As Asian countries embarked on their own development processes, and they began to reshape the region. Economic integration based on market forces gradually extended to more and more economies. Normal state-to-state relations between Asian countries developed only gradually after the Cold War, but multi-layered sub-regional cooperation mechanisms have continued to bring Asian countries closer.

Japan’s modernisation started after the Meiji Restoration in 1868, and it recovered in the post-World War II era. For South Korea and many Southeast Asian countries, the modernisation process is quite new. A key feature of China’s new modernisation, after reform began in 1978, has been participation in regional and global production market networks, which now makes China an integrated part of the regional and global community. Asian countries, despite political differences, share a common interest in open markets and a stable, secure environment for continuing modernisation.

The Asian miracle has been based on open policies that permitted integration into the global trade system. The key has been to create a coordinated link between business and government which allows a market network to develop among different economies. In the flying geese model, with Japan as the leading goose, the ‘Four Dragons’ — Singapore, Hong Kong, Taiwan and South Korea — followed and then so did the other economies like ASEAN members and China.

Although Japan was defeated in World War II, it was able to rebuild by drawing on the foundations of its early industrialisation and modernisation, including technological expertise, an educated population and organisational skill. The United States forced Japan to change its political system, but it also supported Japan’s economic recovery and further modernisation.

The Four Dragons, or Tiger economies, closely watched what happened in Japan and tried to learn from it. They opened their markets, tried hard to attract investments from the outside — especially from Japan and the United States — and targeted Western markets. These East Asian countries started from a lower level, but they upgraded their technology in order to catch-up. As more and more economies joined the production chains created by foreign direct investment, a network based on a changing division of labour developed in Asia.

The rise of Asia’s economies has brought new challenges to the world. China and India alone account for almost 40 per cent of the world’s population. Their modernisation has significantly increased demand for food, water, energy and natural resources, and will continue to do so. The catch-up model has added to pollution and global climate change. This creates new challenges and issues of sustainability that all countries will need to address.

Considering the size of Asia’s population and speed of its modernisation, the challenge of social transition is very serious. The West has experienced industrialisation and modernisation for 200 years. In Asia, the process is moving too fast. How do we manage the demands and pressure from people who want things to improve as quickly as possible? Individual governments will have to find something new, rather than just following existing patterns. New technology helps people to live new lives, but it is not an easy solution. For instance, China now consumes 40 per cent of the world’s cement just for construction and this demand continues to rise. Similar demand pressures exist in other Asian countries.

China’s economic rise has brought both benefits and challenges. While all countries are benefiting from the fillip that China’s fast economic growth has provided to the global economy, countries are also working on how to deal with competition from China. But as the country develops and the old growth model becomes unworkable, China will not stand still by using the advantage of cheap labour. It will upgrade its technology and invest abroad. This will create opportunities elsewhere.

There is also a security dimension to all this. People are talking about China’s rising power and its future behaviour. While China is rising to big-power status, it has many unsolved problems with its neighbours.

China’s transition process is still very long. Peace and development will be needed for a very long time. If anything happens now — not just on a large scale, but even if there is a smaller confrontation with a neighbour — it would seriously damage the whole process. China’s leaders need to think about the country’s vital priorities and the costs of war. Many problems are emerging. In the past they could be easily managed, but they could become more difficult in the future. Generally, the top leaders are aware of the situation and know how to manage it. The danger is that if something should happen suddenly and social pressure became too strong, leaders may struggle to find a balance.

The dispute with Japan over the Diaoyu/Senkaku islands is one example. In September 2010 — when the crew of a Chinese fishing vessel were detained after colliding with the Japanese Coast Guard outside of China’s agreed fishing area — what made the Chinese angry was that the Japanese government announced it would use domestic law to punish the Chinese fishermen. The implication was that Japan totally refused to recognise the existence of a dispute over the islands and treated the incident as a Japanese internal matter.

Japan generally handled the fishing boats carefully and released the fishermen quietly. But, during the election, Japanese politicians used the issue to garner more domestic support, holding the fishermen until after the election. In the face of a rapidly developing diplomatic crisis, Chinese leaders were also under great domestic pressure to respond strongly. If the Japanese had released the fishermen earlier and not announced that they would be punished under domestic law, the result would have been quite different.

China was in fact very restrained. An early morning summons of the Japanese ambassador reflected, to some extent, Chinese culture: in time of an urgent crisis we should not let you sleep well. It shows soft pressure. But there was very high pressure on the Chinese leader to ensure a quick solution. A delay of one day more would have increased pressure on China. In the end, the crisis was managed well enough to allow a leaders’ meeting during the Asia–Europe Meeting summit in October that year.

The real challenge for Sino–Japanese relations now is how to manage the historical reversal of the power balance between the two countries. In modern history, Japan used to be stronger than China. A strong Japan invaded China and many other Asian countries. But now China’s economic size is much larger than Japan, and the gap will continue to widen. For Japan, it is necessary to adopt a policy of living with a rising China. At the same time, China needs to accept Japan as what Ichiro Osawa would call a ‘normal country’ — with all the instruments of foreign policy at its disposal, including a modern and independent Self-Defense Force. Moving forward, Sino–Japanese relations must be based on mutual understanding and cooperation.

While history issues need more time to be solved, China and Japan can and should continue to cooperate on both bilateral and regional economic cooperation, which is beneficial to both sides for generating new growth. The two nations should sit down to discuss the sensitive and risky challenges caused by their disputes and establish risk management schemes. Such open dialogue on challenges in both traditional and non-traditional security areas is critical to the prosperity of both countries.

Zhang Yunling is a professor at the Chinese Academy of Social Sciences. This article is based on an extract of a conversation between Zhang and Ezra Vogel, a distinguished professor at Harvard University.

This article appears in the most recent edition of the East Asia Forum Quarterly, ‘Japan–China Relations‘.