Saturday, January 12, 2013

China-Japan Dispute Over Islands Takes Rising Toll on Top Asian Economies

12/12/2012 updated 2/22/2016  

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Aerial View of Senkaku/Diauyu Islands and rocks From Google Public domain Images


The increasing tension between Japan, and China over the disputed islands known as the Senkaku in Japan and the Diauyu in China is starting to have measurable effects on the economies of both countries.  The Senkaku/Diauyu are located in the East China Sea. In the South China Sea the Philippines , Vietnam, and Taiwan and others are embroiled with China as well in island territorial disputes. The total of these disputes is changing the face of the regional economy. The U.S.has no real territorial stake in the game but is pulled into it by virtue of its defense treaty with Japan which recognizes the Diauyu as sovereign territory of the Japanese homeland that the United States is committed to defending. There was little interest in these uninhabited tiny islands until a UN study indicated that the sub-sea area near the Islands may have rich oil deposits. There are also rich fishing grounds in the vicinity. Japan claims a territorial sea limit of 12 miles around the islands while the resulting  Exclusive Economic Zone to be reliably administered would probably require the cooperation and a formal agreement with China and Taiwan due to the relatively narrow seas separating  the territorial waters of the Two Nations and Taiwan whose status is undetermined. China in fact claims the disputed islands as part of the territory of its "province" Taiwan. Taiwan claims the islands on their own. Taiwan actually forced entry into Japan's territorial sea with fishing boats and one of their Coast Guard vessels and  engaged Coast to Coast Guard in a water cannon fight when the Japanese Coast Guard used water cannon to encourage the illegal fishermen to leave the area. So far China has been violating the territorial sea of japan in the vicinity of the islands with its various Coast Guard like forces the new Ocean Surveillance Service , and various fisheries enforcement vessels and air craft. 

 The confrontations by China so far as we know have not involved direct participation by the warships of the PLAN (People's Liberation Army's Navy). Japan has responded one time by scrambling armed forces in the form of fighter air craft to investigate an over flight by an unarmed Chinese government craft. In a recent Bloomberg article that we link you to at the bottom of this post Bloomberg experts note that China will never give up pushing for ownership of the Islands and Japan will never give in to China's thug tactics. The economic ties between the two nations are massive. Toyota's Chinese operations alone generate employment for nearly 1.4 million Chinese nationals. But Bloomberg notes that Japan's estimated point of economic pain would be a loss of about 20% of its trade with China. The Chinese thug tactics are starting to move the economics along that path. The Chinese pain threshold is estimated to be at about 30% loss of Japanese trade. Over looked by China in all of this is the constant danger of over stepping the bounds and starting a real navy on navy shooting war in the China Seas drawing in the U.S. Pacific Fleet. That could result ion a total break in trade between the three big trading partners, and the loss to U.S. and Japanese investors in billions of dollars in Chinese plants. However the U.S. would no doubt, at a minimum, cease paying its massive debt to China since one does not fund a nation at war with your own. Butt lets assume that this thing doesn't escalate into a shooting war, or "dispute".

 The first casualty of a continuation of Chinese intransigence and thug tactics is the world's oil supply. No one is going to want to lease , explore or produce oil in the vicinity until there is a reliable legal offshore leasing authority. This will have little effect on the United States which thanks to "tight sands" development on shore is already independent and preparing to export natural gas with oil to follow in the foreseeable future. It is China, Japan, and India that will suffer from non production of the oil potential of the Senkaku / Diauyu islands. The South East Asian regional economy and military alliances are already shifting with the United States and Japan becoming more important trading partners and investors in the region they they had been in comparison to Japan. We urge you to read the linked Bloomberg article. After reading this article it is very difficult for us to imagine why China continues in its bully tactics at sea, it seems like self destructive behavior even if the conflict can be contained in a sort of Cold War at sea. If it goes to a shooting war, even if confined to sea, China immediately suffers more economic damage than the other potential participants. If it remains a "Cold War at sea China suffers economic consequences on a slower time frame but fairly large scale. What is happening is that as the Dragon continues to swim against the tide of international opinion, especially that of its neighbors it is surrendering its position as regional leader for neighborhood bully. Bullies eventually are eliminated. The link to The Bloomberg Analysis is below:

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