Assessing the Japanese “Sino-ASEAN” Offshore Balancing Strategy —Based on Granger Causality Analysis

Abstract

This research aims to explore whether Japan has intended to offshore balance its trade between China and ASEAN countries or not, as well as the effectiveness of this assumed strategy. By employing monthly trade data of the Chinese and ASEAN countries' proportion in the Japanese commodity trade during 2001 to 2020, we conducted short-run Granger causality analysis on the basis of vector error correction (VEC) models and found that: 1) Japan has not had clear short-run intentions to offshore balance China in commodity trade. An increase in the Chinese proportions will decrease the Japanese proportion of import (SE=-0.048, p=0.016) and export (SE=-0.092, p=0.015) from ASEAN countries; 2) the Japanese import from ASEAN has a marginally significant negative effect on the Chinese share in the Japanese export (SE=-0.195, p=0.066), implying that the hypothesized "offshore balancing strategy in trade" has been partially effective by means of restricting the Japanese export dependence to China. However, it does not mean that China can relax the vigilance. China should prepare to take countermeasures and actively respond.