News Analysis: the economics of sovereignty

Flare-up of sovereignty disputes won’t hurt China’s economic ties with Japan and the US, writes Willy Lam.

In scenes reminiscent of the horrendous anti-Japan demonstrations in 2005, protests against Tokyo’s allegedly illegal occupation of the Diaoyu islands (called the Senkakus in Japan) erupted in 20-odd cities throughout China in August.
The Diaoyu archipelago consists of several miniscule outcrops in choppy seas wedged between Taiwan and Okinawa. Claims of rich storage of oil and gas under the islets have never been substantiated. Yet the Diaoyu-Senkakus have become a symbol of the decades-long rivalry between the two most powerful countries in Asia.
Tension between China and Japan was raised after several members of a Hong Kong “patriotic” NGO landed on the largest Diaoyu islet on August 15. This was despite the fact after arresting them, Japanese coast guard and police allowed them to return to Hong Kong two days later. Since then, Japanese Prime Minister Yoshihiko Noda has threatened to mobilize the Japanese navy to protect the Senkakus. And popular military commentators in the official Chinese media have suggested holding war games in the vicinity of the disputed archipelago. Generals Luo Yuan and Peng Guangqian even talked about deploying missiles and other sophisticated weapons to protect Chinese personnel who dared to go near the Diaoyus to challenge Tokyo’s de facto control of the barren rocks.
It is also clear, however, that despite the escalating war of words, Beijing and Tokyo have a good understanding about not letting the islands’ dispute ignite small-scale naval skirmishes, let alone a full-fledged military conflict. Moreover, both sides are eager not to allow nationalistic sentiments damage mutually beneficial economic ties.
Signs that Chinese Communist Party (CCP) administration has always been circumspect about the Diaoyu-Senkaku issue are not hard to find. For example, Beijing has never permitted Chinese NGOs to emulate their Hong Kong counterparts by hiring boats to sail to the islets. More significant is the fact that the CCP leadership has this year exercised more restraint compared to 2005, when tens of thousands of Chinese held protests against then-Prime Minister Junichiro Koizumi’s visits to the controversial Yasukuni Shrine as well as the “whitewash” of Japanese war crimes in the country’s history books.
Immediately upon the outbreak of demos on August 19, the CCP Propaganda Department ordered all print and electronic media not to “overplay” the protests. Much more important is the fact that calls made by some protestors to boycott Japanese products were not allowed to see the light of day. By contrast, an online petition in 2005 to stop buying Japanese goods was able to collect more than 2 million signatures before it was closed down.
Moreover, Beijing has desisted from using economic weapons to put pressure on Japan. During the late 2010 Diaoyu-Senkakus crisis – which was ignited when the captain of a Chinese fishing junk was detained by Japanese coast guard in the vicinity of the islets – Beijing stopped the export of rare earth minerals to Japan and restricted the number of Japan-bound Chinese tourists. This time around, there has been no talk of what analysts call “the mixing of economics with diplomacy.”
A major factor that will stop Sino-Japanese relationship from deteriorating is the change of leadership that will likely take place in both capitals by the end of the year. Vice-President Xi Jinping will succeed Hu Jintao as party chief at the 18th CCP Congress scheduled for October. A general election will probably be called in Japan in late 2012. And most Japan media have predicted that Prime Minister Noda’s embattled Democratic Party of Japan will lose its ruling-party status. A change of leadership could provide an opportunity for diplomats from both capitals to negotiate a less confrontational way of tackling the decades-old Diaoyu-Senkakus imbroglio.
More important is the fact that both Japan and China are facing tough economic realities. The Japanese economy seems to be running out of steam. And the still-healthy sales of Japanese cars and other products in the China market are one of the few silver linings on the horizon. For the first time in recent memory, the Chinese economy is having problems maintaining taken-for-granted high-growth rates. As exports to the US and the EU are slumping, major Asian markets including that in Japan have become a lot more significant. Moreover, Chinese manufacturers are still anxious to acquire Japanese know-how in areas ranging from IT to green technology.
And how about China’s relations with the United States? President Hu Jintao’s strategists have long accused Washington of trying to boost its “anti-China containment policy” by enhancing defense alliances with Asia-Pacific allies such as Japan. In late August, the China Daily ran a commentary entitled “The U.S. should stop military build-up in Asia Pacific.” The official mouthpiece accused Washington of abetting Tokyo’s hostile gambit against China. “By driving wedges between China and its neighboring countries, the United States intends to undermine the conditions that could favor China’s development, so as to keep its self-claimed leadership in the region unrivaled,” the Daily asserted.
Election-year “China-bashing” notwithstanding, it seems evident that the world’s sole superpower and the fast-rising quasi-superpower have reasons aplenty to mend fences. Mitt Romney, the Republican challenger to President Barack Obama, has threatened to label China a “currency manipulator” if he were to win the White House this November. Politicians across the American political spectrum, however, are also aware of the symbiotic relationship between the world’s two largest economies. Apart from Washington’s dependence on China to buy American government bonds, a key source of job creation in the US is selling more to the largest market in the world.
There are also less obvious reasons why the CCP leadership will not allow relations with the US to go excessively sour. It is an open secret that close kin of the bulk of members of the CCP Central Committee and Politburo have either emigrated to America or have made multi-billion dollar investments there. It is true that Beijing remains paranoid as ever about Obama’s “pivot to Asia” strategy. Yet the party’s top cadres also know that an ugly confrontation with the US will not only hurt China’s exports to the US but also result in a diminution of the value of the US-based investments of some of the most powerful clans within China’s “red aristocracy.” 


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