China Skips IMF Meeting In Japan; Taiwan Claims Islands Too; What's the Dispute Really About?

Bloomberg reports Japan Calls China PBOC Chief Skipping IMF Meeting ‘Regrettable’

A decision by the Chinese central bank chief and finance minister not to attend International Monetary Fund meetings in Tokyo this week is “regrettable,” Japan’s finance minister said, as tensions lingered over an island dispute.

The Chinese move follows Japan’s decision last month to buy the islands from their private owner, a purchase that sparked protests in China and clouded a $340 billion trade relationship. The protests occurred as China, which begins a leadership transition next month, has been more forceful in making its territorial claims across the region.

The Chinese decision is the latest sign that the tension from the territorial dispute between the two countries hasn’t been contained. Japan’s move to buy the islands sparked the worst crisis in bilateral relations since 2005.

An NHK poll published today showed 44 percent of Japanese respondents think the government should prioritize improving relations with China, while 41 percent think it should take a tougher stance. The telephone survey, conducted Oct. 6-9, obtained 1,056 responses and didn’t give a margin of error.

Celebrating Taiwan’s National Day holiday today, President Ma Ying-jeou reiterated his government’s claim on the islands, saying in a speech that it will protect its fishing rights in the area. At least 50 Taiwanese fishing boats were in the area around the islands, called Senkaku in Japanese and Diaoyu in Chinese, in late September under escort from patrol boats before returning home because of a typhoon.

“From a historical, geographical or international law perspective, the Diaoyu Islands belong to Taiwan,” Ma said in the speech. “Taiwan’s fleets will continue to protect fishermen fishing in the area.”

What's the Dispute Really About?

Territorial disputes between Japan and China are nothing new. In this case, the dispute is over barren, uninhabited rocks in the East China Sea. However, many think there is likely to be significant oil and natural gas in the area. Both China and Japan need more energy resources.

Second, please be aware that tensions between Japan and China tend to rise when the Chinese economy is sputtering.

Before this dispute started, the main item of Chinese discussion was the economy and the political ouster of Bo Xilai's banishment from the top ranks of China's Communist Party. The dispute over the islands comes at a nice convenient time to get everyone's mind off China's decreasing job opportunities, sinking exports, collapsing real estate, and plunging stock market.

Still, it is easy to argue Japan caused the flare-up, not China, because Japan made the first significant move. I am not taking sides in ownership of the islands, I simply do not know who has the better claims, if indeed anyone, over rocks that far out in the ocean.

Third, face-saving is culturally important to both Japan and China, so neither can realistically back down. Thus, I fail to see how the festering tensions can easily be peacefully resolved.

Given the fragile nature of the global economy, the dispute is not welcome, regardless of who has the better claim.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com