America’s and Japan’s emerging geopolitical trans-pacific partnership

The Trump Administration’s furore over its trade standoff with an unyielding government in Beijing is rapidly evolving into an orchestrated series of targeted assaults on China’s corporate interests on both sides of the Pacific Ocean. Washington’s most recent salvo involved calling in a favour from its close northern neighbour to assist in detaining Chinese telecoms giant, Huawei Technology Co Ltd’s Chief Finance Officer, Sabrina Meng Wanzhou – a task the Canadians undertook at the risk of poisoning their own relations with Beijing. Subsequently, in a likely tit-for-tat response, China’s authorities arrested a former Canadian diplomat.

Meng’s shock detention by Canada’s law enforcement officials, on December 1st 2018, notably took place in the country’s Pacific Ocean coastal city of Vancouver – long a powerful symbol of Canada’s open-door policy to immigrants and wealthy investors from China, and overseas Chinese communities across East Asia. But, as Washington has extended the long arm of US law across the border to Vancouver, Canada’s once free-spirited horizons may soon become a fading nostalgic memory.

Tokyo follows Washington’s lead in banning China’s telecoms makers

Several days later, on December 10th 2018, on the other side of the Pacific, the Japanese government announced its intention to effectively prohibit Huawei, in addition to China’s other large telecoms equipment maker, ZTE Corp, from participating in government procurement contracts on grounds of national security.

The ban, which comes into force in April next year, does not mention the two companies specifically by name. This is probably due to erstwhile China-hawk Prime Minister Shinzo Abe’s reluctance to undermine the recently improving, albeit hard-earned, relations between Beijing and Tokyo. Even so, the ban covers telecoms products that may compromise confidential data that could adversely impact national security, a policy coverage basically tying into the supply of such equipment by China’s two global high-tech brands.

Tokyo’s decision to implement the ban follows on a few months after such measures were first put into place by Washington, and then by its allies in Australia and New Zealand. Reportedly, Japan’s authorities were considering their moves since Washington took action in August 2018. However, by that time, Japan’s government faced a conflicting set of interests.

On the one hand, Abe was set on course to reverse a policy of poor relations with China, while on the other, Japan’s closest, yet unpredictable, ally in the form of Donald Trump’s Whitehouse, was ramping up its trade and institutional rivalry with Beijing.

As a halfway measure, the Japanese government eventually chose to follow Canberra’s path – which, like Japan, benefits from strong economic ties with China – by adopting the ban without directly naming the two Chinese companies that would effectively fall foul of the ban.

What do the arrests of Carlos Ghosn and Meng Wanzhou share in common?

A seemingly unrelated event to Washington’s orchestrated arrest of Meng and the various bans on Huawei and ZTE, but no less significant in its possible geopolitical ramifications, was the detention of Renault-Nissan alliance’s Chairman and CEO, Carlos Ghosn.

The reasons for Ghosn’s detention by Japanese authorities have since been subject to frenzied media speculation. Yet, on the same day, December 10th 2018, when the Japanese government announced the measures banning Chinese telecoms products from its public tenders – Ghosn was formally charged in Tokyo with financial misconduct for under-reporting his income.

Shortly after the charges were filed, reports surfaced in the international media of a corporate battle for control of Nissan between Ghosn and the Japanese Nissan CEO, Hiroto Saikawa. Perhaps, though, there was more to this than just another conventional boardroom tussle for control? After all, Ghosn’s three-week detention, without charge, is almost unprecedented in modern corporate history, not least because of Ghosn’s global executive superstar status.

Here was a world-leading business personality inexplicably whisked away into a windowless Tokyo police station cell, without a single photo of him or any details of where, or why, he was held in custody being publicly released. Naturally, in these circumstances, one has to ask why it took Japan’s criminal prosecutor up to three weeks to raise a charge for financial misconduct?

The answer may be found not so much in the evidence now being cobbled together, and gradually being made public, about Ghosn’s income tax evasion, but equally in the turbulent geopolitical climate that has arisen around the time of his controversial detention in Tokyo –mirroring Meng’s more recent shock arrest in Vancouver.

One could argue that equating the situation surrounding Ghosn with that of Meng is somewhat like comparing chalk with cheese. The geopolitical issues surrounding Meng are more clearly obvious.  She is a senior corporate officer and daughter of the founder of China’s premier telecoms equipment manufacturer, a company which has been accused of breaking US sanctions on Iran, over a number of years.

At first, the geopolitics surrounding the case of Ghosn, who headed the Renault-Nissan-Mitsubishi industrial alliance, a part-French state-owned and Japanese co-venture, is not that apparent. Even so, the geopolitical issues equating the two international corporate high-fliers may lie in Ghosn’s reported single-handed championing of a high-profile joint venture between Nissan and China’s Dongfeng Group. This, much less internationally-renowned car company, is arguably China’s most prominent state-owned automaker, whose origins are famously attributed to the founder of Communist China, Mao Zedong.

The geo-politicisation of China’s rising corporate power

Of course, Nissan has not been the only Japanese company to co-venture with Chinese state-owned carmakers. Both Toyota and Honda forged such alliances much earlier than Nissan. The difference was that, unlike the Japanese-run management of the former two companies, Ghosn held a unique position, as a foreigner who headed a couple of major Japanese automakers – Nissan and Mitsubishi Motors – a privilege otherwise exclusively exercised by the Japanese themselves.

At the same time, Ghosn managed to wield significant power within the tripartite alliance, particularly after turning around loss-making Nissan, by proceeding to invest large sums of Nissan’s capital, technology and management know-how into creating what he referred to as ‘a leading world class “Chinese” car company’.

For many powerbrokers in conservative Japan, Ghosn’s leadership of Nissan in building a global state-affiliated Chinese brand may be considered as no less than a betrayal of trust by a foreigner who surrenders Japanese know-how and capital to China without sufficient regard for Japan’s national interests, which hitherto had been closely guarded by Japanese corporate business leaders in their overseas dealings. The first signs of corporate Japan’s unease with Ghosn’s China ambitions may have emerged a couple of months prior to his detention. According to a recent report by Bloomberg media, Nissan had informed its JV Chinese partner, in June 2018, of a large but unscheduled cash repatriation back to Japan. What was particularly unusual about this report’s unnamed source leak was that if such a policy was affected, it would be a reversal of the practice of reinvesting profits back into the local venture.

As a conclusion to the rapidly-evolving circumstances surrounding Ghosn and Meng, both these powerful corporate figures may have become, albeit for different reasons, unwitting pawns in an emerging geopolitical power play. Its principal intent would be to restrain China’s rising corporate power status through the creation of a new geopolitical trans-pacific anti-China alliance between the US, Canada, Australia and Japan, with other Pacific states potentially to follow. An alliance that may, in coming years, broaden its assault on Chinese companies across a range of industries, beyond its currently embattled telecoms sector.

About the GPI

The Global Policy Institute is a research institute on international affairs. It is based in the City of London, and draws on both a rich pool of international thinkers, academics as well as policy and business professionals. The Institute gives non-partisan guidance to policymakers and decision takers in business, government, and NGOs.