Tag Archives: Japan

Some economic consequences of a ‘hot’ conflict over the Senkaku/Diaoyu Islands

An island of tranquility.

With the dispute between China and Japan over the Senkaku/Diaoyu Islands heating up, some have wondered about the prospect of a war between the two states and its possible outcome.  Though unlikely, a war between the world’s second and third largest economies, who alone share over $340 billion in bilateral trade, would be rather unfortunate, to say the least.  It is, however, an interesting exercise to consider some of the implications – in this case specifically economic – of such a conflict.

 

One consequence would be the disruption of sea- and air-borne trade flows in the region.  The Senkakus/Diaoyus lie approximately 100 nm northeast of Taiwan, in the vicinity of two of the busiest shipping channels in the world – the Taiwan and Luzon Straits.  Trade across the Taiwan Strait alone amounted to $147 billion in 2011, a figure which does not include trade simply passing through the strait to other destinations.  Many Asia-bound vessels from the Americas pass through the Luzon Strait, and both straits are key routes for oil shipments to Japan and Korea.

 

While one hundred nautical miles might seem a long distance, the range of Chinese and Japanese naval and aerial weapon systems means that any combat around the islands could spill over into adjacent areas, especially as each side engaged in whatever maneuvers were necessary to gain the upper hand.  The most modern Japanese anti-ship missile, for example, has a range of approximately 115 nm.  Chinese shore-based anti-ship ballistic missiles, by comparison, may have a range upwards of 1,700 nm, encompassing the entire region.  Combat, therefore, could lead to the inadvertent destruction of merchant shipping in these crowded waters, and would certainly cause a spike in maritime insurance rates and fuel costs as ships reroute to avoid combat zones, cutting into the profitability of overseas trade.

 

In addition to disrupting physical trade flows, a conflict between Japan and China could disrupt capital flows.  Even a short conflict would generate a great deal of uncertainty in the minds of investors.  Doubts could develop as to the longevity and profitability of investments in both countries due to fears of government asset seizures and heavy regulations on trade and monetary flows to keep their own economies relatively stable.  Numerous Japanese factories in China have already publically closed, due to a wave of popular anti-Japanese sentiment and protests, while still more major companies may be keeping quiet about their own closures.  Chinese and Japanese government policies to deliberately seize each others’ assets would only exacerbate the effects of these closures.  A conflict would also have unpredictable consequences for foreign exchange rates.  Lastly, the effects would be long-lasting:  any conflict would sow doubts about the long-term prospects for a peaceful East Asian environment. 

 

Not for all the fish in the sea.

Adding to the uncertainty is the unknown role the United States would play in any Sino-Japanese conflict.  According to the terms of the U.S.-Japanese bilateral defense treaty, the United States is obligated to come to the aid of Japan in the event of war. U.S. Secretary of Defense Leon Panetta stated recently that the United States would abide by its treaty obligations if Japan was attacked, and Japanese Foreign Minister Koichiro Gemba noted that the treaty covers the Senkaku/Diaoyu Islands.  It is, of course, not certain that the U.S. would become involved, or could become involved in the time frame of a short conflict.  If it did, however, its involvement would cause even greater disruptions to world trade and capital flows.  In 2011, the volume of U.S.-China trade topped $500 billion.  The result of direct, U.S.-Chinese conflict would almost certainly be a halt to that trade, to the detriment not only of the respective nations, but also the global economy.

 

The prospect of the disruptions to global trade outline above would be concerning enough at the best of times, but these are not those times.  A recent article in the New York Times noted that global economic growth appears to be slowing due to faltering Chinese growth and continuing problems in Europe.  Analysis by The Economist suggests that even a 3.9% reduction in the rate of Chinese capital accumulation would eliminate all of Taiwan’s 2012 economic growth, and ‘hobble South Korea.’  Given that this is a potential result of current, purely economic factors, an armed conflict between two of the world’s great economic powers could only magnify it.

 

With the potential negative economic consequences of a war over the Senkakus/Diaoyus, let’s hope that cool heads prevail in Tokyo and Beijing.

 

Ian Sundstrom is a graduate of the War Studies Masters Program at King’s College London.  He is currently engaged on a research project for Imperial War Museum – Duxford in Cambridge, United Kingdom. 

           

(Updated 9/18) Keeping up with the Senkakus: China Establishing a New Reality on the Ground…er, Sea

UPDATE: 9/18:

Japan’s Coast Guard has its hands full: Latest reports indicate up to 11 Chinese maritime surveillance ships have entered the Senkakus/Diaoyus’ Continguous Zone while a pair of fishermen swam ashore one of the islands before departing.

UPDATE: 9/17:

In addition to the anti-Japanese protests and violence which has flared throughout China this weekend, Chinese state media has indicated the possibility of further reaction to the nationalization of the Senkakus/Diaoyus to come later this week.  Chinese state radio said Monday that “1,000” fishing vessels are headed to the waters near the islands, as a fishing ban comes to an end.  Of note, the report quoted a Chinese source who said the vessels’ activities would be monitored by a “marine observation satellite.”  It is unclear whether this is an attempt to say the six vessels still believed in the vicinity of the islands will attempt to avoid a confrontation with the Japanese Coast Guard on station, or whether it just indicates China will be watching the situation very closely.  Meanwhile, Hong Kong reports that the ship Kai Fung 2, which earlier helped keep the islands in the spotlight, will attempt a return voyage this week as well.

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Hi, Hai Jian!

In the past week, while American attention has largely been diverted, China appears to have taken a number of steps to change the reality of the situation in the Senkakus/Diaoyus (hereafter referred to as Senkakus for brevity’s sake) in a coordinated diplomatic, media, legal, and physical push.

 

With the maelstrom of news emanating from the Muslim world, U.S. media coverage of other, possibly more consequential events inevitably slackened.  Fortunately our international and domestic partners have carried the ball a bit with regards to the disputed islands claimed by Japan, China, and Taiwan.  While we noted the reports on Tuesday of two Chinese ships – the Hai Jian 46 and Hai Jian 49 – dispatched to and arriving outside the islands’ Territorial Waters (TW), the number that arrived eventually totaled six, twice as many ever previously sent by China at one time.  A good account of the stand-off, on pause for now, can be found at The Asahi Shimbun.  Although the Chinese vessels have all left the islands’ TW, they remain in the direct vicinity.

 

The Senkakus are the same five islands, under administrative control of Japan (and populated only by goats), at the center of Japanese Coast Guard clashes with Chinese fishermen and most recently protestors from all claimants.  The Atlantic Council of Canada has a good article on the history of the conflict, but the immediate cause of the Chinese flotilla was the purchase of three of the islands by Japan’s national government (another was already government-owned, and the last owned by another private owner).  The decision to go forward with the purchase was forced by Tokyo’s nationalist metropolitan government, which also attempted to buy the islands but would have furthered their use as a provocative cause célèbre – whereas the central government has mostly sought to play down tensions between the two economic partners.

 

However, with the lead-time given by advance warnings of the sale date on Sept. 11th, China had time to prepare a coordinated response.  As our counterparts @Galrahn and @cdrsalamander noted, this response not only involved the vessels themselves (which, significantly or not are from State Oceanic Administration while previous vessels were from the Ministry of Agriculture) but also articles backing the move ready to run in China’s state media.  Further, these actions appear timed to coincide with the PRC’s announcement of baselines demarcating their claims and the start of weather forecasts for the area.

 

Peaceful…but effective?

Although unprecedented for this particular conflict, China appears to be following a course it charted earlier this summer in the South China Sea, where it has so far successfully established a new reality on the ground with the Philippines-claimed and previously administered Scarborough/Pantang Shoal.  The Philippines Coast Guard pulled back its vessels on June 16th due to bad weather and has yet to return, effectively ceding control to the Chinese civilian maritime agencies, who have maintained a presence in the area and attempted to physically impede any non-Chinese vessels.

 

Back in the East China Sea, as the Christian Science Monitor noted, China likely had to take some action to appease nationalist sentiment at home in reaction to Japan’s moves.  But the paper also said that the movement of the vessels back out of the islands’ TW can be taken as a sign of China’s unwillingness to take things too far.  Here’s hoping they’re right – and that fears of further turmoil before the country’s leadership transition will serve as a break.  But with precedence already established in the South China Sea, and the vessels still loitering in the area, many signs point to the potential for future confrontation – and it may begin as early as next week. 

 

On Friday Xinhua said the vessels will start “patrol and law enforcement around the Diaoyu Islandswhile the catalyst for conflict could begin Sunday, when China’s self-imposed three-and-a-half-month fishing ban in waters near the Senkakus ends (although a typhoon to the east of the islands may further complicate the situation (h/t Galrahn)).  A Bureau of Fisheries official stated: “A large number of fishing boats will leave their ports…We will resolutely protect China’s sovereignty and the safety of fishers and step up controls in marine areas that include the Diaoyu Islands.”  Adding to the fun, Taiwan has also sent two Coast Guard vessels to protect any of its own fishermen brave enough to wade into the waters.

 

Not a pretty kitty. MEOW: Mutual Economic Obliteration Worldwide

From the perspective of the U.S., hoping to de-escalate any conflict between two of its most important trading partners and avoid being dragged in to an armed conflict, it’s clear we need better mechanisms with the PRC in case of emergency.  The threat of MEOW (mutual economic obliteration worldwide) is not enough.  It’s vital to separate the sides in the early stages to prevent a confrontation going past a point of no return – so we need to know who to call, and that they’ll have actual authority to call vessels back.  That is of course easier said than done with a country whose future president can drop of the face of the Earth for over a week at a time.  What the U.S. can work on, however, is building “habits of trust and cooperation,” through increasing partnership opportunities with China – a topic I will return to shortly.

 

If the long-term solution has to be through international diplomacy, China, by demarcating its claims to the specific rocks and islands around the Senkakus – a step experts have called the Chinese to take in the South China Sea – might this week actually have made progress of a sort.  But next week might not be as useful.

 

LT Scott Cheney-Peters is a surface warfare officer in the U.S. Navy Reserve and the former editor of Surface Warfare magazine. He is the founding director of the Center for International Maritime Security and holds a master’s degree in National Security and Strategic Studies from the U.S. Naval War College.

 

The opinions and views expressed in this post are his alone and are presented in his personal capacity. They do not necessarily represent the views of U.S. Department of Defense or the U.S. Navy. 

A Voyage of Unintended Discovery (Update 8/16)

 

Kai Fung No. 2 breaks through a Japanese coast guard blocking action

Photos: AP

Update 8/16:

The activists, crew, and media are all in custody, as Japan prepares to deport them. This action forestalls the sort of diplomatic crossfire the central government faced from nationalists at home and the Chinese government when it briefly held for trial a Chinese fisherman who rammed a coast guard vessel in 2010, before letting him go. Meanwhile, we have some great photos from the incident.

 

Crew of Kai Fung land and try to raise PRC and Taiwanese flags
The photo says it all

Update 8/15:

Activists on the Kai Fung have reportedly landed on the Diaoyus/Senkakus after their vessel was rammed (likely forcibly bumped) by Japanese Coast Guard ships trying to deter the crew from reaching their destination. Most of the crew is in Japanese custody.

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Fourteen brave souls set sail for what they hoped would be a voyage of protest championed by their nations. Up to now they have been beset by dwindling food supplies, government obstruction, and a threatening tropical storm. In the process, the journey of the Kai Fung No. 2 has provided fresh insight into the process of managing the at-sea skirmishes that blow over into diplomatic confrontations.

 

According to The South China Morning Post, Kai Fung No. 2 got underway Sunday from Hong Kong with eight activists from Hong Kong, Macau, and man from mainland China, while the remaining six are ship’s company and reporters. Their destination was the disputed Senkakus/Diaoyus/Tiaoyus claimed by Japan, China, and Taiwain, under Japanese control, and home to a hearty tribe of goats. Unfortunately things didn’t go as planned. On Monday, the SMCP reported:

Activists from Hong Kong, Taiwan, and mainland China initially planned to undertake the voyage together, but the mainlanders yesterday said they would withdraw.”

The Taiwanese were also prevented from getting underway when their charter company unexpectedly cancelled their trip. The Kai Fung barely slipped past the HK government after its previous 6 attempts were blocked. The captain reportedly waited out a boarding party of four HK marine police officer in the locked captain’s bridge until they retreated as the vessel headed to international waters. Misfortune didn’t stop at sea, however:

The Hong Kong activists’ vessel had a bad start, as much of their food rations fell overboard amid the rough seas. Organizers said they hoped to restock Kai Fung No 2, with 14 people on board, in Taiwan.

These plans were dashed as Taiwan’s Coast Guard Administration denied them entry, ostensibly for lack of a permit. In a session of that nation’s National Security Council later that day, the country’s officials decided to allow the vessel entry on humanitarian grounds due to the shrinking supplies and the approach of Tropical Storm Kai Tak. Kai Fung is now expected to call at the northern Taiwanese port of Keelung.

 

Whether the Kai Fung actually makes it to its original destination, the episode shows that China and Taiwan will go to great lengths to control the timing and nature of their confrontations. Both nations have been far from shy in advancing their claims on disputed maritime territories (China sent patrol vessels to the islands in July), but they typically like to deal with other nations in a more controlled manner, through fishing fleets or state vessels, to best calculate the diplomatic impact and repercussions. Admittedly many of the confrontations in the South China Sea can be chalked up to the PRC’s various regional and state agencies vying for influence and favor. But when an at-sea flare-up doesn’t stand to directly bring favor to any state official the central regime can pull back on the reigns with the cooperation of the various arms of government.

 

It’s possible that in the aftermath of last month’s incursion by China and the maneuvering of the Japanese central government to prevent provocations by Tokyo’s nationalist governor, an unspoken (or clandestine) peace has been brokered between the claimants to keep the issue at bay until after elections in Taiwan and the leadership transition in China. Hong Kong said the owner of the Kai Fung now faces fines upon the group’s return. If they make it to the islands they are likely to face Japanese coast guard vessels ready to interdict and turn them back.  From the Japan Times:

The protesters aboard the Hong Kong vessel have said they will tear down Japanese-built structures and plant a Chinese flag to declare sovereignty if they manage to land on the isles.”

Chinese activists aren’t the only one to test the Japanese government’s ability to keep a lid on confrontation – nationalist lawmakers from Japan may be planning to make a trip to the islands later this month. 

LT Scott Cheney-Peters is a surface warfare officer in the U.S. Navy Reserve and the former editor of Surface Warfare magazine. He is the founding director of the Center for International Maritime Security and holds a master’s degree in National Security and Strategic Studies from the U.S. Naval War College.

The opinions and views expressed in this post are his alone and are presented in his personal capacity. They do not necessarily represent the views of U.S. Department of Defense or the U.S. Navy. 

No South EU Sea

 

 

Rafale fighters launch from the deck of the French aircraft carrier Charles de Gaulle

By Peter Solomon

The South China Sea contains the second busiest trading route in the world: the Straight of Malacca. Vital to meeting the energy demand of China, Japan, Taiwan, and South Korea, the supply flow through this region is comprised mainly of crude oil, liquefied natural gas, coal, and iron ore. On account of the territorial claim disputes that afflict the South China Sea, several militaries have been busy modernizing, namely China, the Philippines, and Malaysia. Overall, six nations claim partial or entire territorial rights over the South China Sea: China, the Philippines, Malaysia, Vietnam, Taiwan, and Brunei. What’s at stake in the region is more than trade routes – a 2006 estimate by the United States Energy Information Administration revealed proven reserves of 26.7 billion barrels of oil in the South China Sea (about the same quantity as Oman, Qatar, Syria, and Yemen’s oil reserves combined), and proven reserves of natural gas amounting to 7.9 trillion cubic meters (about the same quantity as Saudi Arabia or the United States’ reserves). Due to the considerable value of the oil and natural gas, the potential for disagreement is exceptionally high and, therefore, the possibility of conflict over territory in the South China Sea cannot be understated.

 

Due to the magnitude of trade and investment conducts the European Union (EU) with Japan and South Korea, and the great prospects for enhancing economic relations, the EU has a great stake in the security of East Asia. About 18.1% (251.5 bn. Euros) of the EU’s exports are destined for East Asia, while a mere 3.3% go to other destinations in Asia. Additionally, the EU imports about 30.1% (452 bn. Euros) of its goods from East Asia compared to just 4.2% for the rest of Asia. It is easy to see that a good deal of the EU’s economic health depends upon trade with East Asia. Therefore, a key EU foreign policy security goal is to promote peace and stability in East Asia.

 

China is in the process of modernizing its People’s Liberation Army Navy (PLAN) to exert Chinese influence in the region. It is no secret that China is building up its power projection capabilities to counter-balance the presence of the United States defense forces in the Western Pacific. Due to Japan and South Korea’s geographic location and security ties, any conflict or disruption to stability in the South China Sea could have major impacts on East Asia. The EU’s concern, however, is in regards to Europe’s economic stake in the region and the EU’s identity as a normative power. Despite the EU’s promotion of peace and stability in East Asia, the institution’s lack of credible power projection capabilities in the region belie the EU’s ability to intervene in security issues in the region. 

 

Although an EU-led military operation would be unlikely in the Western Pacific, the importance of the region would compel individual nations to act to maintain law and order, or to preserve maritime safety, safeguarding their commercial interests in the region. In the event of a conflict it is entirely possible that EU member states would engage the region through the North Atlantic Treaty Alliance (NATO). Recent counter-piracy operations off the coast of Africa have set a precedent for maritime military action far from the traditional European area of operations. Additionally, Great Britain and France can still act on their own if it is in their best interests as both maintain competent navies with power projection capabilities, including the ability to deploy their own aircraft carriers.

 

In the case of a South China Sea conflict, Japan would be most certainly directly involved as its tankers transport 70% of Japan’s oil through this region. A confrontation would force Japan’s oil tankers to circumvent a conflict in the South China Sea by navigating around Indonesia into the Pacific Ocean. However, this option would be both expensive and laborious. Additionally, two-thirds of South Korean natural gas is shipped through the South China Sea on its way to the Korean peninsula. In regards to the European Union’s economic interests in East Asia, maritime security is crucial for Europe.

 

Currently, EU military capabilities consist of 13 battlegroups, which are “rapid response units” that consist of 1,500 troops each. EU member states rotate the responsibility of provisioning these units, two of which have always been on stand by since 2007. However, this force has never been deployed and it is difficult to say how the debt crisis will affect the EU’s research and development into new military capabilities. Given the budget cuts and focus on internal issues, the EU will likely continue to place the burden on the United States to maintain the status quo in the Western Pacific region. In the event of a crisis in the South China Sea, it would be the effects on the EU’s East Asian trading partners that would create the most potential to draw in the maritime forces of individual EU member states.

 

Whether or not the EU will cooperate in joint military expeditions with Japan or South Korea in the future is unknown. With regard to economics, EU-Japan and EU-South Korea economic ties are substantial, and significant cooperation in both relationships has led to the emergence of global economic partnerships via Free Trade Agreements with both nations. Through Japan and South Korea, the EU has established a gateway into East Asia’s vast markets and developed a role as a player in security issues, albeit a minimal role for the time being. Despite the EU’s current internal focus it cannot forget about its strategic partnership with Japan and South Korea.

 

This post is from our British partners at TheRiskyShift.com and can be found in its original form here.

Peter Solomon is a Master of Arts in International Political Economy candidate at King’s College London. Peter earned a bachelors degree from the University of Connecticut in English and Political Science.