SHINZO Abe was sworn in on December 26 as Japan's 96th prime minister after the Liberal Democratic Party he heads swept to power in a landslide election victory. In his victory speech to the media, Abe declared central to his agenda the exploration of a "pragmatic and balanced" form of government.

This article will dissect how Abe's new politics will influence China's economy.

First, Abe is tipped to implement an ultra-easy monetary policy to match his big spending plans. The easing measure is expected to help Japan break the grip of deflation.

We can presume that while Abe will woo China to secure bigger market shares for Corporate Japan, he will in the meantime cozy up to the United States for support and protection. Abe is poised to maneuver between China and the US, trying to strike the balance that's in Japan's best interests.

Hence, quantitative easing, the Japanese version of which Abe is keen to implement before long, is aimed at maintaining the capital lead of Japanese businesses at home and keeping the yen low to help Japanese exports during a Western devaluation of their currencies. In this sense, the Chinese market is vital to Abe's ambition of restoring the Made-in-Japan brand.

Japan's ruling elites are optimistic that with the appointment of China hand diplomats, the country will manage to achieve a balancing act comprised of robust economic exchange and political wrangling with China. For that purpose, Japan needs US protection, at whatever price.

It's not that Abe isn't aware that the framework of the US-dominated TPP (Trans-Pacific Partnership) benefits the US far more than Japan. In fact, when he was running for office, Abe made public statements that entry into TPP would pose the biggest threat to Japanese agriculture. Of course, after he won the election Abe changed tack and his attitude toward TPP became more pragmatic.

An indicator is his pledge to reconsider TPP's strategic implications and bargain for the most favorable trading conditions for Japan in exchange for its endorsement of TPP. These conditions include a delay in total deregulation of Japan's protected farm and medical industries, to mute opposition from peasants and medical workers to TPP. In return, Abe will promise voters that TPP represents the necessary counterweight to China's budding economic leadership in the Asia-Pacific region.

Domestic demand

Second, if Japan's government is serious about stimulating domestic demand, then the reconstruction of Fukushima, the site of an earthquake-triggered nuclear meltdown about two years ago, and overhaul of the country's energy strategy are worthy of huge investments. But progress is slow on both counts, for which Japan's politicians blame a shortage of labor and funds.

In the future, Japan will predictably relax rigid employment rules to attract foreign professionals. Besides, Tokyo may mull vast fiscal subsidies to unleash domestic buying power and slash energy costs.

The apparent downside of this fiscal expansion is that Japan's public debt woes, bad enough already, will rapidly deteriorate, raising the default risks for foreign investors. In response, Japan needs to ease its visa policy to let in more tourists in addition to raising consumption tax.

China can benefit from these policy choices. As rich Chinese flock overseas, for instance to Japan, to spend, can Beijing parlay its citizens' enormous consuming power into an opportunity to facilitate the yuan's recognition as a major settlement currency?

If so, this somewhat compensates for the loss of tax revenue. Otherwise, China's domestic consumption, underdeveloped as it is now, will suffer.

Third, Abe emphasized crisis management in his governing plans. He has set up different government units to cope with possible problems in running the economy. With the more diverse decision making, he hopes to increase Japan's strategic wriggle room and subtlety in handling economic affairs.

The symbiotic Sino-Japanese trade and investment prior to their territorial row is likely to see some adjustment under Japan's new crisis management mechanism. Japan, wary of a stronger China, may cut investments to the latter on national security grounds, and financially reward Japanese firms that are willing to move their operations back home.

Meanwhile, to bolster exports, Tokyo will join the West in pressuring China to open up its market wider to foreign investors.

Japan's quantitative easing, along with overprinted greenbacks and euro, drives up commodities prices, further eating into Chinese products' profits. Throw in a weaker yen and life will be even harder for Chinese exporters.

Therefore, while China's economic restructuring is on the one hand focused on industrial sophistication, on the other, the country ought to stand behind indigenous firms globally with favorable monetary, exchange rate and industrial policies.

Wishful thinking

At the end of the day, should the Abe cabinet nurse a dream to contain China while courting it economically, it's hard to say if their wishful thinking will work.

We hope Japan's politicians will respect history and develop a long-term view. We hope they will value the good foundation established by Asian manufacturing powerhouses - including Japan itself - whereby nations leverage their comparative advantage and build genuine and lasting trust.

Only such an enlightened government will win over the greatest number of voters and be given a long lease on power, something of a curiosity in Japan's notoriously unstable politics.

Abe has before him a test of statesmanship, which he craves. If he is up to the challenge, the Japanese public gets to enjoy the fruits of peace and globalization that have been lost to prolonged stagnation afflicting the country.

The author is executive vice dean of the School of Economics at Fudan University.The views are his own. Shanghai Daily staff writer Ni Tao translated his article from Chinese.