Showing posts with label China National Offshore Oil Corp. Show all posts
Showing posts with label China National Offshore Oil Corp. Show all posts
Tuesday, 4 September 2012
South China Sea Dispute: Clinton Visit Brings U.S. Neutrality Doubts
BEIJING — U.S. Secretary of State Hillary Rodham Clinton sat down Wednesday with Chinese President Hu Jintao to press Beijing to agree to peacefully resolve territorial disputes with its smaller neighbors over the South China Sea. But as she began her meetings here, China questioned the stated neutrality of the United States.
At the start of the talks with Hu, Clinton said the U.S.-China relationship is strong. "We are able to explore areas of agreement and disagreement in a very open manner, which I think demonstrates the maturity of the relationship and the chance to take it further in the future," she said.
There was no immediate comment on the talks, but a scheduled meeting with Vice President Xi Jinping for later Wednesday morning had been canceled by China "for unexpected scheduling reasons," said a senior State Department official, speaking on condition of anonymity.
Xi, who takes over as China's top leader later this year, also had a meeting canceled with the visiting prime minister of Singapore, Lee Hsien Loong. No reasons for the cancellations have been given.
Clinton met late Tuesday with Chinese Foreign Minister Yang Jiechi after arriving in China from Indonesia, where she urged Southeast Asian nations to present a unified front in dealing with China in attempts to ease rising tensions in the South China Sea.
The U.S. wants China and the other claimants to adopt a binding code of conduct for the region, along with a process to resolve maritime disputes without coercion, intimidation or the use of force. Clinton wants the Chinese to drop their insistence on settling conflicting claims with individual nations and instead embrace a multilateral mechanism that will give the smaller members of the Association of South East Asian Nations greater clout in negotiations.
She urged all parties to make "meaningful progress" by a November summit of East Asian leaders that President Barack Obama plans to attend in Cambodia.
In Jakarta, Indonesia's capital, Clinton offered strong U.S. support for a regionally endorsed plan to ease rising tensions by implementing the code of conduct. Jakarta is the headquarters of ASEAN, and Clinton pressed the group to insist that China agree to deal with them as a bloc.
The stance puts the U.S. squarely at odds with China, which has become more aggressive in pressing its territorial claims with its smaller neighbors and wants the disputes to be resolved with each country, giving it greater leverage.
Clinton made her case in Jakarta on Tuesday in meetings with Indonesian President Susilo Bambang Yudhoyono and ASEAN secretary general Surin Pitsuwan. Indonesia has played a leading role in putting the six-point plan together after ASEAN was unable to reach consensus on the matter in July.
Clinton said the U.S. is "encouraged" by the plan but wants it acted on – particularly implementation and enforcement of the code of conduct, which has languished since a preliminary framework for it was first agreed upon in 2002.
"The United States does not take a position on competing territorial claims ... but we believe the nations of the region should work collaboratively to resolve disputes without coercion, without intimidation and certainly without the use of force," Clinton told reporters at a news conference with Indonesian Foreign Minister Marty Natalegawa.
Yet China on Tuesday expressed skepticism that the U.S. is neutral in the disputes.
"The U.S. has many times said it does not take a position," Chinese foreign ministry spokesman Hong Lei said Tuesday. "I hope they will keep their promise and do more to help stability and not the opposite. The South China Sea dispute is a complicated thing. To China, the South China Sea dispute is about the sovereignty of some of the islands there. China, like other countries in the world, has the obligation to safeguard its territories."
For the second day in a row Clinton was criticized Wednesday in editorials in Chinese newspapers. The Global Times said the United States was behind the disputes in the South China Sea and accused Clinton of seeking "unilateral compromise by China."
It said "China should not let the U.S. have any doubt or other misjudgments regarding its determination."
China and a host of Southeast Asian countries, including the Philippines, Vietnam and Brunei, have overlapping claims to several small, but potentially energy-rich areas of the South China Sea.
In July, China angered the United States, as well as Vietnam and the Philippines, by creating a city and military garrison on a remote island 220 miles (350 kilometers) from its southernmost province intended to administer hundreds of thousands of square miles of water where China wants to strengthen its control over disputed islands. China, which also has disputes with Japan in the East China Sea, rejected the criticism.
In addition to the South China Sea, Clinton will be discussing the situation in Syria as well as the efforts to deal with Iran and North Korea's nuclear programs while she is in the Chinese capital.
Clinton is in China at the midpoint of an 11-day, six-nation tour of the Asia-Pacific region that started in the Cook Islands and Indonesia. After she leaves China, she will visit East Timor and Brunei before heading to Russia's Far East to represent the United States at the annual meeting of leaders from the Asia-Pacific Economic Cooperation forum in Vladivostock.
Huffington Post
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China questions U.S. neutrality over its territorial claims
Beijing expresses doubts as U.S. Secretary of State Hillary Clinton arrives on regional tour to persuade authorities to resolve disputes over competing claims in South China Sea.
U.S. Secretary of State Hillary Rodham Clinton is in Beijing to press Chinese authorities to agree to peacefully resolve disputes with their smaller neighbours over competing territorial claims in the South China Sea. But as she began her meetings, China questioned the stated neutrality of the United States.
Clinton met late Tuesday with Chinese Foreign Minister Yang Jiechi after arriving in China from Indonesia, where she urged Southeast Asian nations to present a unified front in dealing with China in attempts to ease rising tensions in the South China Sea. Clinton will meet on Wednesday with other top Chinese officials, including President Hu Jintao and State Councillor Dai Bingguo.
The U.S. wants China and the other claimants to adopt a binding code of conduct for the region, along with a process to resolve maritime disputes without coercion, intimidation or the use of force. Clinton wants the Chinese to drop their insistence on settling conflicting claims with individual nations and instead embrace a multilateral mechanism that will give the smaller members of the Association of South East Asian Nations greater clout in negotiations.
She urged all parties to make "meaningful progress" by a November summit of East Asian leaders that President Barack Obama plans to attend in Cambodia.
Dispute over South China Sea
In Indonesia's capital before heading to China, Clinton offered strong U.S. support for a regionally endorsed plan to ease rising tensions by implementing the code of conduct. Jakarta is the headquarters of ASEAN, and Clinton pressed the group to insist that China agree to deal with them as a bloc.
The stance puts the U.S. squarely at odds with China, which has become more aggressive in pressing its territorial claims with its smaller neighbours and wants the disputes to be resolved with each country, giving it greater leverage.
Clinton made her case in Jakarta on Tuesday in meetings with Indonesian President Susilo Bambang Yudhoyono and ASEAN secretary general Surin Pitsuwan, a day after she delivered the same message to Indonesian Foreign Minister Marty Natalegawa. Indonesia has played a leading role in putting the six-point plan together after ASEAN was unable to reach consensus on the matter in July.
Clinton said the U.S. is "encouraged" by the plan but wants it acted on — particularly implementation and enforcement of the code of conduct, which has languished since a preliminary framework for it was first agreed upon in 2002. .
"The United States has a national interest, as every country does, in the maintenance of peace and stability, respect for international law, freedom of navigation, unimpeded lawful commerce in the South China Sea," Clinton told reporters at a news conference with Natalegawa.
"The United States does not take a position on competing territorial claims ... but we believe the nations of the region should work collaboratively to resolve disputes without coercion, without intimidation and certainly without the use of force," she said. "That is why we encourage ASEAN and China to make meaningful progress toward finalizing a comprehensive code of conduct in order to establish rules of the road and clear procedures for peacefully addressing disagreements."
Yet China on Tuesday expressed skepticism that the U.S. is neutral in the disputes.
"The U.S. has many times said it does not take a position," Chinese foreign ministry spokesman Hong Lei said on Tuesday. "I hope they will keep their promise and do more to help stability and not the opposite. The South China Sea dispute is a complicated thing. To China, the South China Sea dispute is about the sovereignty of some of the islands there. China, like other countries in the world, has the obligation to safeguard its territories."
China and a host of Southeast Asian countries, including the Philippines, Vietnam and Brunei, have overlapping claims to several small, but potentially energy-rich areas of the South China Sea.
In July, China angered the United States, as well as Vietnam and the Philippines, by creating a city and military garrison on a remote island 220 miles from its southernmost province intended to administer hundreds of thousands of square miles of water where China wants to strengthen its control over disputed islands. China, which also has disputes with Japan in the East China Sea, rejected the criticism.
Associated Press
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| Clinton is pressing China to agree to peacefully resolve territorial disputes with their smaller neighbors (Feng Li, Associated Press) |
U.S. Secretary of State Hillary Rodham Clinton is in Beijing to press Chinese authorities to agree to peacefully resolve disputes with their smaller neighbours over competing territorial claims in the South China Sea. But as she began her meetings, China questioned the stated neutrality of the United States.
Clinton met late Tuesday with Chinese Foreign Minister Yang Jiechi after arriving in China from Indonesia, where she urged Southeast Asian nations to present a unified front in dealing with China in attempts to ease rising tensions in the South China Sea. Clinton will meet on Wednesday with other top Chinese officials, including President Hu Jintao and State Councillor Dai Bingguo.
The U.S. wants China and the other claimants to adopt a binding code of conduct for the region, along with a process to resolve maritime disputes without coercion, intimidation or the use of force. Clinton wants the Chinese to drop their insistence on settling conflicting claims with individual nations and instead embrace a multilateral mechanism that will give the smaller members of the Association of South East Asian Nations greater clout in negotiations.
She urged all parties to make "meaningful progress" by a November summit of East Asian leaders that President Barack Obama plans to attend in Cambodia.
Dispute over South China Sea
In Indonesia's capital before heading to China, Clinton offered strong U.S. support for a regionally endorsed plan to ease rising tensions by implementing the code of conduct. Jakarta is the headquarters of ASEAN, and Clinton pressed the group to insist that China agree to deal with them as a bloc.
The stance puts the U.S. squarely at odds with China, which has become more aggressive in pressing its territorial claims with its smaller neighbours and wants the disputes to be resolved with each country, giving it greater leverage.
Clinton made her case in Jakarta on Tuesday in meetings with Indonesian President Susilo Bambang Yudhoyono and ASEAN secretary general Surin Pitsuwan, a day after she delivered the same message to Indonesian Foreign Minister Marty Natalegawa. Indonesia has played a leading role in putting the six-point plan together after ASEAN was unable to reach consensus on the matter in July.
Clinton said the U.S. is "encouraged" by the plan but wants it acted on — particularly implementation and enforcement of the code of conduct, which has languished since a preliminary framework for it was first agreed upon in 2002. .
"The United States has a national interest, as every country does, in the maintenance of peace and stability, respect for international law, freedom of navigation, unimpeded lawful commerce in the South China Sea," Clinton told reporters at a news conference with Natalegawa.
![]() |
| Chinese boats sail in the lagoon of Meiji reef off the island of Hainan, which is also claimed by Vietnam (Associated Press |
"The United States does not take a position on competing territorial claims ... but we believe the nations of the region should work collaboratively to resolve disputes without coercion, without intimidation and certainly without the use of force," she said. "That is why we encourage ASEAN and China to make meaningful progress toward finalizing a comprehensive code of conduct in order to establish rules of the road and clear procedures for peacefully addressing disagreements."
Yet China on Tuesday expressed skepticism that the U.S. is neutral in the disputes.
"The U.S. has many times said it does not take a position," Chinese foreign ministry spokesman Hong Lei said on Tuesday. "I hope they will keep their promise and do more to help stability and not the opposite. The South China Sea dispute is a complicated thing. To China, the South China Sea dispute is about the sovereignty of some of the islands there. China, like other countries in the world, has the obligation to safeguard its territories."
China and a host of Southeast Asian countries, including the Philippines, Vietnam and Brunei, have overlapping claims to several small, but potentially energy-rich areas of the South China Sea.
In July, China angered the United States, as well as Vietnam and the Philippines, by creating a city and military garrison on a remote island 220 miles from its southernmost province intended to administer hundreds of thousands of square miles of water where China wants to strengthen its control over disputed islands. China, which also has disputes with Japan in the East China Sea, rejected the criticism.
Associated Press
Monday, 3 September 2012
Big trouble in the East China Sea
A row between Japan, China and Taiwan over a few small islands reveals the arbitrariness of international relations.
Outside East Asia, very few people know where the Senkaku islands are.
But inside East Asia, the Senkaku prompt great bitterness between Japan, China and Taiwan.
At stake is the national pride of each country, which believes that it alone owns them.
At stake also are each country’s hopes that it might find oil or gas nearby, and its desire to sail round them unimpeded. But there is more.
The Senkaku, and islands like them, signify how, among all the continents in the world, Asia’s past century has been the most enduringly explosive – and how its next could follow the same pattern.
Two hundred nautical miles (nm) west of the Japanese prefecture of Okinawa, 200 nm east of the province of Fujian in the People’s Republic of China, and just 120 nm north-east of Taiwan, there lies an archipelago of five uninhabited islands, covering just seven square kilometres and covered in jungle. Coming from Tokyo, a team of 25 city officials, surveyors and – inevitably – estate agents circled the islands just this weekend, hoping to reinforce Japan’s control over them. In the past, similar moves by both Japan and China have prompted fury, and not a little diplomatic concern elsewhere.
In mid-August, a group of Chinese sailed to the islands in order to uphold Beijing’s claim to them, only to meet with deportation at the hands of Japan. A little later, 150 Japanese nationalists came by in a flotilla and 10 of them swam ashore to raise the Japanese flag. Then, in the latest of a series of tit-for-tat episodes stretching back years, demonstrators in several Chinese cities insisted that Japan get out of the islands. All that’s missing now is that, on top of Tokyo’s rule over what it calls Senkaku and Beijing’s claim over what it calls Diaoyu, is a Taiwanese incursion over what they call the Diaoyutai.
What’s going on? Could all this lead to some kind of fearsome war between Japan, China and Taiwan? And why are there disputes not only in the East China Sea, but also in the South China Sea? There, south-east of Hainan Island (China) and east of Vietnam, China controls the Paracel Islands and resists the complaints of Taiwan and Vietnam about them. There, too, all three parties occupy and are in contention over the myriad Spratly islands, which, lying west of the Philippines and north of Malaysia and Brunei, are also partly controlled and certainly contested by these three nations.
That is not the end of it. In the South China Sea, China and Taiwan are in a three-cornered row with the Philippines over the Scarborough Shoal, a ring of rocks and reefs west off Manila. And, midway between the Korean peninsula and Japan, the fact that rocks there are ruled by South Korean police and known in Seoul as the Dokdo inspires fury in Tokyo. Why?
Most accounts of the maritime tensions in the oceans off East Asia attribute them to two factors. First, blame is laid at the door of rising nationalism in China and Japan, which, it is said, is encouraged by governments keen to distract their domestic populations from economic problems at home. Second, experts point to natural resources – rare minerals, fish, but above all oil and gas – around different groups of islands, and to their strategic location in terms of trade routes and national security.
Nationalism matters, but not that much
In April, Shintaro Ishihara, the fiercely nationalistic governor of Tokyo, threatened to establish municipal ownership of the three out of five Senkaku that are privately owned by rich Japanese people. It’s owing to Ishihara that the team from Tokyo has just gone to case the islands, with the aim of soon using money raised by him – currently standing at about $19million – to execute a purchase. Indeed, Ishihara wants Japan’s Self-Defence Forces on the islands.
On the other hand, the BBC reports that anti-Japanese protests in China were ‘almost certainly sanctioned by the Chinese authorities, as they were well policed’. In the past, it adds, those same authorities have ‘used anti-Japanese sentiment to deflect criticism of their rule’.
All this is true enough. The Japanese economy is going nowhere fast, and even China has met with faltering economic growth – as well as widespread strikes and social protests, on top of the leadership instability recently set off by the fall from grace of erstwhile Politburo wannabe Bo Xilai after his wife was accused of murdering a British businessman. Yet a closer look reveals that the nationalisms so knowingly invoked by commentators aren’t as burgeoning as they suggest. Ishihara is notorious for having a bark bigger than his bite, and nationalism in Japan today only gains salience because of the general paralysis of the government there. Also, the Japanese government did not grant the team that visited the Senkaku permission to land on them, for fear of provoking Beijing.
China is not so different. The BBC reported that ‘angry protests broke out across China’. But as it continued, this amounted to little more than the leisurely, much-photographed vandalising of Japanese-made police cars in Shenzhen, a noisy gathering by the Japanese consulate in Guangzhou, a demonstration of just 200 people in Hong Kong, a ‘down with Japanese imperialism’ banner in Shanghai, and the closure of two Japanese shops in Chengdu. Very little at all happened in Beijing.
These actions hardly herald the start of a Third World War – at least not yet. When Chinese workers strike, they do more than throw bottles of water at the police, as happened in Shenzhen. When residents of Hong Kong protest the lack of democracy there, they turn out in hundreds of thousands, not hundreds.
Nationalism is important in East Asia; but it is more top-down artifice than it is bottom-up obsession, and remains, in Japan, a marginal phenomenon. It certainly cannot be compared with the passions that prevailed before the Second World War.
Resource wars
What about the other explanation for island disputes: that they revolve around natural resources, trade routes and military access? In 2012, sages everywhere believe that behind every international spat lies the dynamics of ‘resource wars’. The leading exponent of this dogma, US professor Michael Klare, holds that the East and South China seas are ‘contested resource zones’, and that there is ‘no reason to believe’ that armed combat will not emerge over them, since ‘existing sources of critical materials’ face ‘exhaustion’ (1). We can pass over the resource-depletion side of Klare’s ideas, since new resources are continually being discovered (as BP’s energy review has noted). But isn’t the rest of his argument plausible?
Well, take the East China Sea. First, Japan and China are the world’s foremost importers of oil – not least because, over land and sea, the entire Asia-Pacific region’s proportion of the world’s proven hydrocarbon reserves is tiny: just 3.3 per cent of oil and 8.7 per cent of gas. Second, note that at the end of 2010, proven reserves of oil over the whole Asia-Pacific region amounted to just six billion tonnes and proven reserves of gas stood at 571.8 trillion cubic feet. Finally, take account of the fact that China has estimated that the East China Sea could have reserves of 21.8 billion tonnes of oil and 170-210 trillion cubic feet of gas. Altogether, then, it’s clear that the potential level of hydrocarbons locally available is pretty significant.
There is something else, too. In 1969, the United Nations’ Economic Commission for Asia and the Far East, in the usual UN manner, inflamed Sino-Japanese relations by suggesting that there might be large hydrocarbon deposits near the Senkaku themselves. Yet despite all this, the fact remains that no oil has ever been found in or around the Senkaku (2). Estimates of potential reserves are one thing, but proven reserves are another. Around the Senkaku, geopolitical posturings – international power politics – drive attempts to locate natural resources more than resource requirements drive the planting of flags. Asked how significant hydrocarbon reserves in the East China Sea are, Canadian maritime security expert James Manicom is commendably sober: ‘not very significant at all’, he says, ‘especially when considered against Chinese and Japanese energy consumption’.
It is a similar story in the South China Sea. In May, China National Offshore Oil Corp offended the Philippines by launching China’s first deep-water drilling rig near the Scarborough Shoal. But though no doubt the move was partly motivated by the prospect of finding black gold, even China’s strongly nationalist Global Times noted, quoting ‘analysts’, that it was designed ‘to reinforce China’s territorial claims in the region’. As with the dispute between Britain and Argentina over the Falklands/Malvinas, hopes about oil under the seas have their place, but populist lunges for territory logically precede them.
The specificity of conflicts in East Asia
In East Asia, it’s the sea, not the land or even the air, that’s the main event in terms of trade and military manoeuvres, which are certainly more real than putative reserves of oil and gas. As Alessio Patalano, a naval strategy expert at Kings College, London, points out, the sea accounts for 90 per cent of freight in East Asia, and the Senkaku are at the centre of the region’s trade routes (3). At the same time, Patalano adds, maritime boundaries can’t be permanently occupied or defended. That is why islands east of Asia, which can be occupied and which proved rather significant in the 1941-5 Pacific War between Japan and the US, play a big role in animosities.
When, in turn, one looks at all the island disputes in the East and South China Seas, the striking thing about them is how long they go back.
Despite all today’s frictions between China and Japan, for instance, the two countries have, if anything, cooled their respective nationalist hotheads in recent years, as trade between them, assisted by China’s rise, has flourished. Even in energy, there has been some Sino-Japanese collaboration, including the signing of a ‘de-escalating’ deal in June 2008 deal allowing Japan to invest in Chinese exploration for gas in the South China Sea (4).
But differences on islands have a much more historic character than these temporary agreements. For example: Japan first gained formal jurisdiction over the Senkaku in 1895, when victory in its first war with China gave Tokyo not just those islands, but also, and much more significantly, Formosa – now known as Taiwan. Japan’s defeat in the Second World War subsequently left the status of the Senkaku unclear; but when the US ended its occupation of Okinawa in 1972, the islands reverted to Japanese control, so prompting Chinese and Taiwanese anger.
Outside the context of real trade war or war itself, and with the obvious exception of Taiwan, whose independence still very much riles Beijing, East Asia’s islands have little intrinsic utility. So it isn’t too hard to see that disagreements about them must reflect something else. And that something is simply this: from Japan’s Meiji restoration (1866-8) onward, the growth of different countries in Asia has been impetuous, unresolved and highly militarised (see The forgotten history of Pearl Harbor). Asia, home already to wars between Germany and Russia (1941-45), India and China (1962) and India and Pakistan (1947, 1965, 1971, 1999) has, on its Eastern reaches, seen a series of conflagrations.
Before and for six months after the attack on Pearl Harbor in December 1941, for instance, nothing appeared able to stop Japan. Thus when, in late 1937, Japan’s army occupied the newly established Chinese capital of Nanjing, it tortured, raped and killed about 300,000 civilians in just six weeks – only for the Chinese Communist Party to keep quiet about the episode for many years. It is only with China and South Korea’s more recent and burgeoning economic ascents that these countries have really made a big deal of Japanese imperialism’s conduct in the 40 years following 1905 – the year in which, following its 1895 victory over China and Formosa, Japan took Korea under its ‘protection’ (it annexed Korea in 1910). Nevertheless, Tokyo’s catalogue of misdeeds, stretching over the first half of the twentieth century, is not easily forgotten by its neighbours.
By themselves, then, the Senkaku islands, or whatever one chooses to call them, amount to almost nothing. But behind them in the past stand the fate of Nanking, the firebombing of Tokyo and the atomic bombing of Hiroshima and Nagasaki, the Chinese civil war (1945-50), the Korean War (1950-53), the killing of hundreds of thousands of Indonesians in President Sukarno’s anti-communist repression (1965-6), and the wars in Vietnam, Laos and Cambodia, in which two million died. And behind the Senkaku in the future stands the possibility of international capital shifting labour-intensive manufacturing away from China, toward youthful, low-wage countries such as Indonesia, Malaysia or – despite the slowdown and the political infighting there – Vietnam.
It is this history and these prospects that drive antagonisms in East Asia. They don’t just form the indispensable context for what pundits glibly describe as the clash of nationalisms and of claims over natural resources there; they are more powerful than either of these things. One need only think of the complicated resentments that surround Taiwan, and also North and South Korea, to see that nationalism does only a certain amount, and resources still less, to explain the forces at work.
Arbitrary disputes can certainly lead to war
Today, the world’s increasing focus on Asia as a place for capital accumulation and innovation is complemented by increasing assertiveness in the foreign policy of different states, and by rapid technological advance in Asia’s various defence sectors. But the various territorial claims on islands around East Asia are not equal: if Tokyo’s attitude toward the Senkaku, and toward the Dokdo islands controlled by South Korea, is peremptory, so is the Chinese Communist Party’s stance toward the islands claimed by Vietnam, the Philippines and others.
It is also the case that sabre-rattling over islands around East Asia reflects the incoherence of the Japanese state and Japanese politics, as well as China’s bizarre web of competing state or para-statal agencies – fisheries, marine surveillance and safety, local government, armed forces, foreign affairs, energy companies, tourism, environmental protection, coastguard and customs.
Enter America
But the final, most contemporary and arguably decisive factor heating up disputes off East Asia lies formally outside it. That factor is US president Barack Obama’s October 2011 ‘pivot’ to all of Asia, and US secretary of state Hillary Clinton’s subsequent tours of the continent and its outlying regions, in which, among other provocative statements, she has proclaimed a US national interest in ‘freedom of navigation’ in the South China Sea. The Obama administration has increased its military presence in northern Australia, offered all China’s rivals renewed guarantees of military support, and embarked on ‘defence’ exercises with both the Philippines and Japan. All these overt attempts – leave aside the covert ones – to encircle and restrain China can only make more waves around the seas of East Asia. Moreover, disputes between US allies, and in the first place between Japan and South Korea, can only unnerve Washington.
Like Japan, the US is in great economic difficulty today, and feels a need both to up its rhetoric and brandish its weapons over the East Asian theatre. Once more, however, no clear ultra-nationalist intent or imperialist designs are much at issue with the US, any more than they are with Japan. Equally, China has no special desire to upset the global apple cart by changing its current position as a ‘status quo’ power in international relations.
What really stands out in all the disputes off East Asia is their arbitrary nature. For fishing trawlers, the governor of Tokyo or a few swimmers to act as a casus belli is nothing short of ridiculous. As Min Gyo Koo, a professor at Seoul National University, has also pointed out about the Senkaku: ‘[Japan and China] have been deterred from pushing for a more definitive political showdown with respect to the island dispute in the interest of maintaining the lucrative trade and investment relations that both countries have enjoyed [with each other] since 1972. In spite of the fact that the island dispute remains unresolved, both parties have found it a convenient strategy to shelve final resolution attempts rather than to risk the rupture of vastly consequential, common strategic and economic interests.’ (5)
However, for all the economic intertwining of different states in East Asia, war is never the kind of rational enterprise that takes account of such factors. A silly incident can all too easily set off a chain reaction. Nor does our tale of Asia’s dissonances quite amount to the full picture. Over the South China Sea, India supports Vietnam; elsewhere, China has alliances with Pakistan and Sri Lanka, opponents of India. Meanwhile the fact that Russia occupies four of the southern Kuril Islands, which lie between it and Japan, today still prevents the two countries from agreeing a formal treaty ending the hostilities of the Second World War.
Arbitrariness in international relations is not confined to the East and South China Seas – the role of the West in the Middle East, or in Central Asia, confirms that. But around the Senkaku and other islands, arbitrariness is compounded by the special, maritime geography of East Asia; by the special, turbulent history of the Asia as a whole; by China’s climb to world prominence; and by the thrashing around of Japan and, even more, the US.
In the waters of East Asia, today’s unprecedented arbitrariness in international affairs makes for unprecedented dangers.
James Woudhuysen
(1) Michael T Klare, The Race for What’s Left: The Global Scramble for the World’s Last Resources, Metropolitan Books, 2012.
(2) Jian Yang, ‘A strategic game: China’s energy relations with Japan and India’, in Carrie Liu Currier and Manochehr Dorraj, China’s Energy Relations with the Developing World, Continuum, 2011, p152.
(3) Alessio Patalano, speech to a Daiwa Foundation seminar on ‘The Senkaku/Diaoyutai Incident One Year on: Island Disputes and Maritime Strategy in Sino-Japanese Relations’, London, 5 October 2011. It should be noted that, over maritime boundaries, the UN has once again has complicated matters. By defining a country’s exclusive economic zones (EEZs) as extending 200 nautical miles from its shores, its 1982 Convention on the Law of the Sea has made the East China Sea – which is, at its widest, runs just 360 nm between China and Japan – an inherently contentious issue.
(4) Ralf Emmers, Geopolitics and Maritime Territorial Disputes in East Asia, Routledge, 2009, p63; Jian Yang, ‘A strategic game: China’s energy relations with Japan and India’, in Carrie Liu Currier and Manochehr Dorraj, China’s Energy Relations with the Developing World, Continuum, 2011, p152.
(5) Min Gyo Koo, Island Disputes and Maritime Regime Building in East Asia: Between a Rock and a Hard Place, Springer, 2010, p134.
If the recent tension between China and Japan over disputed islands in the East China Sea is any indication, relations between the world’s second and third largest economies will not be smooth for some time to come, despite ever-increasing bilateral trade and investment.
That is because both countries’ latest rush to affirm their sovereignty over the islands – called Senkaku in Japanese and Diaoyu in Chinese – reflects a sense of insecurity and a perception that the other side is taking an aggressive stand, which means that the issue is unlikely to be resolved in the foreseeable future.
On the Japanese side, there is growing anxiety over China’s increasing economic and military prowess, such that some nationalists would like to “settle” the matter in Japan’s favor as soon as possible. Tokyo Governor Shintaro Ishihara’s recent call for Japan’s government to “purchase” the islands from “private” Japanese owners can be explained in this context.
On the Chinese side, the maritime quarrels with Japan – and with Brunei, Malaysia, Vietnam, and the Philippines in the South China Sea – have reignited a national debate about whether China’s foreign policy is too weak in terms of asserting the country’s interests.
America’s “pivot” to Asia, viewed by many Chinese as an effort by the United States to reassert itself in Asia by supporting other Asian states in “containing” China’s rise, has fueled a siege mentality among Chinese nationalists.
Their response is to call for tough military action in the South China Sea, and to stage symbolic landings on the Diaoyu/Senkaku islands, such as those staged by Hong Kong activists on Aug. 15.
Japan arrested the activists, but deported them soon after, thus avoiding a prolonged confrontation with China. The Japanese authorities clearly learned a lesson from their detention of a Chinese fishing boat captain two years ago, when they eventually acceded to Chinese pressure – which included a range of harsh, and escalating, political and economic measures – to release him.
Soon after the Hong Kong activists’ protest landing on the disputed islands, Japanese citizens, including local assembly members, staged their own landing there. Moreover, the Japanese government, while rejecting a further appeal from Ishihara to provide land on the isles to the Tokyo municipality, is, however, raising money to purchase some of the islands from their supposedly bankrupt Japanese owner.
Such mixed signals have further inflamed nationalist sentiments in China, and anti-Japanese demonstrations have broken out in many Chinese cities, including an attack on the Japanese ambassador’s official vehicle. Both sides urgently need to cool off, especially in order to contain their extremist elements and prevent them from taking over the issue and setting the policy agenda.
In the short term, China’s government should discourage further anti-Japanese demonstrations. Well-educated Chinese should understand that destroying Japanese cars (which are made in China) and similar behavior are not rational ways to express an opinion about a territorial dispute with Japan. And China’s government should work with the Hong Kong authorities to prevent another attempt by Chinese activists to land on Senkaku/Diaoyu again in October.
For its part, Japan should suspend its plan to buy the islands, an effort that is certain to make matters worse if it goes ahead. The status quo is that the Chinese government has not challenged Japan’s de facto control of the islands, so further action to force China’s hand would be extremely unwise.
In the medium term, the two governments should work out a formula for coping with scenarios that now play out regularly. A crisis-management team composed of representatives of both countries’ foreign ministries, coast guards and militaries should not only meet regularly but should also consult each other in emergency situations, thereby minimizing the risk that matters get out of control.
Moreover, such a formula should bar provocative actions by either side, including military exercises, such as those staged recently by China and, jointly, by the U.S. and Japan. It should also contain a standard procedure for managing the aftermath when behavior by citizens of either country forces the two governments into unexpected situations.
In the long run, the best outcome is a peaceful resolution to the sovereignty issue, or, barring that, a compromise that satisfies both sides’ core interests. Joint development of the area’s resources, which both countries need, should be returned to the bilateral agenda.
China’s former leader Deng Xiaoping famously proposed that, for the sake of better Sino-Japanese relations, the two countries should shelve the Diaoyu/Senkaku dispute for future generations to resolve. That wisdom remains the best advice to date, especially given that the consequences of a worsening bilateral relationship would extend far beyond China and Japan.
Wenran Jiang
Outside East Asia, very few people know where the Senkaku islands are.
But inside East Asia, the Senkaku prompt great bitterness between Japan, China and Taiwan.
At stake is the national pride of each country, which believes that it alone owns them.
At stake also are each country’s hopes that it might find oil or gas nearby, and its desire to sail round them unimpeded. But there is more.
The Senkaku, and islands like them, signify how, among all the continents in the world, Asia’s past century has been the most enduringly explosive – and how its next could follow the same pattern.
Two hundred nautical miles (nm) west of the Japanese prefecture of Okinawa, 200 nm east of the province of Fujian in the People’s Republic of China, and just 120 nm north-east of Taiwan, there lies an archipelago of five uninhabited islands, covering just seven square kilometres and covered in jungle. Coming from Tokyo, a team of 25 city officials, surveyors and – inevitably – estate agents circled the islands just this weekend, hoping to reinforce Japan’s control over them. In the past, similar moves by both Japan and China have prompted fury, and not a little diplomatic concern elsewhere.
In mid-August, a group of Chinese sailed to the islands in order to uphold Beijing’s claim to them, only to meet with deportation at the hands of Japan. A little later, 150 Japanese nationalists came by in a flotilla and 10 of them swam ashore to raise the Japanese flag. Then, in the latest of a series of tit-for-tat episodes stretching back years, demonstrators in several Chinese cities insisted that Japan get out of the islands. All that’s missing now is that, on top of Tokyo’s rule over what it calls Senkaku and Beijing’s claim over what it calls Diaoyu, is a Taiwanese incursion over what they call the Diaoyutai.
What’s going on? Could all this lead to some kind of fearsome war between Japan, China and Taiwan? And why are there disputes not only in the East China Sea, but also in the South China Sea? There, south-east of Hainan Island (China) and east of Vietnam, China controls the Paracel Islands and resists the complaints of Taiwan and Vietnam about them. There, too, all three parties occupy and are in contention over the myriad Spratly islands, which, lying west of the Philippines and north of Malaysia and Brunei, are also partly controlled and certainly contested by these three nations.
That is not the end of it. In the South China Sea, China and Taiwan are in a three-cornered row with the Philippines over the Scarborough Shoal, a ring of rocks and reefs west off Manila. And, midway between the Korean peninsula and Japan, the fact that rocks there are ruled by South Korean police and known in Seoul as the Dokdo inspires fury in Tokyo. Why?
Most accounts of the maritime tensions in the oceans off East Asia attribute them to two factors. First, blame is laid at the door of rising nationalism in China and Japan, which, it is said, is encouraged by governments keen to distract their domestic populations from economic problems at home. Second, experts point to natural resources – rare minerals, fish, but above all oil and gas – around different groups of islands, and to their strategic location in terms of trade routes and national security.
Nationalism matters, but not that much
In April, Shintaro Ishihara, the fiercely nationalistic governor of Tokyo, threatened to establish municipal ownership of the three out of five Senkaku that are privately owned by rich Japanese people. It’s owing to Ishihara that the team from Tokyo has just gone to case the islands, with the aim of soon using money raised by him – currently standing at about $19million – to execute a purchase. Indeed, Ishihara wants Japan’s Self-Defence Forces on the islands.
On the other hand, the BBC reports that anti-Japanese protests in China were ‘almost certainly sanctioned by the Chinese authorities, as they were well policed’. In the past, it adds, those same authorities have ‘used anti-Japanese sentiment to deflect criticism of their rule’.
All this is true enough. The Japanese economy is going nowhere fast, and even China has met with faltering economic growth – as well as widespread strikes and social protests, on top of the leadership instability recently set off by the fall from grace of erstwhile Politburo wannabe Bo Xilai after his wife was accused of murdering a British businessman. Yet a closer look reveals that the nationalisms so knowingly invoked by commentators aren’t as burgeoning as they suggest. Ishihara is notorious for having a bark bigger than his bite, and nationalism in Japan today only gains salience because of the general paralysis of the government there. Also, the Japanese government did not grant the team that visited the Senkaku permission to land on them, for fear of provoking Beijing.
China is not so different. The BBC reported that ‘angry protests broke out across China’. But as it continued, this amounted to little more than the leisurely, much-photographed vandalising of Japanese-made police cars in Shenzhen, a noisy gathering by the Japanese consulate in Guangzhou, a demonstration of just 200 people in Hong Kong, a ‘down with Japanese imperialism’ banner in Shanghai, and the closure of two Japanese shops in Chengdu. Very little at all happened in Beijing.
These actions hardly herald the start of a Third World War – at least not yet. When Chinese workers strike, they do more than throw bottles of water at the police, as happened in Shenzhen. When residents of Hong Kong protest the lack of democracy there, they turn out in hundreds of thousands, not hundreds.
Nationalism is important in East Asia; but it is more top-down artifice than it is bottom-up obsession, and remains, in Japan, a marginal phenomenon. It certainly cannot be compared with the passions that prevailed before the Second World War.
Resource wars
What about the other explanation for island disputes: that they revolve around natural resources, trade routes and military access? In 2012, sages everywhere believe that behind every international spat lies the dynamics of ‘resource wars’. The leading exponent of this dogma, US professor Michael Klare, holds that the East and South China seas are ‘contested resource zones’, and that there is ‘no reason to believe’ that armed combat will not emerge over them, since ‘existing sources of critical materials’ face ‘exhaustion’ (1). We can pass over the resource-depletion side of Klare’s ideas, since new resources are continually being discovered (as BP’s energy review has noted). But isn’t the rest of his argument plausible?
Well, take the East China Sea. First, Japan and China are the world’s foremost importers of oil – not least because, over land and sea, the entire Asia-Pacific region’s proportion of the world’s proven hydrocarbon reserves is tiny: just 3.3 per cent of oil and 8.7 per cent of gas. Second, note that at the end of 2010, proven reserves of oil over the whole Asia-Pacific region amounted to just six billion tonnes and proven reserves of gas stood at 571.8 trillion cubic feet. Finally, take account of the fact that China has estimated that the East China Sea could have reserves of 21.8 billion tonnes of oil and 170-210 trillion cubic feet of gas. Altogether, then, it’s clear that the potential level of hydrocarbons locally available is pretty significant.
There is something else, too. In 1969, the United Nations’ Economic Commission for Asia and the Far East, in the usual UN manner, inflamed Sino-Japanese relations by suggesting that there might be large hydrocarbon deposits near the Senkaku themselves. Yet despite all this, the fact remains that no oil has ever been found in or around the Senkaku (2). Estimates of potential reserves are one thing, but proven reserves are another. Around the Senkaku, geopolitical posturings – international power politics – drive attempts to locate natural resources more than resource requirements drive the planting of flags. Asked how significant hydrocarbon reserves in the East China Sea are, Canadian maritime security expert James Manicom is commendably sober: ‘not very significant at all’, he says, ‘especially when considered against Chinese and Japanese energy consumption’.
It is a similar story in the South China Sea. In May, China National Offshore Oil Corp offended the Philippines by launching China’s first deep-water drilling rig near the Scarborough Shoal. But though no doubt the move was partly motivated by the prospect of finding black gold, even China’s strongly nationalist Global Times noted, quoting ‘analysts’, that it was designed ‘to reinforce China’s territorial claims in the region’. As with the dispute between Britain and Argentina over the Falklands/Malvinas, hopes about oil under the seas have their place, but populist lunges for territory logically precede them.
The specificity of conflicts in East Asia
In East Asia, it’s the sea, not the land or even the air, that’s the main event in terms of trade and military manoeuvres, which are certainly more real than putative reserves of oil and gas. As Alessio Patalano, a naval strategy expert at Kings College, London, points out, the sea accounts for 90 per cent of freight in East Asia, and the Senkaku are at the centre of the region’s trade routes (3). At the same time, Patalano adds, maritime boundaries can’t be permanently occupied or defended. That is why islands east of Asia, which can be occupied and which proved rather significant in the 1941-5 Pacific War between Japan and the US, play a big role in animosities.
When, in turn, one looks at all the island disputes in the East and South China Seas, the striking thing about them is how long they go back.
Despite all today’s frictions between China and Japan, for instance, the two countries have, if anything, cooled their respective nationalist hotheads in recent years, as trade between them, assisted by China’s rise, has flourished. Even in energy, there has been some Sino-Japanese collaboration, including the signing of a ‘de-escalating’ deal in June 2008 deal allowing Japan to invest in Chinese exploration for gas in the South China Sea (4).
But differences on islands have a much more historic character than these temporary agreements. For example: Japan first gained formal jurisdiction over the Senkaku in 1895, when victory in its first war with China gave Tokyo not just those islands, but also, and much more significantly, Formosa – now known as Taiwan. Japan’s defeat in the Second World War subsequently left the status of the Senkaku unclear; but when the US ended its occupation of Okinawa in 1972, the islands reverted to Japanese control, so prompting Chinese and Taiwanese anger.
Outside the context of real trade war or war itself, and with the obvious exception of Taiwan, whose independence still very much riles Beijing, East Asia’s islands have little intrinsic utility. So it isn’t too hard to see that disagreements about them must reflect something else. And that something is simply this: from Japan’s Meiji restoration (1866-8) onward, the growth of different countries in Asia has been impetuous, unresolved and highly militarised (see The forgotten history of Pearl Harbor). Asia, home already to wars between Germany and Russia (1941-45), India and China (1962) and India and Pakistan (1947, 1965, 1971, 1999) has, on its Eastern reaches, seen a series of conflagrations.
Before and for six months after the attack on Pearl Harbor in December 1941, for instance, nothing appeared able to stop Japan. Thus when, in late 1937, Japan’s army occupied the newly established Chinese capital of Nanjing, it tortured, raped and killed about 300,000 civilians in just six weeks – only for the Chinese Communist Party to keep quiet about the episode for many years. It is only with China and South Korea’s more recent and burgeoning economic ascents that these countries have really made a big deal of Japanese imperialism’s conduct in the 40 years following 1905 – the year in which, following its 1895 victory over China and Formosa, Japan took Korea under its ‘protection’ (it annexed Korea in 1910). Nevertheless, Tokyo’s catalogue of misdeeds, stretching over the first half of the twentieth century, is not easily forgotten by its neighbours.
By themselves, then, the Senkaku islands, or whatever one chooses to call them, amount to almost nothing. But behind them in the past stand the fate of Nanking, the firebombing of Tokyo and the atomic bombing of Hiroshima and Nagasaki, the Chinese civil war (1945-50), the Korean War (1950-53), the killing of hundreds of thousands of Indonesians in President Sukarno’s anti-communist repression (1965-6), and the wars in Vietnam, Laos and Cambodia, in which two million died. And behind the Senkaku in the future stands the possibility of international capital shifting labour-intensive manufacturing away from China, toward youthful, low-wage countries such as Indonesia, Malaysia or – despite the slowdown and the political infighting there – Vietnam.
It is this history and these prospects that drive antagonisms in East Asia. They don’t just form the indispensable context for what pundits glibly describe as the clash of nationalisms and of claims over natural resources there; they are more powerful than either of these things. One need only think of the complicated resentments that surround Taiwan, and also North and South Korea, to see that nationalism does only a certain amount, and resources still less, to explain the forces at work.
Arbitrary disputes can certainly lead to war
Today, the world’s increasing focus on Asia as a place for capital accumulation and innovation is complemented by increasing assertiveness in the foreign policy of different states, and by rapid technological advance in Asia’s various defence sectors. But the various territorial claims on islands around East Asia are not equal: if Tokyo’s attitude toward the Senkaku, and toward the Dokdo islands controlled by South Korea, is peremptory, so is the Chinese Communist Party’s stance toward the islands claimed by Vietnam, the Philippines and others.
It is also the case that sabre-rattling over islands around East Asia reflects the incoherence of the Japanese state and Japanese politics, as well as China’s bizarre web of competing state or para-statal agencies – fisheries, marine surveillance and safety, local government, armed forces, foreign affairs, energy companies, tourism, environmental protection, coastguard and customs.
Enter America
But the final, most contemporary and arguably decisive factor heating up disputes off East Asia lies formally outside it. That factor is US president Barack Obama’s October 2011 ‘pivot’ to all of Asia, and US secretary of state Hillary Clinton’s subsequent tours of the continent and its outlying regions, in which, among other provocative statements, she has proclaimed a US national interest in ‘freedom of navigation’ in the South China Sea. The Obama administration has increased its military presence in northern Australia, offered all China’s rivals renewed guarantees of military support, and embarked on ‘defence’ exercises with both the Philippines and Japan. All these overt attempts – leave aside the covert ones – to encircle and restrain China can only make more waves around the seas of East Asia. Moreover, disputes between US allies, and in the first place between Japan and South Korea, can only unnerve Washington.
Like Japan, the US is in great economic difficulty today, and feels a need both to up its rhetoric and brandish its weapons over the East Asian theatre. Once more, however, no clear ultra-nationalist intent or imperialist designs are much at issue with the US, any more than they are with Japan. Equally, China has no special desire to upset the global apple cart by changing its current position as a ‘status quo’ power in international relations.
What really stands out in all the disputes off East Asia is their arbitrary nature. For fishing trawlers, the governor of Tokyo or a few swimmers to act as a casus belli is nothing short of ridiculous. As Min Gyo Koo, a professor at Seoul National University, has also pointed out about the Senkaku: ‘[Japan and China] have been deterred from pushing for a more definitive political showdown with respect to the island dispute in the interest of maintaining the lucrative trade and investment relations that both countries have enjoyed [with each other] since 1972. In spite of the fact that the island dispute remains unresolved, both parties have found it a convenient strategy to shelve final resolution attempts rather than to risk the rupture of vastly consequential, common strategic and economic interests.’ (5)
However, for all the economic intertwining of different states in East Asia, war is never the kind of rational enterprise that takes account of such factors. A silly incident can all too easily set off a chain reaction. Nor does our tale of Asia’s dissonances quite amount to the full picture. Over the South China Sea, India supports Vietnam; elsewhere, China has alliances with Pakistan and Sri Lanka, opponents of India. Meanwhile the fact that Russia occupies four of the southern Kuril Islands, which lie between it and Japan, today still prevents the two countries from agreeing a formal treaty ending the hostilities of the Second World War.
Arbitrariness in international relations is not confined to the East and South China Seas – the role of the West in the Middle East, or in Central Asia, confirms that. But around the Senkaku and other islands, arbitrariness is compounded by the special, maritime geography of East Asia; by the special, turbulent history of the Asia as a whole; by China’s climb to world prominence; and by the thrashing around of Japan and, even more, the US.
In the waters of East Asia, today’s unprecedented arbitrariness in international affairs makes for unprecedented dangers.
James Woudhuysen
(1) Michael T Klare, The Race for What’s Left: The Global Scramble for the World’s Last Resources, Metropolitan Books, 2012.
(2) Jian Yang, ‘A strategic game: China’s energy relations with Japan and India’, in Carrie Liu Currier and Manochehr Dorraj, China’s Energy Relations with the Developing World, Continuum, 2011, p152.
(3) Alessio Patalano, speech to a Daiwa Foundation seminar on ‘The Senkaku/Diaoyutai Incident One Year on: Island Disputes and Maritime Strategy in Sino-Japanese Relations’, London, 5 October 2011. It should be noted that, over maritime boundaries, the UN has once again has complicated matters. By defining a country’s exclusive economic zones (EEZs) as extending 200 nautical miles from its shores, its 1982 Convention on the Law of the Sea has made the East China Sea – which is, at its widest, runs just 360 nm between China and Japan – an inherently contentious issue.
(4) Ralf Emmers, Geopolitics and Maritime Territorial Disputes in East Asia, Routledge, 2009, p63; Jian Yang, ‘A strategic game: China’s energy relations with Japan and India’, in Carrie Liu Currier and Manochehr Dorraj, China’s Energy Relations with the Developing World, Continuum, 2011, p152.
(5) Min Gyo Koo, Island Disputes and Maritime Regime Building in East Asia: Between a Rock and a Hard Place, Springer, 2010, p134.
States of insecurity: China and Japan’s sovereign disputes
If the recent tension between China and Japan over disputed islands in the East China Sea is any indication, relations between the world’s second and third largest economies will not be smooth for some time to come, despite ever-increasing bilateral trade and investment.
That is because both countries’ latest rush to affirm their sovereignty over the islands – called Senkaku in Japanese and Diaoyu in Chinese – reflects a sense of insecurity and a perception that the other side is taking an aggressive stand, which means that the issue is unlikely to be resolved in the foreseeable future.
On the Japanese side, there is growing anxiety over China’s increasing economic and military prowess, such that some nationalists would like to “settle” the matter in Japan’s favor as soon as possible. Tokyo Governor Shintaro Ishihara’s recent call for Japan’s government to “purchase” the islands from “private” Japanese owners can be explained in this context.
On the Chinese side, the maritime quarrels with Japan – and with Brunei, Malaysia, Vietnam, and the Philippines in the South China Sea – have reignited a national debate about whether China’s foreign policy is too weak in terms of asserting the country’s interests.
America’s “pivot” to Asia, viewed by many Chinese as an effort by the United States to reassert itself in Asia by supporting other Asian states in “containing” China’s rise, has fueled a siege mentality among Chinese nationalists.
Their response is to call for tough military action in the South China Sea, and to stage symbolic landings on the Diaoyu/Senkaku islands, such as those staged by Hong Kong activists on Aug. 15.
Japan arrested the activists, but deported them soon after, thus avoiding a prolonged confrontation with China. The Japanese authorities clearly learned a lesson from their detention of a Chinese fishing boat captain two years ago, when they eventually acceded to Chinese pressure – which included a range of harsh, and escalating, political and economic measures – to release him.
Soon after the Hong Kong activists’ protest landing on the disputed islands, Japanese citizens, including local assembly members, staged their own landing there. Moreover, the Japanese government, while rejecting a further appeal from Ishihara to provide land on the isles to the Tokyo municipality, is, however, raising money to purchase some of the islands from their supposedly bankrupt Japanese owner.
Such mixed signals have further inflamed nationalist sentiments in China, and anti-Japanese demonstrations have broken out in many Chinese cities, including an attack on the Japanese ambassador’s official vehicle. Both sides urgently need to cool off, especially in order to contain their extremist elements and prevent them from taking over the issue and setting the policy agenda.
In the short term, China’s government should discourage further anti-Japanese demonstrations. Well-educated Chinese should understand that destroying Japanese cars (which are made in China) and similar behavior are not rational ways to express an opinion about a territorial dispute with Japan. And China’s government should work with the Hong Kong authorities to prevent another attempt by Chinese activists to land on Senkaku/Diaoyu again in October.
For its part, Japan should suspend its plan to buy the islands, an effort that is certain to make matters worse if it goes ahead. The status quo is that the Chinese government has not challenged Japan’s de facto control of the islands, so further action to force China’s hand would be extremely unwise.
In the medium term, the two governments should work out a formula for coping with scenarios that now play out regularly. A crisis-management team composed of representatives of both countries’ foreign ministries, coast guards and militaries should not only meet regularly but should also consult each other in emergency situations, thereby minimizing the risk that matters get out of control.
Moreover, such a formula should bar provocative actions by either side, including military exercises, such as those staged recently by China and, jointly, by the U.S. and Japan. It should also contain a standard procedure for managing the aftermath when behavior by citizens of either country forces the two governments into unexpected situations.
In the long run, the best outcome is a peaceful resolution to the sovereignty issue, or, barring that, a compromise that satisfies both sides’ core interests. Joint development of the area’s resources, which both countries need, should be returned to the bilateral agenda.
China’s former leader Deng Xiaoping famously proposed that, for the sake of better Sino-Japanese relations, the two countries should shelve the Diaoyu/Senkaku dispute for future generations to resolve. That wisdom remains the best advice to date, especially given that the consequences of a worsening bilateral relationship would extend far beyond China and Japan.
Wenran Jiang
Sunday, 2 September 2012
China's cash: Take it or lose it
The Chinese are coming! Just as the summer winds down, announced Chinese acquisition in the United States has reached US$7.8 billion, approaching its all-time full-year record of $8.9 billion.
Significantly, Chinese FDI is pushing westward. While Asia remains the overwhelming favorite, the share of North America and Europe in the total Chinese FDI portfolio grew from less than 3% in 2008 to more than 13% just two years later. The absolute value of that expansion is equally impressive: The $9.54 billion total in 2010 is more than quadruple the level of two years before.
Most recently, China National Offshore Oil Corp (CNOOC) agreed to pay $15.1 billion in cash to acquire Canada's Nexen Inc, on the same day that Sinopec, another Chinese oil company, agreed to acquire a 49% stake in UK North Sea assets owned by Talisman Energy (another Canadian enterprise) for $1.5 billion. Regardless of whether these two deals are ultimately approved - the process continues at this writing - the sheer volume and potential of Chinese foreign direct investment (FDI) will have a profound impact on the global economy, providing both enormous business potential and new challenges.
The world, particularly the West (which is becoming increasingly attractive to Chinese investors) should welcome this trend, but governments must also develop strategies to take full advantage of the economic opportunities it presents.
The July 23 deals are part of China's growing interest in mergers and acquisitions (M&A), which has assumed a steadily expanding share of China's recent FDI. M&A constituted some 46% of Chinese FDI in 2011, up from 18% in 2003. Large state-owned enterprises (SOEs) continue to be the main driver of Chinese outward FDI, making up more than two-thirds of such deals in 2010. The average value of M&A deals is usually larger than greenfield projects: The 143 M&A deals in 2011 have almost the same value as the 918 greenfield projects (the increasing use of M&A by Chinese investors also reflects the growing sizes of Chinese FDI projects).
The westward shift of investment direction is natural after three decades of fast growth that has established China as No 2 among global economies. The growth has primarily been dependent on labor and resource-intensive industries. For the Chinese economy to continue to advance, it has to reform its giant industrial machine toward higher value-added production. The fact that Chinese outward FDI is moving toward matured markets such as the US and Europe is a reflection of this fundamental transition in its economic development. This shift will present opportunities for China to access sophisticated technology and management, mature its large domestic consumer market, and assure a stable supply of resources, as well as skilled labor.
Experts debate whether specific FDI projects are independent, profit-driven commercial decisions or driven by the government as part of its national development strategy. Whatever the conclusion, the choices of industries fit the strategic needs of China's long-term economic development. There is growing interests in China to acquire large stakes in companies in the West that have relatively safe and established energy resources, advanced technology that can supply much needed research and development for Chinese industry, manufacturers with good market bases and potential in the West and in China, or banks that provide a pathway to Western financial markets.
The impending takeover of Nexen comes after a $19 billion bid by the same company to acquire the US oil company Unocal in 2005; that bid was blocked by strong political objections based on controversial national security concerns from the US Congress. It comes at a time when Canadian energy companies are trying to reduce dependence on the US market by building new pipelines toward Asia. The takeover of Nexen will provide the Chinese company with access to sophisticated technologies for oil/gas production, including Nexen's oil-sands, shale-gas, and deep-water leases in North America. It will also provide the Chinese company significant assets in the Gulf of Mexico. CNOOC made the offer after careful preparation to satisfy the needs and political demands of Canadian authorities to avoid an experience similar that of the Unocal acquisition.
If the Nexen deal is completed, it will be another example of a company that has met with strong political resistance in the United States successfully investing in projects with US allies and close partners. Many people believe that the Nexen deal enables CNOOC to park the same money from its unsuccessful bid to acquire Unocal in another country.
Similarly, Chinese telecommunication giant Huawei has been blocked from making acquisitions of US-based technology companies citing national security concerns. But it has had a smooth ride in Europe, setting up six R&D centers and recently acquiring the UK's world-leading photonics research laboratory. Unlike the US, the European Union does not have regulations that distinguish foreign investors from domestic ones.
Without judging whether national-security concerns are credible in each case, a fundamental question remains: If such concerns about Chinese FDI are credible, then should the US be worried about breaches by Chinese investments in allies and partners? This is not to say that the US should follow suit when others make mistakes, but it should rethink its current strategy. A detailed and forthcoming national-security strategy regarding Chinese direct investment that also takes into account critical allies' activity will be key to successfully guarding US security interests and would welcome Chinese investors with clear guidance. However, if it's not about national security but other vested economic interests, then the US is hurting itself by turning away investment capital.
It is natural that the world's two largest economies are not just important trade partners, but also investment partners. It isn't just wise but necessary for the US to take full advantage of westward Chinese FDI with appropriate strategic caution. Thus the US must resist political pressure to oppose Chinese investment based on protectionist commercial interests; national-security-related concerns over Chinese FDI should not be treated in isolation. In other words, national-security concerns should not become a political tool to justify protectionist measures.
At the same time, there is a need to communicate and coordinate valid concerns to US allies and close partners so that US efforts are not compromised elsewhere. These concerns could be addressed through the numerous existing channels between the US and key ally countries, such as the communication lines with the Defense Department, congressional exchanges, and Treasury.
The westward trend of Chinese FDI will continue; the West must adapt to it. The Nexen takeover will be only one of many large-scale Chinese FDI projects to come. Some investors predict an additional $800 billion in Chinese FDI from 2011 to 2016, if current growth rates and government policy hold steady.
Given growing uncertainty in global financial markets and increasing risks in sovereign bond markets such as the euro zone, the need for direct investment by China will likely increase: Since January 2008, Chinese firms have disclosed 1,414 overseas acquisitions with a value of more than $235 billion. For the US to seize this opportunity, a number of other things must also be done: It needs to promote further its open market, good investment environment, and business opportunities. This is particularly necessary to counter the negative image created by a few failed cases that Chinese FDI is not welcomed in the US. But a better definition of national security for US companies and potential Chinese investors will be a critical step toward a comprehensive US approach to Chinese FDI.
Ting Xu
China Inc's debacle in the Outback
Larry Yung Chi-kin is a loyal scion of the Chinese Communist upper crust. His late father, Rong Yiren, was the legendary "Red Capitalist," one of the few industrialists to stay behind in the mainland after the revolution of 1949. Yung himself went on to found the conglomerate CITIC Pacific and become one of China's richest men.
So, when duty called, Larry Yung answered.
In 2006, foreign mining giants were jacking up prices of the iron ore needed by China's voracious steel industry. At the urging of Beijing, Yung and CITIC Pacific negotiated the rights to exploit a vast deposit of low-grade ore in the red-rock landscape of Australia's remote northwest Pilbara region.
The multibillion-dollar deal seemed to be a coup for China's resource-hungry economy. But Yung and Beijing are now paying a heavy price.
A few kilometers down a dirt track off the North West Coastal Highway, beside a towering pile of red tailings, the company has dug itself into what increasingly looks like a bottomless pit.
The original $2.47 billion budget for the massive open-cut mine and processing complex has blown out to $8 billion and it is more than two years behind schedule. Senior company managers won't rule out a $10 billion price tag for one of China's flagship offshore resource investments. "It has the potential to be a company killer, that's for sure," says Clinton Dines, a former president of mining giant BHP Billiton in China.
It is a dramatic reversal for Yung, 70, who emerged from obscurity after the Cultural Revolution to become first tycoon among China's "princelings," the children and grandchildren of the party elite.
BUNGLED HEDGING
To compound its pain, CITIC Pacific in 2008 bungled an attempt to hedge against the overruns - exposing the company to a further $2 billion in losses. Yung and his long-time deputy, Henry Fan Hung-ling, were forced to resign that year when Hong Kong police and regulators launched investigations into the hedging transactions.
According to people familiar with the investigations, police and regulators in Hong Kong have concluded their probes into suspected fraud, theft and disclosure failings. They have handed their findings to prosecutors in the semi-autonomous city, who are weighing whether to lay charges against some of China's highest-profile business figures in the politically charged matter.
Yung's office did not return calls requesting comment. A spokeswoman for Hong Kong's Department of Justice did not respond to questions about the investigations. Officials in Beijing have been publicly silent about the probes.
But senior Chinese leaders have privately said they are worried the mine could turn into an embarrassing failure, according to Australian government officials and foreign mining executives. Soaring costs and missed deadlines in the Pilbara mine have delivered a major setback to China's global drive to secure reliable supplies of key raw materials.
CITIC Pacific's Australian subsidiary, Sino Iron, is scrambling to begin operations at the mine and release a flow of revenue that is projected to last for 25 years. Shipments were supposed to begin this year, reaching a pace of 27.6 million tonnes a year.
CITIC Pacific chairman Chang Zhenming said at the company's August 16 results briefing in Hong Kong it now expects trial production to begin only in November, the latest in a series of missed deadlines.
"Before the end of the year we should have production ready for export," said Chang, a veteran of China's state-owned finance sector who was drafted in to replace Yung.
OUTBOUND TROUBLES
The saga speaks to the broader problems that China's state-owned giants are having as they venture into the wider world. Resource projects account for most of the $380 billion of total Chinese outbound investment as of the end of 2011, according to China's Ministry of Commerce. Losses on these investments have reached almost $27 billion, official media reports say.
Most of it has been blamed on failures to undertake proper research before deals are signed. "In many of these cases, my view is that due diligence was either poor, non-existent or there was an element of hubris involved," says Mike Komesaroff, managing director of Queensland-based Urandaline Investments, a consultancy specializing in China's minerals and metals industries.
CITIC Pacific declined requests for interviews with senior managers about the Pilbara mine or answer questions about its feasibility study and background research on the project.
The market outlook isn't good. Iron-ore prices are expected to continue sliding as China's economy shows signs of slowing. Australia's Bureau of Resources and Energy Economics forecasts ore will average about $136 a tonne this year, a drop of about 11 per cent from 2011. Some analysts expect steeper declines, with China on track to record its first annual drop in steel output in more than three decades.
It's a major shift. Years of seemingly insatiable Chinese demand delivered a bonanza for Australia's BHP Billiton, the Anglo-Australian Rio Tinto and Vale of Brazil, which together account for almost 70 per cent of world sea-borne iron-ore trade.
Ore, which had traded for less than $13 a tonne in 2000, peaked at almost $200 a tonne last year. In one savage hike in early 2005, the three miners increased prices by 71.5 per cent.
"That really got their attention," says Shanghai-based Dines, who came under fire from steelmakers when he represented BHP in China and now runs hedge fund Caledonia Asia. "From that moment, China really started worrying about securing reliable supplies of raw materials, particularly iron ore, and the cost of those materials."
That's when Larry Yung headed into the Outback.
FLOUR AND TEXTILES EMPIRE
It was the biggest risk he had ever undertaken, and he was doing it without the support of his legendary father. Just five months before CITIC Pacific in March 2006 signed agreements to mine the Pilbara deposit, Rong Yiren died in Beijing, aged 89.
Rong had become a household name in China after 1949, when he remained in Shanghai and cooperated with Communist efforts to build a socialist economy. As the head of the family's flour-milling and textile empire, Rong was then estimated to be one of the 10 richest men in China, according to reports at the time. His only son, Larry Yung (Rong Zhijian in Mandarin) lived his early years at the family mansion on leafy Kanping Road in what had once been the French Concession.
Even under the Communists, Yung was extravagant. He drove a red open-topped sports car around the city and invited friends and classmates to dine at expensive restaurants, China's official media reported.
That all changed with the Cultural Revolution, when Red Guards ransacked the clan's homes, smashing and stealing valuable art and antiques. Rong was spared the brutality meted out to others with similar backgrounds. But he ended up working as a janitor, according to reports later published in the official media. Yung was forced to spend six years laboring in Sichuan Province after graduating from Tianjin University with a degree in electrical engineering.
With the end of the upheaval and Deng Xiaoping's rise to power in the late 1970s, Rong was rehabilitated. Deng tasked him with a key role in guiding China's opening to the global economy.
He set up state-owned China International Trust and Investment Corporation, now known as CITIC Group, as a vehicle to coordinate the massive foreign investment needed to jump start a shattered economy. His rehabilitation was complete when, in 1993, he was appointed to the largely ceremonial but prestigious position of Vice President.
RED CHIP PIONEER
As his father returned to influence, Yung moved to Hong Kong in 1978 and started an electronics engineering company with two cousins. He joined CITIC in 1986 before leading the takeover of an existing listed company and renaming it CITIC Pacific. The deal created one of the first "red chips," mainland-controlled companies with shares traded in Hong Kong.
CITIC Pacific gobbled up investments in aviation, property, telecoms, tunnels, bridges, power plants and mainland steel mills. The establishment Swire Group, a pillar of colonial Hong Kong, welcomed him onto the board of its airline subsidiary, Cathay Pacific, when CITIC Pacific became a major shareholder.
As the deals rolled in, the Yung family's links to the CITIC empire deepened. Two of his children, son Carl Yung Ming-jie and daughter Frances Yung Ming-fong, joined the company in senior positions.
The company's stock peaked at almost HK$50 in October 2007, valuing his 19 per cent stake at HK$20.9 billion ($2.7 billion) (The stock now trades at about HK$11.)
That year, Yung took home almost HK$67 million in pay, including a HK$48 million bonus, according to company filings.
CHINA'S RICHEST TYCOON
The silver-haired Yung fit seamlessly into the close-knit ranks of Hong Kong's super rich. He bought Birch Grove in Sussex, the former home of late British Prime Minister Harold Macmillan, for a reported 5.5 million pounds in 1989 and spent heavily adding a golf course. The house has since been sold.
Like other tycoons in gambling-mad Hong Kong, Yung invested in champion thoroughbreds and was elected a steward of the prestigious Hong Kong Jockey Club. Club records show 13 Hong Kong horses listed under his ownership won combined prize money of almost HK$100 million. By the time he began scouting for iron ore, China's official media was describing him as the country's richest tycoon.
His connections did him little good in the arid outback. Established players had already scooped up most of the best deposits of hematite, a rich form of iron ore, local miners say.
CITIC had little choice but to invest in plentiful deposits of lower-grade magnetite ore, which then accounted for less than 1 per cent of Australia's iron ore output.
In 2006, after Yung had visited Australia to explore potential investments, CITIC Pacific signed a deal for the right to mine up to 6 billion tonnes from the Pilbara deposit owned by Australian mining entrepreneur Clive Palmer.
Australian officials involved in the discussions say Yung was a confident and polished host. At a meeting in Hong Kong after the signing, Yung told his Australian guests he was flying to South America the following day on his private jet to hunt wild boar.
The Australian government approved the deal in June 2006. Within months, it became clear CITIC Pacific had underestimated the costs of establishing Australia's biggest magnetite mine. There were also unexpected management challenges.
COSTLY, UNRULY AND SCARCE
By Chinese standards, Australian labor is expensive, unruly and in short supply. Government and unions quickly dashed expectations an army of low paid Chinese workers could be imported to build the facility.
That irritated CITIC Pacific managers, who went public with critical views on local working conditions and habits. Then, in the midst of an Australia-wide mining boom, the price of energy, materials and engineering services soared. Complex projects in China had been completed much faster and at lower cost than similar projects in Australia.
"For a Chinese company coming to operate in Australia, this is a big issue," says metallurgical engineer Darryl Harris, a director of Perth-based Indo Mines who has also worked extensively in China. "The trouble is they can't transfer that know-how here."
With costs ballooning at Sino Iron, the Australian dollar began to rise on the back of soaring commodity exports. By July 2008, it had risen 25 percent since work started at the mine, effectively boosting labor and other costs by one-fourth for the company, which had borrowed from Chinese banks.
Facing the prospect of further currency losses, CITIC Pacific entered into a series of leveraged derivative contracts in June and July 2008 to hedge against the rising currency.
They struck deals with a range of banks, including Citibank, Rabobank, Standard Chartered, Natixis, Credit Suisse, Bank of America, Barclays Capital, BNP Paribas, Morgan Stanley, HSBC, China Development Bank, Calyon and Deutsche Bank, according to copies of contracts the company later disclosed.
Just as the contracts were signed, the global financial crisis hammered the Australian dollar in August of 2008, leaving the company holding wrong-way bets.
It wasn't until Sunday, September 7, 2008, five days before Lehman Brothers filed for bankruptcy, that Yung and his senior managers learned about the exposure, according to disclosures made later to the Hong Kong Stock Exchange. At the time, the Australian dollar was trading at about 81 cents to the U.S. dollar.
CITIC Pacific finally announced six weeks later, on October 20, that it faced losses of up to $2 billion on its hedging. By then, the Australian currency had sunk to 69 cents.
"Needless to say, this is a very unhappy event," Yung told a news conference that day.
POLICE, WATCHDOG INVESTIGATE
Yung blamed finance director Leslie Chang and financial controller Chi Yin-chau for failing to seek his approval for the trades and informing him of the potential risk. Both men had resigned, he added. Hong Kong newspapers later reported Yung's daughter, Frances, was demoted with a pay cut from her position in the finance department.
CITIC Pacific also announced its major shareholder, Beijing-based CITIC Group, had bailed it out with a $1.5 billion loan and would double its stake to 58 per cent in return for absorbing most of its liabilities.
Two days after the company came clean, the Securities and Futures Commission announced it had launched a probe into the delay in informing the market.
After examining documents handed to the market regulator, Hong Kong police mounted a separate probe. On April 3, 2009, detectives raided the CITIC Pacific office. Five days later, Yung and Fan resigned.
In the years since, CITIC Pacific has sparred with investigators. After first saying it would cooperate with the probe, the company began a legal effort to reclaim material handed to the SFC and seized in the police raid.
In two rulings last year, Hong Kong's High Court rejected the company's bid to claim legal privilege over the documents. The court found a prima facie case of conspiracy to defraud and of theft, and ruled the documents, including legal advice, had been produced to facilitate those alleged offences.
From stock exchange filings and court evidence, it is clear that between learning of the scale of its hedging losses on September 7 and informing the market in late October, managers made determined efforts behind the scenes to shore up company finances. Shareholders, however, were not warned
"CONSPIRACY TO DEFRAUD"
On September 16, 2008, CITIC Pacific informed the exchange about two unrelated mainland investments, but did not disclose the hedging losses senior management had learned about more than a week earlier. The board met on September 23 to discuss the crisis and directed its audit committee to begin investigating the hedging contracts, according to the two rulings.
In the following three weeks, the company borrowed HK$250 million from the bank of Tokyo-Mitsubishi, HK$1 billion from the Bank of China and HK$500 million from the Industrial and Commercial Bank of China.
Resolutions authorizing the borrowing were signed by the board's finance committee, including Larry Yung, Henry Fan, Peter Lee and Leslie Chang, according to evidence police gave the court.
Prosecutors said while securing the loans, CITIC Pacific's board sought legal advice on how long it could delay announcing the losses.
"They wanted to raise money without telling what their true financial position was," prosecutor Charlotte Draycott told the court. "This is a conspiracy to defraud."
In March, CITIC Pacific won a more favorable assessment from the Court of Appeal. It upheld the company's claim that some of the documents were privileged and thus unavailable to the prosecution. The court also disagreed with earlier findings of suspected criminal conduct.
Although police would have preferred to use the documents, the ruling does not undermine the case, people familiar with the investigation told Reuters.
PIPELINE OR PIPEDREAM?
As prosecutors ponder the evidence in Hong Kong, CITIC Pacific is intensifying efforts to end its suffering in the Pilbara.
On a recent day, the 4,000-strong work force raced to bring the mine into production. Plumes of dust whipped away in a hot dry wind as giant bulldozers sent slate-grey ore cascading down a stockpile behind a new power station and processing plant.
A 30-kilometer pipeline that will carry the ore snakes away from the processing complex through low scrub towards the coast at Cape Preston, where the company has built a port.
But even once shipments begin, it may take years for CITIC Pacific to dig itself out of trouble.
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