwan of late. Japan has since deepened its security cooperation with the United States under the framework of the US-Japan alliance, conducting joint military exercises that simulate responses to a Taiwan contingency.

Japan’s role here is layered. Firstly, its proximity to Taiwan – next-door in terms of distance to the Japanese island of Yonaguni - means any conflict would almost inevitably spill over into Japanese territory. Secondly, as host to the largest contingent of US forces in Asia at around 55,000, Japan serves as the logistical and strategic springboard for any American intervention in the Taiwan Strait. US bases in Okinawa are already pivotal in the Pentagon’s Indo-Pacific strategy, as China well knows.

It is this geopolitical entanglement that gives Japan significant influence over the People’s Liberation Army operations in the region.

Any open military move against Taiwan would not only risk a direct confrontation with the United States but also draw Japan into the fray, thereby transforming a regional dispute into a full-blown international crisis in a matter of hours.

The economic consequences for China would be severe if not devastating, not just from sanctions but from the sudden cessation of crucial Japanese trade and investment. To this end, Japan acts as a stabilising force, reminding Beijing that any military misadventures would come at an unsustainable cost.

Historical animosities

It would, however, be naïve to paint the China-Japan relationship as purely cooperative.

Historical grievances, especially concerning Japan’s wartime actions in China, continue to resurface and inflame nationalist sentiments on both sides. Visits by Japanese politicians to Yasukuni Shrine in Central Tokyo, which China and South Korea claim honour war criminals among others, often provoke routine, largely copy-paste diplomatic protests from Beijing.

In a similar manner, Chinese demonstrations of naval aggression in the East China Sea around the Japanese-held but disputed Senkaku Islands keep tensions simmering and right-wing elements in both countries on edge from time to time.

Yet it is precisely this history that makes the ongoing economic and strategic cooperation so crucial.

Both Tokyo and Beijing have learned to compartmentalise, separating political disputes from economic imperatives. This pragmatic approach has permitted both sides to weather storms and maintain a functional relationship even when relations hit rocky patches.

A relationship too big to fail

To this end, the China-Japan relationship as it stands in 2025 is too central, too strategic and too economically significant to be allowed to fail. It is the pivot upon which wider-Asia’s future prosperity balances.

For China, Japan remains a key gateway to high-end technology, capital, and market access. For Japan, China is an indispensable economic partner and a geopolitical variable that cannot be ignored or antagonised without consequence.

Most crucially for all concerned, Japan's role in shaping China’s military behaviour, especially regarding Taiwan, cannot be overstated. It is Japan’s quiet anchoring of the US presence in Okinawa and throughout Honshu and other main islands of the archipelago, as well as Tokyo’s increased willingness to keep Beijing in check without overt provocation that keeps the peace.

In a region fraught with historical rivalries and flashpoints, the subtle diplomacy coupled to economic entwinement between these two Asian giants offer perhaps the best hope for stability, especially if Asia is to thrive in the coming decades.

As the world’s most populous continent enters the second quarter of the 21st century peace and prosperity depends less upon whether or not China and the United States resolve their various differences, and more upon how China and Japan manage theirs.