Hedging Against China: Japanese Strategy Towards A Rising Power

ABSTRACT Debates about how states deal with rising powers have been mainly concentrated on a continuum comprising on balancing and bandwagoning strategies. While theory has principally offered realist and liberal explanations, Japanese behavior vis-à-vis China does not match with them. Japan is not powerful enough to balance against China but remains too strong to bandwagon. Accordingly, Tokyo is pursuing a mixed strategy of both containment and engagement, which may be better described as a hedging strategy against Beijing. This article analyzes which strategies states can adopt when dealing with a rising power and proposes a framework to analyze Japan’s recent policy towards China based on Kuik’s analysis. We argue that Japan’s hedging strategy towards China is consistent with how middle-power states deal with rising power.

For more than 50 years, Japan's foreign policy was strongly marked by its defeat by the allied powers in World War II and the beginning of Cold War bipolarity. In addition to becoming an economic superpower and establishing constitutional pacifism as the bedrock of its political system, Japan also became an "outstanding partner" for the United States. This formulathe so-called Yoshida doctrinepermitted Japan to focus on economic growth and wealth, leaving security matters to the United States. Despite the anomaly that Japan represented during this period of bipolarity, its strategy allowed the country to achieve security and prosperity. However, the Yoshida doctrine was not designed for the uncertain post-Cold War order.
Following almost five decades of occupying this "abnormal" place on the world stage, Japan entered a new period in which new challenges have arisen as a consequence of changes in both the international and domestic systems. For Japan, the demise of the bipolar system meant that the Soviet Union was no longer the most significant threat to its security. At the same time, the collapse of the political party system in 1993 had a major impact on Japan's institutional framework, facilitating a more pro-active and assertive global profile. In post-Cold War Japan, therefore, the country's main concerns can be said to be the fear of abandonment and entrapment by the United States, the relative decline of its economy, the ongoing threats posed by North Korea to Japanese territory, and, last but not least, the uncertain rise of China.
In particular, the re-emergence of China as a regional and global power has become an issue of special concern in a period of multi-polarity and power transition, and Japan's strategy towards the rise of China in the post-Cold War period is significant for several reasons. First of all, although Japan is not the main player that has to deal with the systemic issue of the rise of China, the Japanese reaction to the re-emergence of China will be an essential factor in determining the balance of power in East Asia. The two countries are the most powerful actors in this region and their strategies towards each other have regional and global consequences for the balance of power. In world history, Chinaas a rising powerand Japanas a declining powerhave never before shared equal power status at the same time, and so, like two large carps in a small pond, they must confront each other in troubled waters.
Secondly, Japan remains the US's most important ally in the Asia-Pacific region, and as such, Japan's response to China's rise has a great impact not only on the US-Japan alliance but also on US strategy vis-à-vis the rise of China. Thirdly, Japan and China have great mutual economic interests, both in terms of trade and investment, and their economic interdependence has grown in recent decades, with obvious consequences for regional and global economies. Lastly, Japan has to devise a China strategy consistent with its overall foreign policy for the 21st century: a course that is coherent with what has been described as the "normalization" of Japanese diplomacy. In order to find its place in the world, Japan must decide how to deal with China's rise. 1 This onerous task means charting the right course between a declining United States and the uncertain emergence of China.
Assuming that Japan can be considered a "middle power," from the 1990s onwards, it can be seen to have been pursuing a "hedging" strategy in its relations with Beijing. Although China probably represents the greatest potential military threat to Japan, in order to avoid tensions between the two, it has not been officially recognized as such. Japan is not balancing against China but neither is it bandwagoning with it or taking a neutral stance to the rise of China. If Japan were a superpower with hegemonic ambitions, Tokyo would no doubt have pursued a pure balancing strategy. However, it has followed a middle course, adopting a hedging strategy coherent with its middle-power status.
The central argument of this article is that Japan has pursued a hedging strategy during the post-Cold War era , which is best analyzed in terms of Kuik's 2 understanding of hedging, rather than by applying alternative interpretations of the concept. 3 This article therefore provides an insight into the conceptualization of hedging as a strategy in International Relations (IR). Although a considerable number of studies have examined the rise of China and the reaction of other states to it, very few studies to date have sought to do so by applying the concept of hedging from IR theory and security studies in a systematic, coherent, and rigorous fashion. There is a tendency in the literature to consider recent changes in Japan's security policy as a desire to become a militaristic power or even as a return to Japan's pre-war regime. However, as this article demonstrates, after the Cold War, Japan is an abnormal middle power that seeks to normalize its position in the international system in line with its economic and diplomatic weight.
This study is divided into four sections. Following on from this introduction, the second section outlines the different approaches offered by IR theorists regarding the way in which countries might behave towards a rising power. It is widely held that states either balance against a rising power or bandwagon with it; yet, as this article shows, an array of alternatives arise if we do not limit ourselves solely to these two mainstream schools in IR. Given the theoretical limitations, this article proposes an appropriate framework in which to analyze Japan's China policy, adapting Kuik's hedging concept to the case of Japan. In the third section of the article, we examine the recent evolution in Japan's policy towards China in the post-Cold War era and describe how Japan's strategy has shifted away from "friendship diplomacy" towards a new paradigm that is better described in terms of the hedging concept. In the fourth section, we apply this hedging framework to the recent evolution in Japanese foreign policy in order to determine whether Kuik's framework fits the Japanese case. In the final section, we draw our conclusions and offer some final remarks.

International relations theory and rising powers
IR theory provides an array of competing perspectives and paradigms that are generally regarded as mutually exclusive. In the middle of this heated paradigmatic debate, it is crucial to observe how the literature has sought to explain the behavior of states in periods of power transition. The leading voice of offensive realism is that of John J. Mearsheimer, who, in The Tragedy of Great Power Politics (2001), analyses how great powers behave and why they decide to go to war. One of Mearsheimer's main assumption is that state's intentions can be benign one day and hostile the next, therefore no state can be sure whether or not another state will initiate an aggression. 4 Accordingly, survival is the primary goal of any power, and the "lust for power" causes states to compete with each other to maximize their share of it. Whereas all states have revisionist intentions and there are no status quo powers in the international system, it is highly unlikely that a state will attain global hegemony. 5 Thus, the world is condemned to "perpetual great-power competition," which is a cruel and no less pessimistic description of the world. 6 An additional assumption is that states are rational actors behaving in an anarchic world, and they are inclined to behave strategically when it comes to survival. When the costs of altering the balance of power are too high, states tend to bide their time until the risks are not so great.
In seeking to respond to the question as to how states react to a rising power, Mearsheimer identifies four possible strategies: bandwagoning, appeasement, balancing and buck-passing. The first strategy involves joining forces with a more powerful opponent in the hope of sharing some of the benefits with the ascendant power. Nevertheless, betting on the "surefire winner" in the hope of obtaining economic benefits is clearly a strategy for the weak. In the case of the second strategy, appeasement, Mearsheimer claims that states choose this approach so that they can "push the aggressor in a more pacific direction and turn it into a status quo power." 7 Considering that states react to hegemonic powers as they feel "vulnerable," this strategy seeks to downsize that sense of insecurity and, consequently, the reasons for possible aggression.
However, in the real world, states tend to consider the worst-case scenario and so adopt a balancing strategy, which can take the form of either internal or external balancing. When states balance internally, they seek to increase their own military capabilities to counter the rising power; when they do so externally, they seek alliances with other states to balance against a threatening state. Lastly, states adopting the buckpassing strategy seek to transfer the burden of deterring or attacking a rising power. States are quite likely to adopt this strategy in multi-polar systems and highly unlikely to do so in bipolar systems.
Unlike realists, liberals and constructivists consider the international system as being governed by a set of rules and agreements. The absence of a central government in the international system, far from impeding cooperation, facilitates stability. Consequently, order does not emerge from the balance of power but rather from different levels of government made up of institutions, laws, agreements, standards, and norms. Yet, how do weaker states deal with a rising power? According to liberals, weaker powers tend to cooperate with stronger states and to induce favorable intentions by promoting economic relations and by including rising powers in international institutions. Constructivists believe a peaceful rise is possible, but it must be a two-way process, in which the rising power accommodates itself to the rules and structures of international society. 8 However, none of these theories seems to offer plausible explanations for Japan's reaction to China's rise. Contrary to what many realists suggest, 9 Japan is not becoming a great military power. Even though Japan has the capacity to become a nuclear power and could change its military doctrine of "defensive defense" to one of "offensive defense," it has chosen not to develop its capabilities in an offensive way. Constitutional limitations 10 and Japanese anti-militarism do not make the country's remilitarization impossible; however, it is highly unlikely. According to an opinion poll conducted by Asahi Shinbun in May 2016, 55 percent of public opinion is against making changes to Article 9, compared with 48 percent in 2015. 11 As Midford states, no other second-ranked economic power has preserved such a limited defense capability in recent world history. 12 Japan is not powerful enough to deal with the systemic problem of China's rise alone and must rely on the United States to handle the question of power transition. At the global level, the United States is the only superpower capable of dealing with the rise of China on its own. Yet, at the regional level, it needs Japan when dealing with China, since middle powers remain essential to great powers to help reduce regional security dilemmas within an uncertain multi-polar system. 13 Finally, if we consider Japan a middle power, such states do not adopt pure forms of balancing or bandwagoning 14 but rather a mixed strategy. This is what we analyze in the following section.
Hedging as an answer to rising powers As we shall see in Section 3, the empirical evidence indicates that Japan, contrary to realist arguments, is willing neither to balance against Chinese power nor to bandwagon with it.
Moreover, neither is Japan pursuing what liberals suggest should be the normal path: economically engaging China in order to benefit from trade and investment with the rising power. Recent trends in Chinese-Japanese relations show how, despite their mutual economic interdependence, neither country is adhering to a purely cooperative strategy but rather that they have adopted elements of a hedging strategy. In short, Japan currently adheres to a mixed strategy, described by various authors as a hedging strategy. 15 Yet, most of these studies do not examine the theoretical concept in any great depth and apply it in a very broad sense, with a meaning that ranges from simple engagement to more complex counterbalancing policies. Indeed, the concept has come to be understood as an "umbrella term" capturing various strategies that embody a combination of policy responses. 16 . This lack of consensus on the origin, definition, and use of the term in the literature highlights the inconsistencies in most of the analyses of the concept of hedging. Pascall 17 has attempted to systematize and classify the hedging literature into two groups: a first approach considers hedging as a "security-focused strategy" that is distinct from pure balancing policies, while a second approach regards hedging as a "combination strategy," in a comprehensive foreign policy that simultaneously combines elements of engagement and balancing.
One of the first authors to see hedging specifically as a "security-focused strategy" was Denny Roy, whose coining of the term provides us with a good starting point for our discussion. Roy argues that in facing a potential regional hegemon, states have four choices: balancing, bandwagoning, engagement, or hedging. Accordingly, states adopt a hedging strategy (which may or may not include balancing) when there is a high degree of uncertainty about a rising power's real intentions. As such, hedging is understood as a general strategy that entails "keeping open more than one strategic option against the possibility of a future security threat." 18 While it is true that Roy does not develop the concept theoretically and does not propose a model applicable to middle powers, he does contribute one fundamental idea: in the international arena, risks and imminent threats determine when a state must decide whether to accept, accommodate, or reject a given rising power. Mearsheimer claims that when a state perceives an imminent threat, it balances, bandwagons, or adopts other intermediate strategies, such as appeasement or buck-passing. However, what happens when the threat is not so obviously imminent? In such circumstances, Roy suggests that powers tend to hedge.
Further relevant contributions adopting a "security-focused strategy" include Mochizuki and Hornung's studies of Japan's strategic response to the emergence of China. In "Japan's Shifting Strategy toward the Rise of China" (2007), Mochizuki defines Tokyo's response as constituting a form of hard hedge. However, he considers hedging (in either its soft or hard versions) as a complement to engagement but not as a general foreign strategy in its relations with China. Jeffrey Hornung has also recently undertaken a rigorous, in-depth analysis of Japan's response to the rise of China, in which he identifies a spectrum of strategies ranging from pure balancing to pure engagement. 19 Between these two extremes, he locates the strategies of soft and hard hedging. For Hornung, a soft hedge involves fostering cooperatives policies with the rising power, including the promotion of diplomatic and economic ties. In contrast, a hard hedge involves adopting a set of strategies more similar in nature to balancing, including the beefing up of one's defensive capabilities or the forging of alliances with other powers.
Although Hornung undertakes a highly systematic analysis of Japanese strategy vis-à-vis China and illustrates how Japan is employing policies that combine elements of both engagement and balancing, his framework of enquiry presents three weaknesses. Firstly, he considers engagement, not balancing, as the opposite strategy to that of bandwagoning, arguing that the former depends on cooperative policies and the promise of rewards, as opposed to the use of force. For the author, bandwagoning is the strategy of weak states. However, the term bandwagoning has been used elsewhere not only to mean aligning oneself with the most powerful ally in order to avoid being attacked 20 but also as a way to obtain gains and rewards from allying with the most powerful state. 21 Thus, bandwagoning constitutes an option for weaker states, which want to offset the risk of being attacked, and an engagement strategy for middle powers, which view an alliance as a positive-sum game.
Secondly, for Hornung, hedging does not constitute a set of multiple options that can be employed simultaneously. Although the author identifies hedging as a strategy that combines elements of both engagement and balancing, in his analysis of Japan's strategy, the term, and its different degrees (both hard and soft), is ultimately used as a synonym of balancing. Hornung does not employ the term hedging as an intermediate strategy that might simultaneously include a mix of tools of cooperation and containment; rather, hedging is understood as a form of engagement or balancing, or at the most, a binding mechanism, and not as a complex and systematic concept.
Finally, the notions of "uncertainty" and "risk" are treated in Hornung in line with realist tenets, that is, understanding them in political or military terms. However, a distinction needs to be drawn between imminent and non-imminent risks. When a country such as Japan faces no imminent threats, it tends to hedge. However, what occurs when a country faces a direct threat? In such circumstances, countries do not adopt an engagement policy but a pure balancing or bandwagoning strategy.
In the case of the second approach, that is, hedging seen as a "combination strategy", several authors consider hedging, not as a security-focused strategy, but as an approach that characterizes a country's overall foreign policy. 22 Heginbotham and Samuels 23 , in a study of Japan's strategy towards China, describe what they call a dual hedge, that is, when a state builds an alliance with a second country but, at the same time, adopts a strategy of economic engagement with other countries in order to hedge its bets. In a later article, Samuels 24 argues that some statesspecifically Japanadopt a "Goldilocks strategy," that is, an intermediate position between balancing and bandwagoning. Although these studies seek to identify hedging as a comprehensive foreign policy, none of them presents a meaningful, analytical model. Moreover, they fail to account for the fact that there can be varying degrees of hedging. In fact, most of these authors build upon the concept of hedging in such a broad manner that it might include any kind of foreign policy behavior, and thus, it tends to lose any analytical value it might have had.
Kuik provides one of the first systematic theoretical analyses of hedging behavior in IR. As explained below, he does not only theorize about this underdeveloped concept, he also builds a model of considerable analytic value that facilitates the measurement, comparison and understanding of different hedging attitudes across countries and time. 25 According to the author, the concept of hedging refers to "a behavior in which a country seeks to offset risks by pursuing multiple policy options that are intended to produce mutually counteracting effects, under the situation of high uncertainties and high stakes." 26 In common with Mearsheimer and Roy, Kuik reminds us that in the realm of international politics, risks, and imminent threats are what make states accept, accommodate, or reject a particular rising power. When a state perceives a rising power as an imminent security threat, it will pursue a balancing strategy vis-à-vis the actor; in contrast, when a state views an actor as a principal source of aid, then it is likely to opt for bandwagoning. Yet, what occurs when a state does not perceive any imminent or obvious threat? When states are unable to develop overly close or overly distant relations with a major power or when they are unsure as to which bandwagon they should "jump" on, they have a tendency to hedge. Hedging is a strategy that "aims for the best and prepares for the worst." 27 Kuik considers hedging as constituting a set of policies that simultaneously pursue counteractions aimed at maximizing options and avoiding risks. On the one hand, there are the return-maximizing options, which include economic pragmatism, binding engagement, and limited bandwagoning. The term "economic pragmatism" is defined in Kuik as an attempt to maximize gains from a rising power through the establishment of direct trade and investment links, in spite of any political or security concerns that might exist between the two. 28 The middle power, without accepting or denying the political authority of the rising power, regards the latter as an economic power that provides it with economic opportunities.
The concept of binding engagement refers to the situation in which a middle power decides to establish formal contacts with a rising power in the hope of creating channels of communication and of socializing the power into the established order, with the ultimate goal of influencing the power's policy choices. The middle power seeks to ensure that the rising power forms part of the international community, adheres to status-quo norms and is a responsible stakeholder thereof.
Other states adopt a limited bandwagoning approach to the rising power, which consists of forming a political partnership in order to obtain present or future rewards from it, without losing any autonomy or eroding its current relationship with any other dominant power.
On the other hand, there are various risk-contingency options that entail indirect balancing and dominance denial. Dominance denial is adopted when a country seeks to prevent or deny the emergence of a rising power in a region where it might pose a challenge to the status quo. Two actions can contribute to this process: the involvement of other powers in regional affairs and the development of its own diplomatic and security tools. While binding engagement aims at engaging the rising power in a region, dominance denial seeks to prevent its dominance and any hegemonic desire it might entertain.
Finally, indirect balancing involves balancing militarily (both internally and externally) the uncertain power of a rising state, without specifically recognizing that it constitutes a military threat. By adopting this strategy, a middle power seeks to forge an alliance with other powers, while at the same time modernizing its defense capabilities but without specifically targeting the rising power. While pure balancing strategies represent a clear-cut military policy of containment against a specific threat, an indirect balancing strategy sees a state acting in case an uncertain situation arises.
As this analysis of hedging has shown, Kuik's (2008) model provides the most overarching approach to the concept, incorporating all the elements identified in the literature. It does not solely consider hedging along a continuum that runs between balancing and bandwagoning; it also includes elements of diplomacy, security, economics, and bilateral and multilateral interactions. Furthermore, Kuik contributes to the conceptualization of hedging by developing the ideas of "risk contingency" and "return-maximizing," and by presenting it as a comprehensive foreign policy and not limiting it to two separate economic and security strategies. Finally, and unlike most previous studies, Kuik's model comprises different degrees of hedging, not just heavy or light hedges, but an array of options in between.
Although Kuik uses his hedging model to account for the behavior of small states (primarily in South-East Asia) in the face of a rising power, it is our firm contention that this same concept can be used to explain the behavior of a middle power like Japan. To identify a middle-power state, the most traditional approach is to aggregate material criteria and to rank economic capabilities. 29 However, this approach overlooks a very important quality of any middle-power state, namely, its behavioral attributes. Jordaan 30 offers a more complete characterization that sees a middle power as an actor that is stable, wealthy and democratic, and which employs a foreign policy centered on the taking of multilateral initiatives. Moreover, a middle power seeks to be a stabilizer of the current global order and does not attempt to jeopardize it.
In analyzing the concept of 'middle power' as applied to Japan, the most frequently adopted definition is that proposed by Yoshihide Soeya. 31 Thus, the chief characteristics of Japan as a middle power are its (a) commitment to multilateralism; (b) the high degree of civil society participation that occurs in its foreign policy; and (c) a national identity inextricably tied to peacekeeping activities, human security, and comprehensive security.
This definition is very much in line with our own understanding of a middle power and facilitates our understanding of Japan's current role in the international community. Japan is neither a small nor a great power. Although it has the capacity to become a great power, since 1945, it has opted not to take this path and to concentrate instead on its middle-power profile on the international stage. In spite of Shinzo Abe's recent measures in the realm of security, Japan continues to adhere to a diplomacy that is committed to multilateralism, peacekeeping operations, and limited participation in security activities.

Japan's policy towards China
In order to understand recent changes in Japan's policy towards China and to comprehend its current hedging strategy, in this section, we outline the policy evolution from two perspectives: first, in terms of Japan's political and security relationship with China from the 1970s down to the present day, and second, in terms of their economic relationship over the last 40 years. In so doing, we consider not only Japan's strategy as two faces of the same coin, but we also identify the distinct paradigms adopted by Japan during the Cold and post-Cold War periods.

Politics and security
The basic framework of relations between Japan and China lie in the 1972 Sino-Japanese Communiqué and the 1978 Treaty of Peace and Friendship, which normalized diplomatic relations between the two countries and ushered in almost 20 years of uninterrupted cooperationa period referred to by both parties as an "era of unprecedented friendship." In line with a policy of seikei bunri, that is, the separation of economics and politics, China and Japan began to promote mutual trade deals and Official Development Assistance (comprising loans, grant aid, and technical cooperation) aimed at promoting stability and growth in China. 32 This assistance program represented a form of compensation for the damage inflicted on the Chinese people, but Tokyo was very much of the opinion that a prosperous China would make a good friend.
However, in this period characterized by the so-called "friendship diplomacy," a certain amount of friction was evident in the relations between the two countries. The main disputes centered on Japan's military past and controversies concerning its recognition of history. Although Japan officially expressed its deep remorse (fukaku hansei) in the preamble to the 1972 Sino-Japanese Joint Communiqué and later issued an apology (owabi) for its aggressive past, the situation was soured by the Japanese school textbook issue in the early 1980s, 33 a series of controversies caused by the publication of revisionist history textbooks that described Japan's imperial past in a benign vein. Following protests and riots in China against this historical revisionism, the Japanese government introduced a series of non-revisionist guidelines.
In this period of transition of China to a market economy, any tensions in the post-normalization process were framed in a structure that permitted both countries to ignore any matters that might give rise to immediate trouble, thereby allowing both parties to enjoy an apparent friendship. 34 Conflicts, rather than being solved, were "shelved," their resolution being put off for a later date. In cultural terms, both countries were concerned about their public face (tatemae), but they did not go very far in resolving frictions and eliminating feelings of mistrust (honne).
However, it was not until the Tiananmen Square incident in June 1989 that the first cracks began to appear in the "friendship diplomacy." Although Japan imposed only light sanctions on China, 35 several incidents strengthened the idea that "friendship diplomacy" was insufficient to persuade China to behave benignly. Since that date, various developments, above all in the security realm, have shifted Japanese perceptions about China in a negative direction.
The ongoing dispute over the Senkaku/Diaoyu Islands, the Chinese Law of the Territorial Sea of 1992, 36 Chinese nuclear testing (1995) and military exercises in the Taiwan Strait during the Taiwanese presidential election in 1996, the Exclusive Economic Zone (EEZ) dispute, and China's military build-up were all matters that gave the Japanese government cause for concern and cast doubts on China's rise as an emerging power in the new century. Yet, rather than adopting a pure balancing strategy, in the years following 1996, Japan initiated a mixed strategy that included elements of engagement with and moderate balancing against China's rise.
Thus, following an initial period in which Japan feared it might be abandoned by the United States, Tokyo and Washington strengthened their alliance to safeguard Japan's security and uphold regional stability. The 1996 Joint Security Declaration signed by Hashimoto and Clinton, the 1997 New Defense Cooperation Guidelines, along with undertakings to conduct joint technical research on Ballistic Missile Defense, demonstrated both parties' willingness to reaffirm the alliance. In addition, soon after this, Japan started to build up its defense system and purchased ballistic missile defense capability. China complained that Japan might use this capability in a hypothetical Taiwan-China war, with Japanese ships combining with US forces to defend Taiwan. At the same time, a more proactive Japanese foreign policy in the security realm, combined with US insistence that Japan should contribute to regional and international security (and so abandon its hitherto position as a free-rider), mean this alliance has become the lynchpin of US strategy in Asia. Following a period in which the US sought to rebalance its strategy, and after a shift in the center of gravity away from the Atlantic to the Asia-Pacific region, the alliance with Japan remains the cornerstone of peace and stability in the region. Under the new US administration, the alliance remains the keystone of President Trump's Asian policy, although he appeared to cast some doubts on its future at the beginning of his campaign. In 2017 President Trump declared: "We are committed to the security of Japan and all areas under its administrative control and to further strengthening our very crucial alliance," 37 a clear sign that the alliance remains robust and will be strengthened by the new president.
In the interim, North Korea has become the main official threat to Japan's security, particularly after the build-up of tension in 1993-1994 in response to North Korea's nuclear program and its firing in 1998 of Nodong-and Taepodong-type missiles over Japan, followed by nuclear tests conducted in 2006, 2009, and 2013. However, when it comes to China, Japan has deliberately pursued a more ambiguous strategy and rhetoric. In the 1996 Joint Security Declaration, Japan referred to China as a country with which cooperation was extremely important for reasons of regional stability and prosperity, although it left these words very much open to interpretation. Officially, Japan's deployment of its ballistic system at that time was aimed at combating North Korea's persistent threat to the country's integrity. It was not until the end of the 1990s that China and Japan began to identify each other as strategic rivals.
One of the main concerns for Japan stems from the lack of transparency in China's increasing military expenditure and the unclear intentions behind its military build-up. According to Defense of Japan 2006, China's defense expenditure might be even higher than officially reported, since no equipment procurement or research and development costs are included in official figures. Although China's military budget in 2015 was declared at around 145,900 million dollars, according to SIPRI the real expenditure is probably about 214,500 million dollars, that is, a rise of near 8 percent on the previous year. Moreover, in the last 25 years, China's military expenditure has increased more than thirty-fold, and Japan's fear is that the actual rate is much higher. Japan, on the other hand, adhered to its policy of keeping its military budget below a ceiling of 1 percent of its GDP, until Shinzo Abe came to power. In 2012, total expenditure on self-defense stood at around 60,000 million dollars, a sizeable figure for a peace-loving country. However, in practice, the amount spent on defense is higher than that reported by the Japanese government, and if we estimate the expenditure in accordance with the NATO model (as employed by European countries), the amount is even greater. 38 Furthermore, if we include spending on the Japanese Coast Guard, a paramilitary force created to defend its maritime zone, the final figure rises notably. 39 Moreover, since the Chinese government's main security concern is maritime, its military buildup is concentrated in the naval field and Beijing is seeking to convert its fleet from a green-water into a blue-water navy with the acquisition of destroyers, submarines, and aircraft carriers. This, in part, accounts for the constant intrusion of Chinese vessels and warships in the EEZ in waters near to the disputed Senkaku/Diaoyu Islands and the Chunxiao gas field in the East China Sea. Since 2012, the number of skirmishes involving the Chinese and Japanese naval forces intensified considerably, reaching their zenith with the unilateral declaration of the East China Sea Air Defense Identification Zone over the disputed Senkaku Island in November 2013. As a direct result of this, between 2014 and 2016, Japan intercepted a record number of Chinese aircraft close to its territorial waters, above all in the vicinity of Okinawa, where, in September 2016, Japan's Air Self-Defense force detected more than 40 Chinese bombers. 40 Despite the security issues raised by China's action for the East Asian region, Japan responded with considerable restraint to the Chinese military build-up, constant maritime activity and lack of transparency. Indeed, the National Defense Program Guidelines of 2004, 2010 and 2013 do not refer to China as a "threat" but prefer more ambiguous terms such as "concern." 41 Japan considers a full-scale invasion from any country improbable and places the emphasis on new threats such as the proliferation of weapons of mass destruction and international terrorism.
After the victory of the DPJ at the 2009 elections and despite the expectations ushered in, Japanese foreign policy has not experienced any fundamental shift away from the Yoshida Doctrine. Beyond the noise caused by clashes with the United States over the Futenma Air Station, and with China over the Senkaku Islands, the DPJ failed to turn most of its manifesto promises into reality. Far from developing closer strategic ties with the major Asian states such as China, Japan has not weakened its alliance with the United States, opting to strengthen defense cooperation and mutual interoperability, and at the same time Tokyo has adopted several decisions in the security realm in line with those of the previous Liberal Democratic administration. However, the introduction of the 2010 National Defense Program represented a shift in Japan's traditional "basic defense force" stance to a more operationally oriented "dynamic defense" posture. 42 Following the election of Shinzo Abe in his landslide lower-house victory in 2012, Japanese foreign policy has undergone major changes, especially regarding its hedging strategy. The so-called "Abe Doctrine" is based on three main pillars: expanding Japan's defense capabilities, broadening the US-Japanese alliance, and strengthening security cooperation with third partners in the international community so that Japan can participate in certain coalitions in the security realm.
Japanese national security under the present administration embraces what Abe refers to as "proactive pacifism" (sekkyokuteki heiwashugi), that is, Japan is a "normal" country with the right to use military power to solve international disputes. To achieve this, and given the impossibility of amending the country's Pacifist Constitution, Abe opted in 2014 for a reinterpretation of Article 9, allowing Japan to exercise its right of collective self-defense should Japan and its citizens be exposed to a clear threat and there was no other way to repel the attack other than by the use of the minimal force necessary. 43 Critics claim that these new measures seek to introduce radical changes in Japanese foreign policy and that they constitute a direct balancing strategy against China. However, far from facilitating warmongering, the new interpretation of the right to collective self-defense means that Japan's Self-Defense Forces (SDF) can come to the aid of any allies that might come under attack, especially the United States, and indirectly balance against China in the event of an imminent threat by either increasing its own capabilities or in cooperation with its allies, most notably Australia and the Philippines.
At the same time, Abe's new National Security Strategy represents not only a strong commitment to the US-Japan alliance, 44 but also an attempt at improving Japan's capabilities of defending its own territory. The National Defense Program Guidelines (NDPG) for 2014 foresee the incorporation of a "Dynamic Joint Defense Force," that is, making JSDF more mobile and resilient in their objective of defending Japan from attack. Moreover, Japan has sought to pursue a dominance-denial option in its NDPG by enmeshing countries, such as South Korea and Australia, in a number of key security institutions, by transferring Japanese Coast Guard patrol ships to the Philippines and by transferring technical skills in Coast Guard operations to Indonesia and Malaysia.
This mixed use of policy tools should be seen as a strategy to help China stabilize its economy, as well as a way of ensuring the peaceful emergence of China as a new power and of boosting the chances of success of its modernization program. Consequently, Japan's strategy vis-à-vis China has moved away from the "friendship diplomacy" of the 1970s and 1980s towards a new paradigm that combines elements of both balancing and engagement. We consider the characteristics of the economic engagement policy in the following section.

Economic interdependence of Japan and China
During the 1980s, economic relations between Japan and China were based on long-term bilateral agreements. Japanese exports to China accounted for no more than 7 percent of all its exports, while Japanese imports from China accounted for slightly less than 5 percent of all the country's imports.
Owing to the strength of the yen, Japanese labor-intensive industries and electrical and electronic goods manufacturers opted to relocate to South-East Asia and China in search of high-quality, lowcost labor.
In the 1990s, trade became more diversified. Japan increased its imports of manufactured goods from China, especially traditional goods such as textiles, clothing, and footwear. 45 The volume of trade between the two countries continued to rise, climbing from 7.2 percent of total Japanese trade in 1990 to 20.9 percent in 2000. Imports of computers and other information technology products also grew, and in the case of some consumer electronic goods, such as televisions, sales of imported models outstripped those of domestic models. 46 Since the beginning of this century, China became the number one supplier of imports to Japan and the latter's most important export destination, surpassing the United States. At the same time, Japan's chief investment in manufacturing in China occurred via its search for cheap labor costs and its efforts to gain a foothold in the dynamic domestic market.
When China joined the WTO (late 2001), the liberalization of its market and its rapid growth attracted large quantities of foreign capital and increased the procurement of all kinds of imports. The Chinese procurement boom 47 created opportunities for Japanese exports at a time when Japanese industry was facing a stagnant domestic market. Japanese steel makers, shipbuilders, oil refineries, shippers, construction equipment manufacturers, and automobile manufacturers all saw a surge in their sales to China. Most of these industries offshored plants to China in order to reduce production costs and access the large and growing local market.
Hornung 48 claims that an indication of Japan's move towards a harder hedge is the reduction in its economic ties with China, specifically with regard to trade and foreign direct investment (FDI). Yet, China is Japan's largest trading partner in terms of total trade, and imports from China to Japan have grown steadily from 2000 to 2013. Exports from Japan to China also grew in 2009 and 2010, but the 2011 earthquake had a significant impact on Japan's automobile and electrical equipment industries; while exports of automobiles recovered in parallel with automobile production, exports of electrical equipment, mainly to Asia, took longer to recover. 49 As a result of the earthquake, sluggish growth in China and the rapid appreciation of the yen, Japanese exports to China fell from 19.68 percent of total Japanese exports in 2011 to 18.05 percent in 2012. A similar trend can also be observed in Japanese exports to their other major partners in Asia (Korea, Taiwan, Hong Kong, Malaysia, and Singapore). 50 During 2013, the depreciation of the yen boosted Japanese exports. On a customs clearance basis, total exports amounted to 69.8 trillion yen, up by 9.5 percent on the previous year, and the first increase in the previous three years. Exports to Asia increased by 8.6 percent and Japan's exports to China amounted to 12.6 trillion yen, a 9.7 percent increase on the previous year. Japanese imports from China amounted to 17.7 trillion yen. As a result, Japanese trade with China accounts for 20 percent of the total of Japan's imports and exports, confirming China as Japan's largest trading partner. 51 After the United States, China is the most important destination for Japanese FDI by country. According to Bank of Japan (2014) statistics, Japanese FDI in China jumped from 8.7 percent of total Japanese FDI in 2003 to 11.7 percent and 11 percent in 2011 and 2012, respectively. 52 However, as Hornung 53 points out, during the last period 2010-2013, there has been an acceleration of Japanese FDI into ASEAN. Table 2 shows Japan's outward FDI by country and region during the period 2009-2013. In 2011, Japan's FDI increased by 73.9 percent on the previous year, the first rise in three years; also in 2013, there was another sharp increase in Japan's FDI, partly reflecting the depreciation of the yen. 54 From 2010 onwards, Japan's investment in ASEAN countries has surpassed that in China, except in 2012 as a result of the impact of the floods in Thailand. 55 The hike in labor costs in China induced a trend towards the re-shoring of production bases from China. 56 Rising wages in China have led low-end manufacturers to look for other low-cost locations for their factories in Vietnam and the Philippines.
Intra-industry and intra-firm trade between Japan and China has become increasingly dominant compared to the inter-industry trade of the early 1990s, when China mainly exported labor-and resource-intensive goods to Japan, and Japan exported capital goods to China. China's changing export pattern is clear: exports to Japan of machinery and transportation equipment jumped from 3.8 percent of total Chinese exports to Japan in 1990 to 38.3 percent in 2007. At the same time, in 2007, Japanese exports of machinery and transportation equipment accounted for 52 percent of total Japanese exports to China. 57 A more detailed analysis of these patterns reveals that intra-industry trade is predominant in computers, computer parts, mobile phones and television parts. As China has emerged as one of the main destinations of Japanese FDI, intra-firm trade between Japanese parent companies and their affiliates in China has reinforced intra-industry trade between China and Japan. Leading manufacturing industries establish big plants in China, which are followed by parts and component manufacturers.
The increase in imports from China and the massive FDI flows to China intensified the need for industrial adjustment, as a number of industries lost competitiveness in the Japanese domestic market. The perception of China as an economic threat increased, and China was blamed for export deflation because of its low export prices, the undervalued Chinese yuan, and the consequent hollowing out of Japanese industries. 58 Against this backdrop, Japanese subsidiaries in China today play a vital role in the development of China's foreign trade, as most of their output is exported to Japan and third-party countries. In this sense, FDI in China has been a critical factor in boosting intra-regional trade in East Asia.
Japanese trading strategy has undergone a shift from that of selling finished goods to the Chinese domestic market to a series of activities concerned with "processing trade," i.e., exporting parts and components to China, processing and assembling the finished goods in China, and then re-exporting them to Japan and third countries, using China as an export platform for the global market. According to Dean et al., in 2007, 56.6 percent of China's exports to Japan were processing exports. 59 As a result, trade patterns in East Asia have changed, with an increase in intra-regional and intraindustry trade and a shift in the commodity structure of trade from final to intermediate goods. 60 Ando 61 shows that the importance of intra-industry trade has increased sharply for machinery trade in general but especially so in the case of the vertical intra-industry trade of machinery parts and components, whose share of the total trade in machinery parts and components rose from 18 percent in 1990 to 81 percent in 2000 for China and from 38 percent to 69 percent for Japan. 62 This increase was due mainly to the international fragmentation of the production processes occurring primarily through foreign-invested enterprises (FIEs). 63 In 2007, Japanese FIEs accounted for 86.9 percent of processing exports to Japan. 64 As Japanese subsidiaries in China increase their local content, they also share industrial infrastructure with local firms, integrating production chains with the participation of the Chinese labor force in labor-intensive segments of high added-value manufactured products, thereby improving productivity and efficiency in the local Chinese manufacturing industry. At the same time, intra-firm trade between Japanese parent firms and their affiliates in China greatly contributes to the intraindustry trade of the two economies. Moreover, Japanese FDI in China helps to create jobs, increase exports from China, and transfer technology and know-how to local Chinese firms, thus upgrading China's industrial and trade structure and allowing China to use global marketing networks and Japanese brand names to sell made-in-China products on the global market. While external Chinese demand has certainly been crucial in preventing the Japanese economy from slumping into another recession, the Chinese economy is also taking advantage of Japanese FDI, made up of a package of capital, technology, and know-how. China is in the middle of a global production chain, with Japan as the principal source of imported intermediates, most of which are processing intermediates.
Japan and China share great mutual economic interests, in terms of both trade and investment, and Japanese FIEs play an important role in the global production chain. Japan is critical in helping Chinese industry improve its industrial capacity, productive variety, and productivity, and, given that FDI is more stable than trade, Japan and China's economic interdependence has also become much stronger.

Analysis of Japan's hedging strategy towards China
As indicated in the earlier theoretical discussion, the empirical evidence casts doubts on neo-realist tenets and shows that small and middle powers are not limited to pursuing either pure balancing or pure bandwagoning strategies, but, rather, they tend to adopt a "middle position," referred to by many as a "hedging strategy." As outlined in Section 2, it is our firm belief that Kuik's concept of hedging can be used to describe Japanese policy towards China. In Section 3, we have seen how a combination of domestic and international factors led to a gradual shift away from the "friendship diplomacy" of the 1970s and 1980s to a new paradigm that is best understood in the light of Kuik's model. As such, Japan finds itself today in a new phase of what has been labeled as "competitive engagement with a hard balance," 65 although we consider it best described as a "hedging strategy" with elements of economic pragmatism, binding-engagement, dominance-denial and indirect balancing. 66 First of all, by adhering to a sort of economic-pragmatism, or a "business first" approach, Japan has attempted to maximize its economic interdependence with China through trade and investment, in spite of its political and security concerns. Tokyo has instigated a clearly pragmatic policy with China in the economic realm. Although Japan terminated its yen programs with China in 2008, Tokyo obviously favors promoting economic interdependence with China, and nowhere is this truer than in its trade and investment policies. As reported in Section 3, in 2013, Japanese trade with China accounted for 20 percent of the total of Japan's imports and exports, confirming China as Japan's largest trading partner.
Japan experienced a marked increase in its processing trade to China following the latter's accession to the WTO, with Japan establishing itself as a key source of parts and components for China in the global supply chain. According to Dean et al., 67 about 74 percent of Chinese imports from Japan were intermediate goods, and nearly half of these intermediate goods from Japan came to China under the processing trade regime, meaning that they were re-exported after processing. This in turn demonstrates both the importance of Japan in China's global supply chainas the main source of China's imported intermediate goodsand the importance of vertical integration between Japanese and Chinese industries. Moreover, Japan has become the second largest source of FDI in China. Japanese FIEs are unquestionably the main vehicle for China's integration in the global supply chain, as they account for the largest share of exports and most of its processing trade. As stated by Wan, 68 "Japan wants China to grow, and China wants to see Japan recover quickly economically; the alternatives would hurt their national interests".
Secondly, Japan has pursued a strategy of binding-engagement in order to establish bilateral and multilateral channels of institutionalized communication to "socialize" the superpower, to use the constructivists' expression. As Ciorciari 69 states, in the post-Cold War period, the reduction in ideological hostility and the liberalization of the economic order, together with the subsequent establishment of new diplomatic forums, have provided the opportunity for strengthening these channels of communication. Whether or not these institutions are mere "talk shops" (as the realists would assert), a sort of "soft" regional and interregional dialogue has emerged between Japan and China, including the ASEAN Regional Forum (ARF), 70  For Japan, binding China to the main regional and international institutions, as well as creating predictable channels of communication, is a way of involving China in Western international regimes and of promoting its role as a "responsible stakeholder." As discussed, following the Tiananmen Square incident, Japan pursued a clear policy of engagement to induce China to behave benignly and to bring it back into the international community. In the same vein, China's accession to the WTO represented not only a considerable boost to trade and investment but also the acceptance of the rules and norms of international trade, ultimately making China a more predictable and reliable power in the economic realm. Other relevant examples of binding engagement are provided by ASEAN+3 and the EAS, where the Chinese and the Japanese governments have taken a range of initiatives aimed at discussing specific issues, including energy efficiency, oil stockpiling, and confidence-building measures on fishing rules. 71 Kuik argues that binding engagement and dominance denial are, in a way, two sides of the same coin. Accordingly, Japan has, in third place, adopted a visible dominance-denial attitude, seeking not only to involve other powers in persuading China to be engaged and to behave in a benign way but also to prevent the emergence of a regionally and globally dominant China by involving other countries in the Asian-Pacific regional architecture. Tokyo's enmeshment in this regional architecture can be explained not only in terms of its willingness to bandwagon with the most dynamic region in the world and of its efforts to have a foreign policy that is more independent of the United States but also in terms of its attempts to counter the rise of China.
Since Japan cannot solve the systemic problem of China's rise on its own, it has involved powers that are not strictly located in East Asia, including the United States, India, Australia, and New Zealand, countries that Japan considers as forming an "arc of freedom and prosperity." 72 Following a more assertive attitude from China after the 2008 financial crisis, South-East Asian countries are also greatly concerned by China's rise, and have sought indirectly to counterbalance China's assertiveness towards the United States and Japan.
One of the most prominent examples of this strategy in the recent period has been the establishment of the Trans-Pacific Partnership (TPP), a mega-regional free trade agreement concerned not only with tariff reductions but also with rewriting the rules of international trade. Before President Trump took the decision to withdraw from the agreement, the TPP was signed by 12 Pacific Rim countries, including the United States, Japan, Mexico, Vietnam, and Australia, but it intentionally excludes China. Although China was invited by the United States to join negotiations in 2012, the Obama administration explicitly excluded China on the grounds that it could not meet the high standards agreed to in the Treaty. However, the exclusion of China from the TPP should also be seen as part of a Japanese-American strategy to contain the increasing economic and political power of China in the Asia-Pacific region. 73 As a reaction to US-Japanese attempts to avoid any dominance of China in Asian regionalism, and considering President Trump's decision to withdraw from the multilateral agreement, Beijing has taken a two-track approach: while it participates in such institutions as the IMF, the World Bank, the WTO and the ADB, at the same time it seeks to promote the importance of alternative institutions. These include the Regional Comprehensive Economic Partnership (an ASEAN+6 proposal for the Asian Pacific, including Japan, India, and South Korea), an alternative free trade agreement to that of the TPP, the Asian Infrastructure Investment Bank, and the Belt and Road Initiative, a substitute to Trump's Asia strategy.
Finally, Japan is pursuing a strategy of indirect balancing against China in the field of security or a "just-in-case" strategy. Given the uncertainties about China's actual intentions, Japan has made preparations for the worst-case scenario: a hostile hegemonic China. Although none of the documents on foreign policy (NDPO, Araki Report, SCC, etc.) describe China in hostile terms, Japan is concerned about episodes of ongoing friction with the country. As discussed in Section 3, China's Law of the Territorial Sea (which intimates that it might use force to assert its claims over Senkaku), Chinese nuclear testing, Chinese military exercises in the Taiwan Straits, various incidents involving Chinese vessels and the Japanese Coast Guard, incursions by Chinese submarines into Japanese territorial waters in Ryuku, and the strengthening and modernization of its military power throughout the 2000s are especially disquieting for strategists in Tokyo.
In response, Japan's strategy has been to increase its own military capabilities and to strengthen its security alliance with the United States, without however identifying China as a direct threat. As for its indirect internal balancing, Japan has made clear in its official documents that the recent acquisition of a new ballistic missile defense system, 74 the Sea-Based Midcourse Defense (SMD) system, Patriot Advanced Capability-3, and the modernization of its Self-Defense Forces should be understood as a means of protecting the country and it citizens against possible threats of terrorism and from the North Korean regime. Nevertheless, these measures must also be seen as a response to China's rise in military power. Under Abe, Japan has created a new National Security Council to coordinate its foreign and security policy and it has updated its National Security Strategy and released new National Defense Program Guidelines (2014).
As for its external balancing, Japan has strengthened its alliance with the United States thanks to the Joint Security Declaration signed by Hashimoto and Clinton, the new Defense Cooperation Guidelines (1997), the October 2000 Armitage Report, Koizumi's Seven Point Plan to support the American fight against terrorism (September 2001), the Basic Self-Defense Forces Plan to enable the sending of the SDF into the Indian Ocean (November 2001), the Special Measures Law for Humanitarian and Reconstruction Assistance in Iraq (July 2003), and the report issued by the Araki Commission (October, 2004). All these measures are evidence of Japan's external balancing against the rise of China, a strategy that has been confirmed under the US's "pivot to Asia" program and reinforced by the recently elected Trump administration. In line with former President Obama's "rebalancing" strategy, over the last four years, Abe Shinzo has issued a new Mid-Term Defense Plan aimed at increasing interoperability with US forces and Japan has participated with the US in the procurement of the V-22 Osprey aircraft, a Joint Strike Strategy, and SM-3 Missiles. One of Abe's most recent measures has been the controversial reinterpretation of the Constitution, recognizing Japan's right to collective self-defense, that is, to make a greater contribution to the US's regional and global strategy.

Conclusions
This article has argued that the Japanese response to China's rise cannot be adequately explained in terms of realist or liberal traditions alone. First, realism fails to provide sufficient coverage of the vast array of strategies available to a nation when seeking to deal with a rising power. Realist tenets are, therefore, overly simplistic in their claim that, when faced with a rising power, states are likely to opt for either internal and external balancing or bandwagoning. Were this to be true, Japan would surely have become a great power with its own nuclear capability and massive conventional forces, something that is eminently not the case. Most of the realist literature, besides confusing the concept of the normalization of Japanese foreign policy with the concept of militarism, fails to take into consideration the many brakes operating within Japanese society, including its aversion to militarism, the long-held norm of pacifism, the obstacles to amending the Japanese constitution, and the need to obtain a qualified majority in the National Diet to do so.
Second, realism assumes that Japan will pursue a cooperative strategy to induce benign intentions on the part of China while simultaneously strengthening the Japanese-American security treaty in the face of a future threat from China. Likewise, Japan is expected to foster its alliance with the US by becoming less of a "buck-passer" and, so, reducing the danger of abandonment by Washington. Nevertheless, as has been pointed out, from the perspective of offensive realism such action could result in China seeing this stronger alliance as a means of containing them, and so it could intensify the "security dilemma" between the two neighboring countries. Addressing the potential problem of US abandonment in the "alliance dilemma" could increase the classic "security dilemma." In short, it is far from easy for Japan to pursue a cooperative strategy toward a rising China, and realists do not really offer a feasible explanation.
Meanwhile, liberal traditions consider that cooperation in IR results from common vested interests in such issues as trade and economic interdependence. For liberals, it is not that actors are not selfish; on the contrary, it is the logic of collective action that allows them to achieve a winwin situation. Therefore, given Japan and China's enormous economic interdependence, in liberal eyes, the relationship between the two countries should be very robust. However, as this article has demonstrated, relations in the political and security spheres have not only worsened, but over the last few years, a number of past episodes have reemerged, including the revision of history textbooks, and the disputes over the Senkaku Islands and the EEZ.
The main argument of this article, therefore, is that some middle powers adopt policies that differ quite markedly from pure forms of balancing and bandwagoning. Instead, they seek to take a "middle" course that might be labeled a "hedging strategy." Thus, Japan is pursuing a cooperative strategy vis-à-vis China aimed at fostering its benign intentions, but at the same time, it is hedging against the possible failure of such engagement by strengthening its alliance with the US and bolstering its military force. As outlined in Section 4, over the last 20 years, Tokyo has been pursuing what Kuik calls pure hedging. If we take recent events into consideration, what is clear is that Japan's foreign policy adheres closely to Kuik's hedging model, as opposed to what Hornung understands as a hedging strategy. Japan is not powerful enough to balance against the rise of China, yet it is too strong to simply bandwagon with China. For Japan, hedging represents not only a means for offsetting risk in an uncertain world, but it is also the natural position of a strong actor with great capabilities. As a middle power, Japan tends to hedge, seeking to take advantage of its engagement strategy toward China via economic cooperation and growing interdependence.
The rise of China has drastically changed Japan's trading patterns and industrial structure. Today, China is Japan's main trading partner in terms of total trade, and Chinese imports to Japan have grown steadily over the century. At the same time, China has emerged as one of the leading destinations of Japanese FDI, and Japanese FIEs play an important role in its global production chain. Japanese subsidiaries are the main actors of the "processing trade," using China as both a processing and assembly platform, before exporting the finished products to Japan and third countries. In this process two features stand out: first that Japan is the main source of China's imported intermediate goods and, second, the vertical integration between Japanese and Chinese industries is of great importance.
While external Chinese demand has been critical for the survival of the Japanese economy, Japanese subsidiaries in China help to create jobs, boost exports from China, and transfer technology and know-how to local Chinese firms, improving the country's industrial capacity, productive variety, and productivity. Since FDI is more stable and more permanent than trade, Japan and China's economic interdependence has become much stronger.
Japan has also opened up channels of communication with China via a number of regional and interregional dialogues, including the Japan-China Security Dialogue, ASEM, and ASEAN+3, with the aim of socializing China and making its neighbor a more responsible stakeholder. However, Japan is also hedging against the possible threat that China might come to pose in the future not only by seeking to thwart Chinese attempts to dominate regionally and globally but also by bolstering its Self-Defense Forces (internal balancing) and by expanding its security alliance with the US (external balancing). Today, Tokyo provides support to its allies (the United States), gives demonstrations of its power to its enemies (North Korea), and proposes neutrality to its likely adversaries (China).
Finally, one last question needs to be addressed in our analysis of hedging: What factors will determine Japan's long term action vis-à-vis China? We assume a priori that these determinants will be a combination of national (domestic restructuring and leader-driven) and international factors (external shocks or beiatsu). However, it seems that three factors are likely to determine whether the current tendency to pursue a hedging strategy will be reverted in the future (i.e., pursuing bandwagoning or balancing strategies): the immediacy of a real threat, the existence of ideological fault-lines, and the existence of an all-out great power rivalry between the rising power (China) and the dominant power (the United States). 75 As soon as one of these factors emerges, hedging will no longer be possible.