Dangers of China-Japan rift -- and Netanyahu

SCMP September 23 2012


This is a dangerous time in the world in several ways. In East Asia, the feelings aroused by the dispute over the Senkaku/Diaoyu Islands has become more bitter than ever as China prefers to recall and even take revenge for past humiliations rather then forget the past and enjoy present achievements. Emotion has reached a far higher level than in previous upsurges over this issue, and although Chinese threats of economic sanctions may be mere rhetoric, they will not be forgotten.

The incidents will probably do only minor damage to trade and investment in the short term, assuming that tensions begin to subside, but the longer-term impact on Asian and indeed global trade could be huge. Japan will seek to reduce its reliance on China as a market and as a manufacturer of goods for export by Japanese-owned companies. Other investors may worry, too, about political stability in Northeast Asia, in which case Asian manufacturing will be affected.

Even more worrying for the longer term is that twice in the past week, semi-official Chinese organs have made reference to the Ryukyu Islands, the 1,000-kilometre chain which are owned by Japan but were once claimed by China. The China Daily mentioned that, in earlier times, the Ryukyus began at Kume island near Okinawa, which implies that all the Japanese inhabited islands to the west of that were Chinese. China's Council for National Security Policy Studies has suggested that none of the Ryukyus is rightfully Japanese. So a new and much bigger front has been opened in this island dispute.

Even assuming tempers cool now, the island issues could become a major barrier to the increased co-operation needed if the region is to offset the likely stagnation in business with the West, as Europe and the US struggle with debt and demographic problems.

At the same time, new, less labour-intensive manufacturing systems are beginning to shift some production back to the West or to states on the periphery of North America and western Europe. Promising new markets for Asia in countries such as Brazil and South Africa exist but, in these, protectionist pressures are growing as they seek to boost their own manufacturing and rely less on commodities.

Likewise, the rows between China and four Southeast Asian claimants to the islands and resources of the South China Sea are not just souring bilateral ties but undermining such cohesion as the 10-member Association of Southeast Asian Nations enjoys.

The whole eastern region has enjoyed large external surpluses and strong currencies for the past decade, during which it has built trade and currency co-operation. But global conditions are becoming more difficult, commodity price falls will hurt, so East Asia can ill afford disputes about history and barren rocks. Hong Kong can least of all afford to be engaged in stirring up regional animosities.

Regional co-operation will be even more urgent should another calamity occur - the collapse of the euro zone, which would bring another global financial crisis, huge currency volatility and, quite likely, the imposition of capital controls.

If the worst does happen, the need for East Asia - which means principally Japan and China - to co-operate to maintain regional currency stability through swap mechanisms agreed between China, Japan, Korea and the Asean countries will be immense. But could that happen, given the upsurge in mutual animosity?

So much for the big-picture dangers. The most dangerous man in the world at present is not Kim Jong-un, in charge of North Korean nukes and rockets. It is not the young Bashar al-Assad, who is only capable of killing lots of his own people. It is the prime minister of America's supposedly closest friend, Israel. Benjamin Netanyahu's efforts to induce US support for a war against Iran is worrying. Fortunately, President Barack Obama takes a dim view of Netanyahu.

Netanyahu, however, clearly has the ear of Mitt Romney, whose ignorance of foreign affairs has been shown to be stunning and whose blind support for Israel cannot simply be attributed to perceived electoral advantage. It reflects the broader US ignorance of Middle East issues that helped bring about the Iraq war.

With luck, the realism of the Israeli military and the good sense of Secretary of State Hillary Rodham Clinton will prevail over Netanyahu's aggressive instincts. But do not be too sure. Israel has a fine record of being the tail wagging the US dog at a high cost in men, money and US reputation.

It is worth recalling that however nasty the mullahs in Tehran may be, all Iranians believe they have as much right to nuclear capability as neighbours such as Pakistan, or colonial creations such as Israel. Given their economic failures and social oppression, nationalism is the mullahs' best weapon. It saved them in 1980 when Iraq invaded.

Now, Western sanctions hurt the economy but stimulate nationalism among those who otherwise despise the crudity of President Mahmoud Ahmadinejad. Whoever next rules Iran will not give up the nuclear bomb potential. Trying to stop it only keeps the mullahs in power, which suits Netanyahu very well and feeds the danger he represents.




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