Author: Kristin Vekasi, University of Maine

Protests broke out in more than 200 Chinese cities after the nationalisation of the Senkaku/Diaoyu islands in 2012. Toyota saw sales plummet and vehicles smashed in street demonstrations. One of the company’s responses was seldom talked about publically but may prove to have long-term implications for the Japan–China relationship — they funded an exchange program that brought young Chinese students to Japan.

‘Cold politics, hot economics’ is a phrase used to describe the Japan–China relationship — on the one hand, their political interactions are tense, but on the other, their economic dealings are robust. In the aftermath of political disputes — whether they are sparked by territorial issues or prime ministerial visits to Yasukuni Shrine — Japanese firms in China often face boycotts, property damage, exclusion from meetings and cancelled business trips. The environment for conducting business deteriorates.

Though political tensions are largely generated at the state level, there are implications for the private sector, most often felt on the Chinese mainland itself. Chinese citizens participate in boycotts and demonstrations. Chinese managers decide whether or not to work with a Japanese firm. Chinese consumers decide whether to purchase a Japanese automobile. In the face of these challenges, firms adopt risk-management techniques to help them operate in an often challenging Chinese society.

Corporate social responsibility (CSR) activities are strategies used by Japanese firms to counter the negative consequences of anti-Japanese nationalism in China. They include local health, education and environmental initiatives, but also social and cultural programs designed to foster pro-Japanese sentiment in China and, not surprisingly, among Chinese consumers. Corporate social responsibility activities that focus on social change include educational and cultural exchange programs which mirror ‘heart-to-heart’ diplomacy efforts and can be likened to the soft power initiatives used by diplomats. Firms invest their money in social and cultural activities in China with the goal of improving Japan’s image and increasing their bottom line.

A student exchange program run by the Japanese Chamber of Commerce and Industry in Beijing, known as ‘Experience Japanese companies; Come close to Japan’ shows the benefits of corporate social responsibility activities. The program was born shortly after 2005, a period in which Japanese companies were facing a fierce anti-Japanese backlash.

Around 100 companies donated a total of just over 200 million yen (US$1.8 million) to bring young Chinese men and women to Japan on exchange trips. Toyota alone donated 100 million yen (US$907,000). Remarkably, even after the fishing boat incident around the disputed Senkaku/Diaoyu Islands in 2010, the program continued, though similar state-sponsored programs were cancelled.

The program continued after the islands’ nationalisation in 2012, despite Japan–China relations remaining tense for more than a year. There was an additional round of private donations amounting to almost 200 million yen from 74 companies in 2012. The program continues today.

The firms that participate in or contribute to these programs are likely to have experienced nationalist anger that affected their business. Their investments do offer some insulation against the negative effects of geopolitics. For the firms that contributed most, the chance of being targeted in 2012 versus 2005 fell by 40 per cent — though the program is of course only one factor of many that contributed to this outcome. With only two exceptions, these firms continued to donate in the second round of fundraising, indicating confidence in the program’s effectiveness.

Chinese participants in the program also emerged with more positive views of Japan. The chamber of commerce report s that ‘among participating students, quite a few went on to work in Japanese corporations or Chinese companies operating in Japan, and in the process further promoted friendly exchanges between the two countries’.

Firms attempt to shape certain attitudes in Chinese society to create a business environment that is more hospitable to their interests. By promoting a positive image of contemporary Japan and separating the image of Japanese society and business from its history or elite politics, they hope to soften anti-Japanese sentiment. When the Japanese government decides to increase its security presence around the Senkaku/Diaoyu islands, retailer Ito Yokado does not want to have to deal with anti-Japanese demonstrations or property destruction. When a new history textbook is approved that plays down Japan’s imperialist past, Japan Airlines does not want to see its ticket sales plummet.

Firms have long used corporate social responsibility instrumentally to mitigate business risks and as reputational insurance against labour, environmental, legal, or other crises. Members of the business community in Japan have suggested that contributing to Chinese society in this way is the most important strategy for firms because it addresses the overall problem of Japan’s poor image in China, rather than simply treating the smaller symptoms. Anime exhibits, Japanese-language competitions, or programs like that of the chamber of commerce seek to present a Japan that is broadly appealing and distant from geopolitical rivalry or conflict.

Social strategies by firms represent a set of non-economic measures to protect their economic interests and are political in their consequences — the firms are not only providers of commercial products or employment opportunities, but also merchants of their home country. They are drivers of informal public diplomacy, funded by the private sector. As Japan moves to play a more active security role in East Asia, its highly globalised firms will need to accelerate their efforts to insulate themselves from politics and promote the best aspects of Japan culture and society.

Japanese firms are not alone in being targeted for the behaviour of their home government. With the rapid expansion of foreign direct investment globally, host governments and societies hold companies responsible not only for economic or business behaviour, but also for the policies endorsed by their country of origin. In East Asia today, South Korean companies in China are experiencing economic retaliation and discrimination following the deployment of the THAAD anti-missile system.

The lessons to take away from the public diplomacy efforts of the Japanese private sector extend beyond the Japan–China relations. While it is not the duty of the private sector to undertake public diplomacy, multinational firms may find it prudent to sell softer and kinder versions of their home country to countries with which they seek to do business.

Kristin Vekasi is Assistant Professor in the Department of Political Science and School of Policy and International Affairs at the University of Maine.

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Japan repositions’.