China

[Crafty_Dog]

That is very interesting JDN, from what you say, China seems to have a plausible claim at least.  Should I want to cite a source, what source would that be?

[Body-by-Guinness]

Heritage's take:

East China Sea Flare-Up: Learning the Wrong Lessons in Beijing
Published on September 27, 2010 by Dean Cheng WEBMEMO #3027

Japanese prosecutors have reportedly decided to release the captain of the Chinese fishing boat whom they arrested after he apparently rammed two Japanese coast guard vessels in the waters around the Senkakus. The decision, a Japanese deputy public prosecutor said, was made “taking into account the impact on our citizens and Japan–China relations, [so] our judgment was that it would have been excessive to prolong the investigation and his detention.”[1]

The Japanese government’s comments make it even clearer that this decision was made due to the impact of the case on Sino–Japanese relations. Japanese Chief Cabinet Secretary Yoshito Sengoku stated explicitly, “It is a fact that there was the possibility that Japan–China relations might worsen or that there were signs of that happening.”[2]
While this decision may resolve the immediate issue of Captain Zhan Qixiong, it is likely to generate far more problems in the future.

Sending the Wrong Message
The situation first erupted on September 7, when Japanese coast guard vessels intercepted Zhan’s fishing boat in the waters around the disputed Senkaku/Diaoyutai islets. The captain tried to flee and apparently collided with two of the coast guard vessels (with little damage and no loss of life), for which he was arrested.

In the immediate aftermath of the incident, Beijing demanded that the Japanese government “immediately and unconditionally” release the captain. Such an aggressive response was unusual, given that the situation was far from critical. Of even greater concern, however, was the fact that Beijing escalated both the rhetoric and its responses over the following two weeks, to the point of Chinese Premier Wen Jiabao publicly snubbing Japanese Prime Minister Naoto Kan last week at the United Nations and China suspending the sale of rare earth minerals (essential for the production of electronics) to Japanese customers. For Tokyo to decide to release the Chinese captain in the face of such overreaction only teaches Beijing that its policies worked.

This is an extremely dangerous precedent not only for Japan but for the larger East Asia region and, ultimately, even for the United States.

It was Beijing, not Tokyo, that decided that this relatively minor incident should escalate. Some recent reports even suggest that the People’s Liberation Army (PLA) was responsible for the harder line pursued by the Chinese in this crisis.[3] Regardless of whether it was ultimately the military that pushed this position or simply hardliners writ large, they have now been handed a victory by Tokyo. Chinese demands for immediate and unconditional release have been met.

Weishe Works
More to the point, from Beijing’s perspective, the combination of diplomatic paroxysm and economic blackmail have led to a desired outcome. This would suggest the successful application of weishe.

While commonly translated as “deterrence,” the Chinese phrase weishe embodies not only dissuasion (commonly associated with the term deterrence) but also coercion. That is, whereas Western concepts of deterrence tend to focus on persuading a rival not to do something they would otherwise do, the Chinese concept of deterrence also includes persuading a rival to do something they would otherwise not do.

It would therefore be logical for the PRC to pursue a similar approach over future territorial disputes—use weishe to coerce neighbors into make concessions. And there are many such disputes looming if not already underway, including with Japan and most of Southeast Asia, as well as India. Consequently, the Japanese decision makes it more likely that there will be increasing confrontations all along China’s disputed periphery.

What will Japan do the next time a Chinese fishing boat is found around the Senkaku/Diaoyutai? Or if Chinese vessels challenge Japanese survey operations in disputed waters?
Worse, this incident is also likely to persuade Chinese officials that their current approach to crises is a successful one. A review of recent crises—such as the 2001 EP-3 incident and the 2007 shooting down of a Chinese satellite, as well as the case of Captain Zhan—reveals that Chinese responses are consistently delayed and fragmented—and initially nearly incoherent. Yet there are few downsides for the Chinese aside from a demarche or two.

A Dangerous Situation: The U.S.’s Two-Pronged Response
For the U.S., which is often allied or friends with parties that have territorial disputes with the PRC, this situation will become ever more dangerous. Chinese miscalculations (which are essentially being encouraged) will inevitably draw in the U.S. if the situation starts to spiral out of control. Washington needs to engage in a two-pronged approach.

First, the U.S. needs to make clear to its allies that their policy of preemptive concession and non-response to Chinese irascibility is ultimately self-defeating. Not only does it encourage the Chinese to be more belligerent and less conciliatory, but it is also more likely to escalate future crises. And Washington has no intention to help those who will not help themselves.
Simultaneously, the U.S., in its own policies, needs to be more coherent and coordinated. China resorting so promptly to the economic threat of curtailing rare earth exports, for example, should be a clear signal to American decision-makers that it is time to reexamine its decisions influencing domestic exploration and exploitation of said materials. Similarly, Chinese efforts to exclude the U.S. Navy from operating in the Yellow Sea and East China Sea should be met with a recommitment of the U.S. to uphold its treaty and legal obligations to allies and friends in the Pacific.

America: “Returning” to Asia
If the U.S. is going to argue that it is “returning” to Asia, it needs to make clear that, this time, it is here to stay. Such a commitment requires not only maintaining a strong military presence but deepening its diplomatic and trade ties to the region. The American presence has always been multifaceted, and its “return” should reflect all those aspects.

Dean Cheng is Research Fellow in Chinese Political and Security Affairs in the Asian Studies Center at The Heritage Foundation.

http://www.heritage.org/Research/Reports/2010/09/East-China-Sea-Flare-Up-Learning-the-Wrong-Lessons-in-Beijing

[JDN]

It seems tensions are easing. 


Japan Times   9.29.10
China's rare earth exports back on track
BEIJING (Kyodo) China has resumed procedures to export rare earth metals to Japan after the bilateral dispute over the Senkaku Islands reportedly halted shipments of the critical materials, trading house sources said Wednesday.
 
A Chinese mining company has restarted applications for exports and Chinese customs authorities have confirmed that cargo will be shipped once the procedures are completed, the sources said.

Separately, Chief Cabinet Secretary Yoshito Sengoku said that China may have started trying to repair ties with Japan, but more must be done to reduce the bilateral tension.

"Currently, we are not in a win-win relationship. It is probably obvious to everyone," the government's top spokesman said at a news conference. "However, I presume that (China) has started making efforts to bring the situation back to zero (from negative)."

He also said China has to do more before organizing high-level talks.

"I have been saying that the ball is already in China's court," he said. "If high-level talks are necessary, China must first return the ball" to convince the Japanese public that Beijing has changed its recent hardline attitude.

Sengoku also said the government has no concrete information on new developments regarding exports of rare earth metals and has asked China to provide a real picture of the situation.

China denied banning exports in retaliation for the arrest of a Chinese fishermen near the disputed isles, but various companies have reportedly said they were pressured to halt shipments.

Japanese traders, for example, said last week that shipments of rare earth metals, which are used to make hybrid cars, mobile phones and other high-tech products, had been stopped, although the Chinese Foreign Ministry said Saturday there had been no order to suspend shipments.

On Sept. 22, trading sources in Beijing said exports of the materials had grown "stagnant," and The New York Times reported that China had introduced a ban to pressure Japan to free the captain of the Chinese fishing vessel, who was detained following collisions with Japanese Coast Guard cutters Sept. 7 off the Senkaku Islands in the East China Sea.

[G M]

http://formerspook.blogspot.com/2010/09/todays-reading-assignment_26.html

Sunday, September 26, 2010
Today's Reading Assignment

..from Robert Kaplan, the national security correspondent for The Atlantic, and a fellow at the Center for a New American Security. Writing in today's Washington Post, he notes that China is using our "distraction" in the Middle East to become a great naval power. From his op-ed:

China has the world's second-largest naval service, after only the United States. Rather than purchase warships across the board, it is developing niche capacities in sub-surface warfare and missile technology designed to hit moving targets at sea. At some point, the U.S. Navy is likely to be denied unimpeded access to the waters off East Asia. China's 66 submarines constitute roughly twice as many warships as the entire British Royal Navy. If China expands its submarine fleet to 78 by 2020 as planned, it would be on par with the U.S. Navy's undersea fleet in quantity, if not in quality. If our economy remains wobbly while China's continues to rise -- China's defense budget is growing nearly 10 percent annually -- this will have repercussions for each nation's sea power. And with 90 percent of commercial goods worldwide still transported by ship, sea control is critical.

The geographical heart of America's hard-power competition with China will be the South China Sea, through which passes a third of all commercial maritime traffic worldwide and half of the hydrocarbons destined for Japan, the Korean Peninsula and northeastern China. That sea grants Beijing access to the Indian Ocean via the Strait of Malacca, and thus to the entire arc of Islam, from East Africa to Southeast Asia. The United States and others consider the South China Sea an international waterway; China considers it a "core interest." Much like when the Panama Canal was being dug, and the United States sought domination of the Caribbean to be the preeminent power in the Western Hemisphere, China seeks domination of the South China Sea to be the dominant power in much of the Eastern Hemisphere.

While Kaplan's central thesis is clearly correct, there are a few faults in his analysis. First, the "niche" capabilities he describes are useful for (potentially) limiting American naval forces in China's desired spheres of influence, but they do not add up to a true, global maritime power. To achieve that status, Beijing needs a blue water navy, built around carrier battle groups and other force-projection assets. True, China will have carriers by the end of this decade, but it will take even longer to develop the trained pilot cadre and ISR support needed to support their naval power thousands of miles from home.

However, Beijing's initial focus is the South China Sea and adjacent waters, stretching from Australia to Japan. In that region, China's growing naval power is already a menace, and the U.S. seems to have no credible response, beyond attempts at engagement. More disturbingly, the size of our Navy continues to shrink while more ships and subs join the Chinese fleet. That development alone gives Beijing a powerful incentive to pursue an aggressive maritime strategy, fueled by 10% annual increases in defense spending.

Not long ago, Defense Secretary Robert Gates argued that the U.S. could afford to retire some of its aircraft carriers, claiming that we were "over-matched" against potential adversaries. Obviously, that analysis is a bit short-sighted when it comes to China. Before he retires in a few months, someone might ask Dr. Gates about his over-matched theory regarding the PLAN and its expansion program.

[G M]

**Note: Bill Gertz is well known for having lots of sources within the pentagon and other national security entities.**

http://www.washingtontimes.com/news/2010/sep/29/inside-the-ring-920960594/?page=1

Inside the Ring

By Bill Gertz

-

The Washington Times

6:38 p.m., Wednesday, September 29, 2010


Japan-China standoff

Tensions between China and Japan continue to rise even though Japan on Saturday released a Chinese fishing boat captain who was held for ramming his vessel into two Japanese coast guard ships near the Senkaku Islands in the East China Sea.

China recently deployed two armed patrol boats to waters near what it calls the Diaoyu Islands, and a Chinese Foreign Ministry spokeswoman said on Tuesday that the "law-enforcement boats" were sent "to maintain fishing order and protect safety of life and property of Chinese fishermen."

"We hope Japan stop* tracking and disrupting Chinese fishery law-enforcement boats," spokeswoman Jiang Yu said.

Japan has made four diplomatic appeals to call off the patrols and has deployed six coast guard ships in the waters in the region.

The uninhabited islands are located south of Okinawa, which has administered the islands since the 1800s, not including the period when the U.S. military occupied Okinawa at the end of World War II.

China has demanded an apology from Japan for the detention of the fishing boat captain, and Tokyo has asked China to pay for repairs to the one coast guard ship that was damaged.

Beijing has claimed the incident that began Sept. 7 violates its sovereignty and asserted that Japan cannot enforce its laws near the Senkakus because the island chain belongs to China.

U.S. intelligence agencies have stepped up surveillance of the Senkakus and are closely monitoring the rising tensions over the dispute.

The strike group led by aircraft carrier USS George Washington is currently under way in waters close to the disputed islands and could move closer if shooting breaks out.

[G M]

http://www.theaustralian.com.au/news/opinion/dont-kowtow-to-the-chinese/story-e6frg6zo-1225931985418

Don't kowtow to the Chinese

    * Greg Sheridan, Foreign editor
    * From: The Australian
    * September 30, 2010 12:00AM
   

THE international community needs to engage Beijing in a web of rules and customs.

IS this the year that China's leadership lets us all know that it is determined not to abide by routine international norms but will use raw power to take whatever it wants?

That is too strong a conclusion just yet, but it has certainly been a year of rugged behaviour from Beijing, behaviour that we should study closely.

Consider, first, the contrasting cases of Stern Hu and Zan Qixiong.

Hu, you'll recall, is the Australian former No 2 for giant miner Rio Tinto. In July last year he was arrested, initially on charges of espionage. Later he was convicted of bribery and corruption charges. At the start the Chinese government wouldn't communicate with the Australian government over the matter. Later it barely conformed to the minimum requirements of the consular agreement between the two nations.

Start of sidebar. Skip to end of sidebar.

End of sidebar. Return to start of sidebar.

We will never know if Hu was remotely guilty of anything. We do know that corruption is rife in China and Hu was the only foreign executive singled out by the Chinese authorities this way.

We also know the context. The Chinese were annoyed by the prices they were paying for Australian minerals and deeply furious that their bid for a big equity stake in Rio Tinto had failed.

Within Australia the reliable pro-China gang, centred on the Australian National University, but well represented in business as well, told us in effect to keep quiet and not protest against Hu's punishment. We were to protect the Chinese legal system, as though that were not among the most corrupt and politicised legal systems in the world.

Now consider Zan's case. Zan is a Chinese fishing boat captain. He was plying his trade in the Senkaku Islands in the East China Sea. Japan considers these islands to be part of Japan and exercises normal control over them. China also claims the islands, as it does much of the maritime domain of northeast and Southeast Asia.

Zan's boat was approached by the Japanese navy. Now, all over the world, what does an illegal fisherman do if approached by a national coastguard? Universally, the fisherman runs away.

But in Zan's case, according to the Japanese navy, he rammed the Japanese vessel. That is akin to piracy and is certainly equivalent to criminal damage.

Zan was taken into Japanese custody. He was not charged with being in Japanese waters illegally but with offences arising out of ramming the Japanese ship. Many analysts believe the fisherman's actions were directed by the Chinese government as a deliberate way of testing the Japanese.

The Chinese reaction could not have been more different from the Australian response to Hu. There were no significant voices within China urging that Japanese legal processes be allowed to unfold.

Instead, the Chinese reaction was brutal and effective. Beijing cancelled high-level meetings with Japanese officials, including with the Japanese Prime Minister. Groups of Chinese tourists were prevented from visiting Japan. Four Japanese in China were suddenly arrested in what looked like preposterous charges of photographing Chinese military establishments. A high-level torrent of abuse was directed at Japan from Chinese government and media sources.

It was alleged that China banned temporarily the export of rare earth metals -- vital in much hi-tech gadgetry -- to Japan, though this was later denied.

Eventually the Japanese gave in and let Zan go, at which point the Chinese demanded apologies and compensation. Outraged public opinion finally forced Tokyo to reject this.

The Zan episode needs to be seen in the context of three other episodes this year where the Chinese have flouted well-established international norms.

One was the sinking of South Korean naval ship the Cheonan by North Korea, with dozens killed.

No serious analyst in the world doubts that the North Koreans torpedoed the Cheonan. Yet the Chinese refused, at the UN or anywhere else, to acknowledge Pyongyang's responsibility for the attack. Beijing's continued political investment in the Stalinist regime remains strong.

The second incident arose from the Cheonan sinking. The US and South Korea planned to hold joint naval exercises involving a US aircraft carrier off the coast of South Korea in the Yellow Sea. The Chinese demanded that these be moved, claiming, absurdly, that there would be a danger of US ships colliding with Chinese ships.

The implication is that Beijing can decide where international ships can sail, even if they are in indisputably international waters. The Americans, not wanting to take the focus off North Korea, moved the exercises to the east side of the Korean peninsula, away from China. But the Americans also promised they would be back in the Yellow Sea later this year.

Finally, there is the South China Sea. Beijing claims sovereignty over virtually all of the South China Sea. Various Southeast Asian nations claim the parts close to them. I urge you to look at a map to see just how preposterous Beijing's claim is, how far the South China Sea is from China.

At an ASEAN meeting this year, China's Foreign Minister Yang Jiechi furiously told the ASEANs that they were small nations while China was a big nation, and they should do as theywere told.

All this doesn't prove that China will behave with consistent aggression in the years ahead, but it sure doesn't prove the opposite, either.

Three prudent responses are obvious. One is to engage China in multilateral institutions so it is enveloped in a web of rules and customs. Another is for nations to have a clear idea of their individual bottom lines, beyond which they will not retreat.

And the third is for everyone to attend to their armed forces, so that a stable balance of power and deterrence are maintained.

Then the risk of fateful Chinese miscalculation is diminished. Pre-emptive capitulation, as some are now counselling, would be the worst policy for everyone.

[Crafty_Dog]

Not looking to disrupt the flow here, but a moment for another in my random reminders that China has some very weak links in its chain.

http://www.latimes.com/news/nationworld/world/la-fg-china-left-behind-20100930,0,4655427.story

[G M]

http://www.csmonitor.com/Commentary/the-monitors-view/2010/1001/Is-Obama-ready-for-a-stare-down-with-China

Obama’s national security strategy, however, is to primarily focus on rebuilding the US. Indeed, in September, when China protested about a planned military exercise in the Yellow Sea with a US aircraft carrier, the US backed down rather than risk Chinese anger. And Obama didn’t do much to persuade Beijing that its ally, North Korea, was guilty of sinking a South Korean naval ship last March, killing 46 sailors.

In July, Secretary of State Hillary Rodham Clinton did take a legal stand against China’s bold claims to a set of disputed islands in the South China Sea, saying the claims must be resolved with multilateral diplomacy. But the US hasn’t done much about that since then.

President Clinton was tested by China in 1996 after it lobbed missiles near Taiwan. He sent two aircraft carriers into the area in a show of defense for the island nation, which China claims as its own.

But these days China sees the US as weak. The American economy is stagnant. Many of the top Obama officials, such as Chief of Staff Rahm Emanuel and Defense Secretary Robert Gates, are leaving the administration. The president wants major cuts in the Pentagon. US forces began to leave Iraq this year, and Obama plans to start a US retreat from Afghanistan next year.

Since 2009, China has become more assertive in Asia. It recently told its neighbors that they are “small countries” while China is a “large country” – and that they should not expect an equal relationship.

This bluntness only raised fears of confrontation, especially as China expands it naval reach. Japan now wonders if it can count on the US in a crisis. It is considering a boost in its military spending. Over the past decade, Japan’s defense budget has declined about 5 percent – while China’s spending on its forces has soared

[DougMacG]

One peaceful way to say he is ready for a staredown with China would be for this Nobel prize winning peace artist to sponsor the nation of Taiwan to join the United Nations and to quietly with no fanfare put our own membership and financial support for the organization on hold until it is accomplished. 

(The answer is no, I don't think he is ready.)

[Crafty_Dog]

Although I emotionally resonate to the idea, IIRC we have a signed treaty with China which recognizes that Taiwan ultimately is a part of China, or something like that.

I'm guessing our man GM has the precise facts at hand 

[G M]

http://www.hks.harvard.edu/news-events/news/articles/ash-taiwan-anniv-apr09

How has the TRA affected Taiwan and China?

In the last 30 years, Taiwan has evolved culturally, commercially, intellectually, politically and economically from a one-party dictatorship under martial law to a very vibrant democracy with a truly active and engaged press. Yet, I think it has been psychologically difficult for Taiwan to be gradually shunted aside. Despite this, whether it is due to the U.S. presence or the TRA itself, there has been a huge shift in how the Taiwanese think about their country and their relationship to China. Some people are more comfortable with Taiwan’s progress of cultural awakening, while some of Taiwan’s older generation will never give up the dream of a unified China.

Of course with the dramatic economic growth in China, Taiwan is now in a weaker economic position than ever before. There are hundreds of thousands of Taiwanese businessmen living in China, and there is very active cross-strait investment mostly from Taiwan to the mainland.

From China’s perspective, I think the country would have preferred if the United States had viewed Taiwan as a Chinese domestic issue. While, realistically, China can treat Taiwan in whatever way it sees fit, the country must take the United States into consideration due to the provisions established in the TRA. Despite some saber rattling in 1996 and an overall escalation in military tensions then, I think China has found a more reasonable counterpart in the Ma Ying-jeou Nationalist government in Taiwan.

Can the TRA continue to play a role for the indefinite future? What challenges do you foresee to the TRA as it relates to globalization and the economy?

In our recent Taiwan Conference, Ambassador Stapleton Roy stated, “Don’t touch the TRA unless you really know what you are doing, and if you really know what you are doing, you wouldn’t touch it.” I agree with his statement and while there are some issues with the TRA, I think it can serve to support conversations on a lengthy list of cross-border challenges. From the environment and human rights to international relations and terrorism, these issues require more cooperation among the United States, China and Taiwan than ever before, and the TRA will not stand in the way of that.

At the same time, I think the TRA does require the United States to do a bit more internal soul searching to better clarify its interests in relation to Taiwan and China. I think preserving peace in the Western Pacific should remain core to U.S. interests, and all other pieces of these important diplomatic relationships can be worked out within the context of that overriding concern.

[G M]

http://www.law.cornell.edu/uscode/html/uscode22/usc_sup_01_22_10_48.html

CHAPTER 48—TAIWAN RELATIONS


    * § 3301. Congressional findings and declaration of policy
    * § 3302. Implementation of United States policy with regard to Taiwan
    * § 3303. Application to Taiwan of laws and international agreements
    * § 3304. Overseas Private Investment Corporation
    * § 3305. The American Institute in Taiwan
    * § 3306. Services to United States citizens on Taiwan
    * § 3307. Exemption from taxation
    * § 3308. Activities of United States Government agencies
    * § 3309. Taiwan instrumentality
    * § 3310. Employment of United States Government agency personnel
    * § 3310a. Commercial personnel at American Institute of Taiwan
    * § 3311. Reporting requirements
    * § 3312. Rules and regulations
    * § 3313. Congressional oversight
    * § 3314. Definitions
    * § 3315. Authorization of appropriations
    * § 3316. Severability

§ 3301. Congressional findings and declaration of policy

(a) Findings
The President having terminated governmental relations between the United States and the governing authorities on Taiwan recognized by the United States as the Republic of China prior to January 1, 1979, the Congress finds that the enactment of this chapter is necessary—
(1) to help maintain peace, security, and stability in the Western Pacific; and
(2) to promote the foreign policy of the United States by authorizing the continuation of commercial, cultural, and other relations between the people of the United States and the people on Taiwan.
(b) Policy
It is the policy of the United States—
(1) to preserve and promote extensive, close, and friendly commercial, cultural, and other relations between the people of the United States and the people on Taiwan, as well as the people on the China mainland and all other peoples of the Western Pacific area;
(2) to declare that peace and stability in the area are in the political, security, and economic interests of the United States, and are matters of international concern;
(3) to make clear that the United States decision to establish diplomatic relations with the People’s Republic of China rests upon the expectation that the future of Taiwan will be determined by peaceful means;
(4) to consider any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern to the United States;
(5) to provide Taiwan with arms of a defensive character; and
(6) to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.
(c) Human rights
Nothing contained in this chapter shall contravene the interest of the United States in human rights, especially with respect to the human rights of all the approximately eighteen million inhabitants of Taiwan. The preservation and enhancement of the human rights of all the people on Taiwan are hereby reaffirmed as objectives of the United States.

[G M]

http://www.yomiuri.co.jp/dy/world/T101001006250.htm

'Smiling' China keeps bargaining chip / Recent actions have been conciliatory, but Beijing still holds 1 Japanese citizen

Seima Oki / Yomiuri Shimbun Correspondent

BEIJING--One Japanese citizen remains under lock and key in China, a diplomatic bargaining chip for the country, and in contrast to its release Thursday of three other Fujita Corp. employees and other recent conciliatory moves.

China's art of diplomacy, which stresses strategy, is quintessentially tough.

Some see the continued detention as a blatant retaliation against Tokyo. After the release of the three was reported, a Japanese source said, "When the collisions with the Chinese trawler happened near the Senkaku Islands, Japan held the captain [and released the crew]. China's trying to create a similar situation."

Chinese authorities said the three, who had been held on suspicion of trespassing in a military zone in Shijiazhuang, Hebei Province, were released after they wrote letters apologizing for their illegal actions. The country seems to be saying that if Japan accepts what it says, bilateral relations can begin to improve.

China's security bureau can detain suspects for up to six months. The decision to release the three on the 11th day of their detention and hold on to one is based on a delicate balance. While sending signals it wants to mend ties with Japan by releasing the three, China has kept firm hold of something it can use for leverage.

"China's gained a new bargaining chip ahead of the Asia-Europe Meeting in Belgium this month," a source familiar with Japan-China relations said. For China, accepting Prime Minister Naoto Kan's request to meet in Belgium and the release of the remaining Japanese citizen are cards it can play to win more concessions on issues concerning the Senkaku Islands.

With its recent actions, China has tried to show it has softened its hard-line stance over the incident involving the Chinese fishing boat. Immediately after Japanese authorities decided to extend the detention of the Chinese captain, China restricted exports of rare earths to Japan in an apparent retaliation. But by Tuesday, Beijing seemed to have partially lifted the restriction. Furthermore, demands by China's Foreign Ministry that Japan apologize and pay compensation over the Senkaku incident have decreased. The release of the three was in line with these conciliatory actions.

A diplomatic source said, "In the game of diplomacy, Beijing always tries to destroy its opponents' unity, to divide their power to create circumstances favorable to China."

In fact, politicians and the public in Japan are divided over whether the country should take a firm or conciliatory attitude toward China. Similarly, the Japan-U.S. alliance has been shaken under the Democratic Party of Japan-led government.

For China, the current situation in Japan is an easy one to shake up. The country's current "smile" is merely a show to prevent Japan from taking strong action and to encourage a conciliatory attitude. The softening of Beijing's position also aims to cool international opinion that China is a threat.

ASEM is an especially important event. The Chinese Communist Party seems to think Prime Minister Wen Jiabao should not face criticism at the meeting.

In Beijing, a source familiar with Japan-China relations said, "None of the exchange programs that the Chinese canceled have been revived. I wouldn't say China has softened its stance."

Indeed, China has not made any compromises about the core issue--its claim to the Senkaku Islands. While wearing a smile, Chinese fishery patrol ships have been stationed off the Senkaku Islands, and Beijing has moved steadily to settle and expand its claims in the East China Sea.

The Chinese Communist Party will open the fifth meeting of its 17th Central Committee on Oct. 15 to draw up the blueprint for the government after President Hu Jintao steps down in 2012. At such a time, the party wants to prioritize stability, and most diplomatic sources say Beijing will not make any compromises with Japan, as such actions could infuriate the Chinese public.
(Oct. 2, 2010)

[DougMacG]

Looks to me like the Taiwan Relations Act was an act of congress (signed by Jimmy Carter) rather than a treaty. Since I believe the UN is worthless, I am not saying start a war over this issue, but it is a card that any serious President should be ready to consider.  Especially when it always seems that China holds all the cards, like the game playing they do with NK and this latest spat with Japan.

The one-China concept is simply de facto false today.  Taiwan will never rule China, and Taiwan will never peacefully accept PRC rule.  They can reunite later after China is free like East and West Germany did, but right now they are 2 countries.  Taiwan is as worthy of international acceptance as any nation or territory I can think of.

[G M]

Doug,

Taiwan formally declaring independence would absolutely trigger a war with China. The Taiwanese don't want a formal declaration. Our best strategy is to move to contain Chinese expansionism, show we are firmly supporting our allies like Japan, S. Korea and Taiwan and build closer military relationships with India and other nations not willing to live under "pax sinica".

[Crafty_Dog]

Thank you GM.  Apparently the TRA was what I was thinking of, but what have the Chinese and we signed with each other?

[G M]

Joint Communique of the United States of America and the People's Republic of China

January 1, 1979

(The communique was released on December 15, 1978, in Washington and Beijing.)

   1. The United States of America and the People's Republic of China have agreed to recognize each other and to establish diplomatic relations as of January 1, 1979.
   2. The United States of America recognizes the Government of the People's Republic of China as the sole legal Government of China. Within this context, the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan.
   3. The United States of America and the People's Republic of China reaffirm the principles agreed on by the two sides in the Shanghai Communique and emphasize once again that:
   4. Both wish to reduce the danger of international military conflict.
   5. Neither should seek hegemony in the Asia-Pacific region or in any other region of the world and each is opposed to efforts by any other country or group of countries to establish such hegemony.
   6. Neither is prepared to negotiate on behalf of any third party or to enter into agreements or understandings with the other directed at other states.
   7. The Government of the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China.
   8. Both believe that normalization of Sino-American relations is not only in the interest of the Chinese and American peoples but also contributes to the cause of peace in Asia and the world.

    The United States of America and the People's Republic of China will exchange Ambassadors and establish Embassies on March 1, 1979.

[G M]

   5. Neither should seek hegemony in the Asia-Pacific region or in any other region of the world and each is opposed to efforts by any other country or group of countries to establish such hegemony.

**The PRC often refers to the US as "The hegemon".**

[G M]

http://www.asahi.com/english/TKY201006200174.html

China seeks to neutralize Japan-U.S. security treaty

THE ASAHI SHIMBUN

2010/06/21

Print

Share Article このエントリをはてなブックマークに追加 Yahoo!ブックマークに登録 このエントリをdel.icio.usに登録 このエントリをlivedoorクリップに登録 このエントリをBuzzurlに登録

photoA Chinese navy Kilo-class submarine cruises in waters near the Okinawa main island. (THE DEFENSE MINISTRY)

A rapid buildup of nuclear weapons by China and its apparent determination to restrict United States forces' access to the western Pacific is threatening to transform the balance of power in East Asia.

Tensions in the region were demonstrated at a meeting of the foreign ministers of Japan, China and and South Korea in Gyeongju in South Korea on May 15.

Though the main topic of the meeting was the sinking of the South Korean corvette Cheonan, a testy exchange between the foreign ministers of Japan and China showed strategic concerns simmering below the surface.

Japanese Foreign Minister Katsuya Okada told the Chinese representative, "Among the countries that possess nuclear weapons, only China is increasing its nuclear weapons."

This angered Chinese Foreign Minister Yang Jiechi. Without turning on his microphone, he said, "There is nothing to justify being told such a thing by Japan, which is protected by the U.S. nuclear umbrella." He then started to leave his seat.

Wednesday will mark the 50th anniversary of the beginning of the revised Japan-U.S. Security Treaty, but China's increasing military assertiveness is raising questions about the continuing efficacy of Japan's defense strategy.

China is estimated to have about 400 nuclear warheads, a fraction of the more than 5,000 warheads held by the United States. China has declared that it will not use its nuclear weapons for preemptive strikes.

"We continue to maintain the minimum-level nuclear capabilities that are required for the safety of our country," said Ma Zhaoxu, director-general of the Information Department of the Chinese Foreign Ministry.

But, despite the soothing words, China is quietly transforming its long range nuclear capabilities. New missiles include the Dong Feng 31A, an intercontinental ballistic missile with a range of 14,000 kilometers.

The shorter range Dong Feng 21C missile has Japan well within its range and a new type of anti-ship ballistic missile can pursue vessels at supersonic speeds.

China is also constructing underground bases for nuclear missiles in mountainous areas in Henan and Shanxi provinces, aimed at protecting them from preemptive strikes.

The missile development is a vital part of an emerging "anti-access" theme in Chinese military strategy aimed at preventing U.S. aircraft carriers from advancing into sea areas near China in the case of a stand-off between the two countries over Taiwan.

"If we place U.S. aircraft carriers and U.S. bases in Japan within the range of our missiles, the U.S. fleets will not be able to enter the western Pacific freely. As a result, we will make the Japan-U.S. Security Treaty ineffective," said a source close to China's military.

Submarines are another important pillar of the anti-access strategy. In recent years, China has developed state-of-the-art Song-class and Kilo-class submarines with quiet propulsion technologies that make them difficult to detect.

The new technology has allowed much more aggressive deployment. The Chinese military has told U.S. military officials that two Chinese submarines are permanently stationed in waters near the United States.

In October 2006, a Chinese Song-class submarine surfaced about eight kilometers from the U.S. aircraft carrier Kitty Hawk near Okinawa Prefecture.

The U.S. ship had been unaware of the Chinese submarine's presence and was within the range of the Chinese submarine's torpedoes.

The Chinese navy flexed its muscles again in April this year, when a fleet of 10 vessels, including two Kilo-class submarines, passed between the main Okinawa island and Miyakojima island.

A Chinese helicopter came within about 90 meters of a Japanese Maritime Self-Defense Force's escort warship during the incident.

The Chinese Defense Minister Liang Guanglie told a delegation of Japanese Self-Defense Forces' officers in Beijing on June 11 that the passage was part of a training exercise and was not a violation of international law.

"Though the Self-Defense Forces' reconnaissance planes frequently come to (air space over) the Yellow Sea (between China and the Korean Peninsula), the Chinese military forces are not obstructing them. We hope that the Japanese side do not watch us too closely either," Liang said.

However, a military source in Beijing said the maneuver had a more profound motivation: "The passage was made to demonstrate to Japan and the United States the improvement in China's anti-access capabilities in the East China Sea."

According to the Japanese Defense Ministry, Chinese destroyers have been detected near Miyakojima island and Okinotorishima island five times since 2008.

One of the Japanese officers present at the meeting with Liang said, "We felt that China has established superiority and that Chinese naval power is already greater than Japan's."

Chinese military officers say that China's military buildup is focused on Taiwan.

The primary target of its increasing strategic assertiveness is not Japan but the United States, which has been selling weapons to Taiwan. But China recognizes that accidental clashes with Japan in the East China Sea may be a side effect of the policy.

When Chinese Premier Wen Jiabao met with then Japanese Prime Minister Yukio Hatoyama in Japan in late May, he proposed re-establishing a hotline between the leaders. The hotline had not yet been set up and the Chinese side appeared to have gone cold on the idea.

At the same meeting, the two leaders agreed to improve other crisis management mechanisms to deal with confrontations at sea.

Meanwhile, the sinking of the South Korean corvette Cheonan in late March raised questions about Japanese and South Korean security cooperation. The Japanese government was slow in responding to the incident and did not ask to participate in the investigation into the causes of the incident.

The Cheonan's sinking, which the international investigation blamed on Pyongyang, was a stark reminder of the military power of North Korea. The reclusive country has up to 180,000 special military troops, weapons of mass-destruction, ballistic missiles, and submarine capabilities, all of which threaten both South Korea and Japan's security.

Japanese officials are pushing for greater cooperation with South Korea on security issues but the response from the South Korean side has often been unenthusiastic.

There is a strong resistance in South Korea to establishing a military alliance with Japan because of the friction resulting from Japan's occupation of the Korean Peninsula. There is also concern about China's opposition to such an alliance.

Nevertheless, there is an understanding among some in the South Korean military of the two country's common interests.

A South Korean officer said, "An (military) alliance (between South Korea and Japan) may be impossible. But both countries always need to maintain high-level friendly relations."

[G M]

http://www.srilankaguardian.org/2010/10/finding-achilles-heel-of-china.html

Finding the Achilles' heel of China
Posted by Sri Lanka Guardian B.Raman, China, worldview 8:33:00 AM

Visiting Chinese Premier Wen Jiabao addresses reporters during a news conference in Athens October 2, 2010. China offered on Saturday to buy Greek government bonds in a show of support for the country whose debt burden triggered a crisis for the euro zone and required an international bailout. (-Reuters Photo )
by B.Raman

(October 03, Chennai, Sri Lanka Guardian) The war of nerves and words between China and Japan over the ownership of the Senkaku Islands (the Chinese call it the Diayou Islands) in the East China Sea continues despite the Japanese release of the Captain of a Chinese fishing trawler whom they had arrested on September 8,2010, for criminal trespass into the Japanese territorial waters around the Japanese-administered islands.

2.The Chinese are yet to release one of the four Japanese employees of a construction company whom they had arrested apparently in retaliation for the Japanese arrest of the fishing trawler's Captain. The abrupt Japanese release of the Captain after having initially given evidence of its intention to prosecute him followed the Chinese arrest of the four Japanese employees.

3.Rightly or wrongly, this has given rise to a perception in Japan that its Prime Minister Naoto Kan has let himself be bullied by China. The whole incident as it has been handled by the Kan Government has been seen by sections of the media and public in Japan as a humiliation of Japan by China.As if this perceived humiliation is not enough, Bejing is insisting that before the relations between the two countries could be normalised, Japan should apologise for the "illegal" arrest of the Captain and for his "wrongful" detention.If Mr.Kan concedes this demand, it would amount to his admitting indirectly that the group of islands is Chinese and not Japanese territory.

4.There is disappointment in Japan over the failure of the Barack Obama Administration to come out strongly in support of Japan in this war of nerves with China. The US recognises the Senkaku as Japanese-administered since 1972, but has not recognised Japanese claims of sovereignty over the Islands. At the same time, there is no denial of the interpretation that the protective provisions of the US-Japan security treaty cover the Senkaku islands too.

5. The Japanese were hoping that the US would come out as strongly against Chinese machinations in respect of the East China Sea islands as Mrs.Hillary Clinton, the Secretary of State, did in respect of the South China Sea islands during her intervention at a meeting of the ASEAN Regional Forum (ARF) in Hanoi earlier this year. Surprisingly and inexplicably, the US has contented itself with statements merely calling for a peaceful resolution of the Sino-Japanese differences.

6. Attention has not been drawn by analysts to the blatant double standards in Chinese diplomacy as seen from its policy towards India on the Kashmir issue and its policy towards Japan on the Senkaku issue. The Chinese have been saying that the recent changes in favour of Pakistan in their stance on Kashmir is an individual issue which should not be allowed to have an impact on the over-all relations between India and China. But, they have refused to treat the arrest of the Chinese Captain by the Japanese as an individual issue which should not affect the over-all Sino-Japanese relations.

7. They have made the entire Sino-Japanese relations a hostage to this single issue. They have allegedly stopped the export of rare earth elements to Japan on which the Japanese high-tech industries are dependent. They have suspended high-level contacts between the two countries. Prime Minister Wen Jiabao declined to meet the Japanese Prime Minister when the two were in New York last week for the UN General Assembly session. Beijing has discouraged its tourists from visiting Japan. It has cancelled the visit of Japanese delegations to the Shanghai Expo.

8. The only factors that have acted as a check on the Chinese bullying of Japan are Beijing's uncertainty over the implications of the US-Japan security treaty in so far as the Senkaku group is concerned and fears that if Beijing continued to over-react it might provide fresh oxygen to Japanese militarists.

9. In a statement before the Japanese Parliament on October 1, Prime Minister Kan said: "The rise of China has been remarkable in recent years,but we are concerned about its strengthening defence capabilities without transparency and accelerating maritime activities spanning from the Indian Ocean to the East China Sea. The Senkaku islands are an integral part of our country, historically and under international law.Good relations with China - Japan's largest trading partner - are vital to both countries, but China must act as a responsible member of the international community. Japan needed to adopt more active foreign and defence policies to deal with uncertainty and instability that exist in areas surrounding our country."

10. His statement followed remarks by China's Foreign Ministry spokesman the previous day urging Japan to "stop making irresponsible remarks and safeguard the larger interests of bilateral relations with concrete actions". The spokesman, Jiang Yu, said: "We are willing to resolve our disputes through friendly negotiations but the Chinese Government's and people's will and resolve are unswerving on issues involving China's territorial integrity and sovereignty."

11. The regional "uncertainty and instability" consequent upon China's over-assertiveness in matters relating to territorial disputes should be of concern not only to Japan, but also to India, Vietnam and the Philippines. India's concerns over its long-pending border dispute with China and over the stepped-up Chinese support to Pakistan in the nuclear field and in the construction of road and rail infrastructure in Pakistan-occupied Gilgit-Baltistan are legitimate. So are the concerns of Vietnam and the Philippines regarding the Chinese intentions and capabilities in the South China Sea.

12. The perceptions and concerns of India, Japan, Vietnam and the Philippines relating to China should bring them together to discuss among themselves as to how to counter the over-assertiveness of China without creating a confrontational situation and without damaging the positive dimensions of their respective bilateral relations with China. Their discussions among themselves should cover the strong as well as the weak points of China--- the strong points against which they should protect themselves and the weak points which they could exploit.

13. An editorial carried by the Chinese Communist Party controlled "Global Times" on September 21 under the title "Finding the Achilles' Heel of Japan" (annexed below) said: "Provoking China comes with a heavy price tag. Finding Japan's soft spot will help end its hostile policies against China during its rise."

14. There is a need for India, Japan, Vietnam and the Philippines to find the soft spots of China. Pakistan could turn out to be one such soft spot. India knows Gilgit-Baltistan and the Chinese-controlled Xinjiang better than the Chinese. North Korea, where a new leadership is emerging, could be another. The Japanese know North Korea as well as the Chinese do. India, Japan, Vietnam and the Philippines should make overtures to the new, emerging leadership in North Korea and help it to free North Korea of its linkages with China and develop its prosperity. This is the time for India to seriously consider establishing contacts with the new North Korean leadership and invite Kim Jong-Un, the heir-apparent to Kim Jong-il, to India.

15. New Delhi's Look East policy as it has evolved till now has over-focussed on our relations with the ASEAN. The relations with the ASEAN countries continue to be important. It is time to give an East Asia dimension too to our Look East policy.

( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. E-mail: seventyone2@gmail.com )

[Crafty_Dog]

Reading the Indian perspective is usually a worthy investment of time.  Interesting find GM.

[G M]

http://scotlandonsunday.scotsman.com/news-analysis/Gerald-Warner-We-mock-the.6562418.jp?articlepage=2

World Vision has calculated that in the 1990s the regime's Marxist agricultural policies killed two million North Koreans, with fresh graves being raided for flesh by starving people. Concentration camps have killed another 1.5 million. Women prisoners are tortured and sold as sex slaves; babies are either forcibly aborted or delivered and then smothered, or have their throats cut. These details will probably be familiar to you, because you will have seen them denounced on the many demonstrations against the regime organised by the professional protesters of the British left - will you not?

Any interpretation of the inner workings of the Pyongyang regime is necessarily largely speculative. The armed forces could field 5.8 million men if they invaded South Korea, bolstered by the largest stocks of chemical and biological weapons on the planet. In 2006 North Korea carried out a successful nuclear test and has continued to develop its nuclear capacity. In April 2009, much Western derision was directed against North Korea because of the supposed "failure" of its Taepodong-2 missile test. That mockery was misdirected: the missile's 2,000-mile flight was twice as long as any preceding effort and it impressed Pyongyang's ballistic missile customers in Iran, Syria and elsewhere.

The feebleness of Barack Obama's response both to that incident and the sinking of a South Korean naval vessel signalled the lack of Western political will to confront this aggressor regime. The West took refuge in the belief that China could rein in this errant Communist state. That is questionable. Mao's dictum that the relationship between China and North Korea was as close as "lips and teeth" no longer holds. China is wary of confronting Pyongyang, for fear of being publicly defied and losing face. The maverick regime continues to threaten South Korea, Japan, Singapore and US carrier groups in adjacent waters. Next month's G20 summit in Seoul could well provoke an act of aggression from Pyongyang, encouraged by proven Western impotence and eager to assert its reinvigoration by the newly secured succession of the third generation of what is now an undisguised hereditary monarchy.

[DougMacG]

"Taiwan formally declaring independence would absolutely trigger a war with China. The Taiwanese don't want a formal declaration."

GM, thank you.  My thought was purely hypothetical.  We have no leadership to stand up to China on anything.

[G M]

Nope. It's tragic that lots of future horrors will happen because too many people were stupid enough to vote Obama into office. I just hope Taiwan, Israel and the US can survive.

[Crafty_Dog]

BEIJING — Defense Secretary Robert M. Gates met his Chinese counterpart, Liang Guanglie, in Vietnam on Monday for the first time since the two militaries suspended talks with each other last winter, calling for the two countries to prevent “mistrust, miscalculations and mistakes.”

His message seemed directed mainly at officers like Lt. Cmdr. Tony Cao of the Chinese Navy.
Days before Mr. Gates arrived in Asia, Commander Cao was aboard a frigate in the Yellow Sea, conducting China’s first war games with the Australian Navy, exercises to which, he noted pointedly, the Americans were not invited.

Nor are they likely to be, he told Australian journalists in slightly bent English, until “the United States stops selling the weapons to Taiwan and stopping spying us with the air or the surface.”

The Pentagon is worried that its increasingly tense relationship with the Chinese military owes itself in part to the rising leaders of Commander Cao’s generation, who, much more than the country’s military elders, view the United States as the enemy. Older Chinese officers remember a time, before the Tiananmen Square protests in 1989 set relations back, when American and Chinese forces made common cause against the Soviet Union.

The younger officers have known only an anti-American ideology, which casts the United States as bent on thwarting China’s rise.

“All militaries need a straw man, a perceived enemy, for solidarity,” said Huang Jing, a scholar of China’s military and leadership at the National University of Singapore. “And as a young officer or soldier, you always take the strongest of straw men to maximize the effect. Chinese military men, from the soldiers and platoon captains all the way up to the army commanders, were always taught that America would be their enemy.”

The stakes have increased as China’s armed forces, once a fairly ragtag group, have become more capable and have taken on bigger tasks. The navy, the centerpiece of China’s military expansion, has added dozens of surface ships and submarines, and is widely reported to be building its first aircraft carrier. Last month’s Yellow Sea maneuvers with the Australian Navy are but the most recent in a series of Chinese military excursions to places as diverse as New Zealand, Britain and Spain.

China is also reported to be building an antiship ballistic missile base in southern China’s Guangdong Province, with missiles capable of reaching the Philippines and Vietnam. The base is regarded as an effort to enforce China’s territorial claims to vast areas of the South China Sea claimed by other nations, and to confront American aircraft carriers that now patrol the area unmolested.

Even improved Chinese forces do not have capacity or, analysts say, the intention, to fight a more able United States military. But their increasing range and ability, and the certainty that they will only become stronger, have prompted China to assert itself regionally and challenge American dominance in the Pacific.

That makes it crucial to help lower-level Chinese officers become more familiar with the Americans, experts say, before a chance encounter blossoms into a crisis.

“The P.L.A. combines an odd combination of deep admiration for the U.S. armed forces as a military, but equally harbors a deep suspicion of U.S. military deployments and intentions towards China,” David Shambaugh, a leading expert on the Chinese military at George Washington University, said in an e-mail exchange, referring to the People’s Liberation Army.

“Unfortunately, the two militaries are locked in a classic security dilemma, whereby each side’s supposedly defensive measures are taken as aggressive action by the other, triggering similar countermeasures in an inexorable cycle,” he wrote. “This is very dangerous, and unnecessary.”

From the Chinese military’s view, this year has offered ample evidence of American ill will.

The Chinese effectively suspended official military relations early this year after President Obama met with the Dalai Lama, the Tibetan religious leader, and approved a $6.7 billion arms sale to Taiwan, which China regards as its territory.

Since then, the Chinese military has bristled as the State Department has offered to mediate disputes between China and its neighbors over ownership of Pacific islands and valuable seabed mineral rights. And when the American Navy conducted war games with South Korea last month in the Yellow Sea, less than 400 miles from Beijing, younger Chinese officers detected an encroaching threat.

===========

Page 2 of 2)



The United States “is engaging in an increasingly tight encirclement of China and constantly challenging China’s core interests,” Rear Adm. Yang Yi, former head of strategic studies at the Chinese Army’s National Defense University, wrote in August in the People’s Liberation Army Daily, the military newspaper. “Washington will inevitably pay a costly price for its muddled decision.”


In truth, little in the American actions is new. Mr. Obama’s predecessors also hosted the Dalai Lama. American arms sales to Taiwan were mandated by Congress in 1979, and have occurred regularly since then. American warships regularly ply the waters off China’s coast and practice with South Korean ships.

But Chinese military leaders seem less inclined to tolerate such old practices now that they have the resources and the confidence to say no.

“Why do you sell arms to Taiwan? We don’t sell arms to Hawaii,” said Col. Liu Mingfu, a China National Defense University professor and author of “The China Dream,” a nationalistic call to succeed the United States as the world’s leading power.

That official military relations are resuming despite the sharp language from Chinese Army officials is most likely a function of international diplomacy. President Hu Jintao is scheduled to visit Washington soon, and American experts had predicted that China would resume military ties as part of an effort to smooth over rough spots before the state visit.

Some experts see increased contact as critical. A leading Chinese expert on international security, Zhu Feng of Peking University, says that the Chinese military’s hostility toward the United States is not new, just more open. And that, he says, is not only the result of China’s new assertiveness, but its military’s inexperience on the world stage.

“Chinese officers’ international exposure remains very limited,” Mr. Zhu said. “Over time, things will improve very, very significantly. Unfortunately, right now they are less skillful.”

Greater international exposure is precisely what American officials would like to see. Americans hope renewed cooperation will lead to more exchanges of young officers and joint exercises.

“It’s time for both militaries to reconsider their tactics and strategy to boost their friendship,” Mr. Zhu said. “The P.L.A. is increasing its exposure internationally. So what sort of new rule of law can we figure out to fit the P.L.A. to such new exposure? It’s a challenge not just for China, but also for the U.S.

[G M]

http://www.time.com/time/world/article/0,8599,2024090,00.html

On Sept. 29, the House of Representatives passed a bill with overwhelming support from both Democrats and Republicans. It would punish China for keeping its currency undervalued by slapping tariffs on Chinese goods. Everyone seems to agree that it's about time. But it isn't. The bill is at best pointless posturing and at worst dangerous demagoguery. It won't solve the problem it seeks to fix. More worrying, it is part of growing anti-Chinese sentiment in the U.S. that misses the real challenge of China's next phase of development. (See "Geithner: We Need to Toughen Up with China.")

There's no doubt that China keeps the renminbi, its currency, undervalued so it can help its manufacturers sell their toys, sweaters and electronics cheaply in foreign markets, especially the U.S. and Europe. But this is only one of a series of factors that have made China the key manufacturing base of the world. (The others include low wages, superb infrastructure, hospitality to business, compliant unions and a hard-working labor force.) A simple appreciation of the renminbi will not magically change all this. (See pictures of China's infrastructure boom.)

Chinese companies make many goods for less than 25% of what they would cost to manufacture in the U.S. Making those goods 20% more expensive (because it's reasonable to suppose that without government intervention, China's currency would increase in value against the dollar by about 20%) won't make American factories competitive. The most likely outcome is that it would help other low-wage economies like Vietnam, India and Bangladesh, which make many of the same goods as China. So Walmart would still stock goods at the lowest possible price, only more of them would come from Vietnam and Bangladesh. Moreover, these other countries, and many more in Asia, keep their currencies undervalued as well. As Helmut Reisen, head of research for the Development Center at the Organisation for Economic Co-operation and Development, wrote recently in an essay, "There are more than two currencies in the world."

We've seen this movie before. From July 2005 to July 2008, under pressure from the U.S. government, Beijing allowed its currency to rise against the dollar by 21%. Despite that hefty increase, China's exports to the U.S. continued to grow mightily. Of course, once the recession hit, China's exports slowed, but not as much as those of countries that had not let their currencies rise. So even with relatively pricier goods, China did better than other exporting nations. (See pictures of the making of modern China.)

Look elsewhere in the past and you come to the same conclusion. In 1985 the U.S. browbeat Japan at the Plaza Accord meetings into letting the yen rise. But the subsequent 50% increase did little to make American goods more competitive. Yale University's Stephen Roach points out that since 2002, the U.S. dollar has fallen in value by 23% against all our trading partners, and yet American exports are not booming. The U.S. imports more than it exports from 90 countries around the world. Is this because of currency manipulation by those countries, or is it more likely a result of fundamental choices we have made as a country to favor consumption over investment and manufacturing? (Comment on this story.)

Coming: The New China
The real challenge we face from China is not that it will keep flooding us with cheap goods. It's actually the opposite: China is moving up the value chain, and this could constitute the most significant new competition to the U.S. economy in the future. (See "Five Things the U.S. Can Learn from China.")

For much of the past three decades, China focused its efforts on building up its physical infrastructure. It didn't need to invest in its people; the country was aiming to produce mainly low-wage, low-margin goods. As long as its workers were cheap and worked hard, that was good enough. But the factories needed to be modern, the roads world-class, the ports vast and the airports efficient. All these were built with a speed and on a scale never before seen in human history.

Now China wants to get into higher-quality goods and services. That means the next phase of its economic development, clearly identified by government officials, requires it to invest in human capital with the same determination it used to build highways. Since 1998, Beijing has undertaken a massive expansion of education, nearly tripling the share of GDP devoted to it. In the decade since, the number of colleges in China has doubled and the number of students quintupled, going from 1 million in 1997 to 5.5 million in 2007. China has identified its nine top universities and singled them out as its version of the Ivy League. At a time when universities in Europe and state universities in the U.S. are crumbling from the impact of massive budget cuts, China is moving in exactly the opposite direction. In a speech earlier this year, Yale president Richard Levin pointed out, "This expansion in capacity is without precedent. China has built the largest higher-education sector in the world in merely a decade's time. In fact, the increase in China's postsecondary enrollment since the turn of the millennium exceeds the total postsecondary enrollment in the United States."

The Benefits of Brainpower
What does this unprecedented investment in education mean for China — and for the U.S.? Nobel Prize–winning economist Robert Fogel of the University of Chicago has estimated the economic impact of well-trained workers. In the U.S., a high school-educated worker is 1.8 times as productive, and a college graduate three times as productive, as someone with a ninth-grade education. China is massively expanding its supply of high school and college graduates. And though China is still lagging far behind India in the services sector, as its students learn better English and train in technology — both of which are happening — Chinese firms will enter this vast market as well. Fogel believes that the increase in high-skilled workers will substantially boost the country's annual growth rate for a generation, taking its GDP to an eye-popping $123 trillion by 2040. (Yes, by his estimates, in 2040 China would be the largest economy in the world by far.) (See portraits of Chinese workers.)

Whether or not that unimaginable number is correct — and my guess is that Fogel is much too optimistic about China's growth — what is apparent is that China is beginning a move up the value chain into industries and jobs that were until recently considered the prerogative of the Western world. This is the real China challenge. It is not being produced by Beijing's currency manipulation or hidden subsidies but by strategic investment and hard work. The best and most effective response to it is not threats and tariffs but deep, structural reforms and major new investments to make the U.S. economy dynamic and its workers competitive.


Read more: http://www.time.com/time/world/article/0,8599,2024090,00.html#ixzz12A35Rai4

[Crafty_Dog]

second post of the morning:


China and the Future of Rare Earth Elements
October 12, 2010 | 1213 GMT
PRINT Text Resize:   
ShareThis

A recent diplomatic spat between China and Japan has heightened territorial tensions and called attention to China’s growing forcefulness with foreign powers. One of the more intriguing aspects of this development was China’s suspension of the export of “rare earth” elements (REE) to Japan. REE comprise 17 metallic elements with a variety of modern industrial and commercial applications ranging from petroleum refining to laptop computers to green energy applications to radar. China produces roughly 95 percent of the global supply of REE and Japan is the largest importer. China’s disruption of REE shipments to Japan has caused alarm among other importer countries, bringing new urgency to the search for new supplies and substitutes.


The China Factor

Chinese control of the base of the REE supply chain has increasingly made China the go-to location for the intermediate goods made from REE. In time, China hopes to extend production into the final products as well. As new REE supplies cannot be brought online overnight, the Chinese will enjoy a powerful position in the short term. The Chinese Ministry of Commerce reports that China has ratcheted down REE export quotas by an average of 12 percent per year over the past five years, further leveraging this position. Reflecting that and the current China-Japan spat, the average price for REE has tripled in the year to date.

Rare earth elements are not as rare as their name suggests, however. Before the Chinese began a dedicated effort to mass-produce REE in 1979, there were several major suppliers. Pre-China, the United States was the largest producer. Appreciable amounts of REE were also produced in Australia, Brazil, India, Malaysia and Russia. Any sort of real monopoly on REE, therefore, is not sustainable in the long-run. But before one can understand the future of the REE industry, one must first understand the past.

The story of REE is not the story of cheap Chinese labor driving the global textile industry into the ground. Instead, it is a much more familiar story (from STRATFOR’s view) of the Chinese financial system having a global impact.

Unlike Western financial systems, where banks grant loans based on the likelihood that the loans will be repaid, the primary goal of loans in China is promoting social stability through full employment. As such, the REE industry — like many other heavy or extractive industries — was targeted with massive levels of subsidized loans in the mid-1980s. At the same time, local governments obtained more flexibility in encouraging growth. The result was a proliferation of small mining operations specializing in REE. Production rates increased by an annual average of 40 percent in the 1980s. They doubled in the first half of the 1990s, and then doubled again with a big increase in output just as the world tipped into recession in 2000. Prices predictably plunged, by an average of 95 percent compared to their pre-China averages.

Most of these Chinese firms rarely turned a profit. Some industry analysts maintain that for a good portion of the 2000s, most of them never even recovered their operating costs. At the same time, an illegal REE mining industry ran rampant, earning meager profits by disregarding worker safety and the environment and ruthlessly undercutting competing prices. With an endless supply of below-market loans, it did not matter if the legitimate mining concerns were financially viable. It was in the environment of continued Chinese production despite massive losses that nearly every other REE producer in the world closed down — and that the information technology revolution took root.

In fact, if not for China’s massive overproduction, the technological revolution of the past 15 years would not have looked the same. In all likelihood, it would have been slowed considerably.

Before 1995, the primary uses for REE were in the manufacture of cathode ray tubes (primarily used in television sets before the onset of plasma and LCD screens) and as catalysts in the refining industry and in catalytic converters (a device used in cars to limit exhaust pollution). Their unique properties have since made them the components of choice for wind turbines, hybrid cars, laptop computers, cameras, cellular phones and a host of other items synonymous with modern life. Chinese overproduction in the 2000s — and the price collapses that accompanied that overproduction until just this year — allowed such devices to go mainstream.

With numerous large REE deposits outside China, the long-term sustainability of a monopoly is questionable at best. This does not mean China will not create some destabilizing effects in the medium term as it attempts to leverage the current imbalance to its benefit, however. That its prolific, financially profitless and environmentally destructive production of REE has largely benefited foreign economies is not lost on China, so it is pushing a number of measures to alter this dynamic. On the supply side, China continues to curb output from small unregulated mining outfits and to consolidate production into large state-controlled enterprises, all while ratcheting down export quotas. On the demand side, Chinese industry’s gradual movement up the supply chain toward more value-added goods means more demand will be sequestered in the domestic economy. In fact, in the years just before the financial crisis and accompanying recession, global demand outpaced China’s ability (or willingness) to supply the market, resulting in bouts of price volatility. As the economic recovery proceeds, it is no stretch to envision outright gaps in exports from China within two to five years, even without the kinds of political complications the REE market has suffered in recent days.

Many states already have REE-specific facilities in place able to restart mining in response to this year’s price surge.

The premier Australian REE facility at Mount Weld plans to ramp up to 19,000 metric tons of rare earth oxides by the end of 2011. The top American site — Mountain Pass in California — aims to produce a similar amount by the end of 2012. Those two sites will then collectively be producing 25-30 percent of global demand.

Before China burst on the scene, most REE production was not from REE-specific mines. REE are often found co-mingled not simply with each other, but in the ores extracted for the production of aluminum, titanium, uranium and thorium. As China drove prices down, however, most of these facilities ceased extracting the difficult-to-separate REE. There is nothing other than economics stopping these facilities from re-engaging in REE production, although it will take at least a couple of years for such sites to hit their stride. Such locations include sites in Kazakhstan, Russia, Mongolia, India and South Africa as well as promising undeveloped sites in Vietnam, Canada (Thor Lake) and Greenland (Kvanefjeld). And while few have been exploring for new deposits since the 1970s given the lack of an economic incentive, higher prices will spark a burst of exploration.

Getting from here to there is harder than it sounds, however. Capital to fuel development will certainly be available as prices continue to rise, but opening a new mine requires overcoming some significant hurdles. Regardless of jurisdiction, a company needs to secure the lease (usually from the central government) and obtain a considerable variety of permits, not the least of which is for handling and storing the toxic — and in the case of REE, radioactive — waste from the mine. Even if the governments involved want to streamline things, vested interests such as the environmental lobby and indigenous groups appear at every stage of permitting to fight, lobby and sue to delay work. And depending on the local government, successfully mining a deposit could involve a considerable amount of political uncertainty, bribe paying or harassment. Only after clearing these hurdles can the real work of building infrastructure, sourcing inputs like electricity and water, and actually digging up rocks begin — itself a herculean task.

To add more complication, many of the best prospects are in jurisdictions undergoing significant changes. In the United States, activists are working to reform the federal mining law dating to 1872, which has ensured that U.S. jurisdictions remain among the most attractive mining destinations in the world. Initiatives like the Hardrock Mining and Reclamation Act of 2007 would drastically constrain mineral companies and increase project costs across the board. In Australia, ongoing negotiations over the implementation of a so-called “super tax” has dampened enthusiasm in one of the world’s premier mining jurisdictions and home to Lynas Corporation’s Mount Weld project. The tax, which sought to impose a 40 percent tax on mining profits, has since been watered down, but the debacle has left a discernable mark on the country’s resource extraction industry. And for an industry that is positively allergic to uncertainty, events like the BP oil spill in the Gulf of Mexico and the Chilean mine collapse only portend tighter regulation worldwide.

Re-opening an existing mine is somewhat easier since some infrastructure remains in place, and the local community is accustomed to having a mine. Old equipment may need to be brought up to spec, and the regulatory questions will still affect how miners and bankers view the project’s profitability, but the figuring margins are simpler when the basic geology and engineering already have been done.

Unfortunately, there is more to building a new REE supply chain than simply obtaining new sources of ore. A complex procedure known as beneficiation must be used to separate the chemically similar rare earth metals from the rest of the ore it was mined with. Beneficiation proceeds through a physical and then chemical route. The latter differs greatly from site to site, as the composition of the ore is deposit-specific and factors into the choice of what must be very precise reaction conditions such as temperature, pH and reagents used. The specificity and complexity of the process make it expensive, while the radioactivity of some ores and the common use of chemicals such as hydrochloric and sulfuric acid invariably leave an environmental footprint. (One reason the Chinese produced so much so fast is that they did not mind a very large environmental footprint.) The chemical similarity among the REE that was useful to this point now becomes a nuisance, as the following purification stage — the details of which we will leave out to avoid a painfully long chemistry lecture — requires the isolation of individual REE. This stage is characterized by extraordinary complexity and cost as well.

At this point, one still does not have the REE metal, but instead an oxide compound. The oxide must now be converted into the REE’s metallic form. Although some pure metals are created in Japan, China dominates this part of the supply chain as well.

In any other industry, this refining/purification process would be a concern that investors and researchers would constantly be tackling, but there has been no need, as Chinese overproduction removed all economic incentive from REE production research for the past 20 years (and concentrated all of the pollution in remote parts of China). So any new producer/refiner beginning operations today is in essence using technology that has not experienced the degree of technological advances that other commodities industries have in the past 25-30 years. It is this refining/purification process rather than the mining itself that is likely to be the biggest single bottleneck in re-establishing the global REE supply chain. It is also the one step in the process where the Chinese hold a very clear competitive advantage. Since the final tooling for intermediate parts has such a high value added, and since most intermediate components must be custom-made for the final product, whoever controls the actual purification of the metals themselves forms the base of that particular chain of production. Should the Chinese choose to hold that knowledge as part of a means of capturing a larger portion of the global supply chain, they certainly have the power to do so. And this means that short of some significant breakthroughs, the Chinese will certainly hold the core of the REE industry for at least the next two to three — and probably four to five — years.

Luckily, at this point the picture brightens somewhat for those in need of rare earths. Once the REE have been separated from the ore and from each other and refined into metallic form, they still need to be fashioned into components and incorporated into intermediate products. Here, global industry is far more independent. Such fashioning industries require the most skill and capital, so as one might expect, these facilities were the last stage of the REE supply chain to feel competitive pressure from China. While some have closed or relocated with their talent to China, many component fabrication facilities still exist, most in Japan, many in the United States, and others scattered around Europe.

All told, a complete regeneration of the non-Chinese REE system will probably take the better part of the decade. And because most REE are found co-mingled, there is not much industry can do to fast-track any particular mineral that might be needed in higher volumes. And this means many industries are in a race against time to see if alternative REE supplies can be established before too much economic damage occurs.

[Crafty_Dog]

Affected Industries

Everyone who uses REE — which is to say, pretty much everyone — is going to feel a pinch as REE rapidly rise in value back toward their pre-Chinese prices. But some industries are bound to feel less a pinch than a death grip. REE applications broadly fall into six different categories, with the first being the least impacted by price increases and the sixth being the most impacted.

The first category consists of cerium users. Cerium is the most common REE and the most critical for refining and catalytic converters. As the average global crude oil gets heavier, cerium is needed more and more to “crack” the oil to make usable products. As clean air requirements tighten globally, automobile manufacturers need more cerium to ensure cars run as cleanly as possible. Cerium thus remains in high demand.

Luckily for cerium users, the steady phasing-out of cathode ray tubes means that supplies rapidly are being freed up for other applications. Between the sudden demand drop and ongoing REE production in China, there are actually substantial cerium stockpiles globally. This means that cerium users are not likely to face serious price increases even though their REE has the most inelastic demand. Petroleum and automotive companies use the most cerium, which also is used for polishing agents for glass and semiconductor chips, UV-proof glass, self-cleaning ovens, and some steel alloys.

The second category comprises non-cerium goods with inelastic demand. This includes items that will be built regardless of cost, either because they are irreplaceable or because they are luxury items. This list includes satellites, which use yttrium in their communications systems; europium, used in LED screens in TVs; lanthanum, used for fish-eye lenses in iPhones; scandium, used for lighting systems in movie studios; and neodymium and gadolinium, indispensable for MRIs. These are all items that people — in particular Americans — would not stop purchasing without a large increase in prices. Luckily, while REE are critical to these devices, they make up a rather small proportion of their total cost. So while the world will certainly see REE price increases, those price increases are unlikely to affect the luxury market.

The third category comprises defense goods. Somewhat similar to luxury goods in terms of how REE demand and prices will affect them, demand for defense goods is extremely unlikely to shift due to something as minor as a simple price increase. Military technology that uses REE — ranging from the samarium in the guidance module in joint-direct attack munition kits to the yttrium used in the “magic lantern” that locates subsea mines — is going to be in demand regardless of price. Demand for urgently needed military technology is quite inelastic regardless of price in the short run, and militaries — in particular the American military — have robust budgets that dwarf the additional costs of components whose contribution to the final cost is negligible. The only reason STRATFOR places defense uses as likely to suffer a greater impact than luxury goods is that China itself is aiming to be a producer of luxury goods, so such products will most likely have a Chinese supply chain. By contrast, few militaries in the world with the high-end capabilities likely to be impacted by REE prices are interested in purchasing military technologies from China, so there will be a large constituency pushing for alternative production of REE as well as a large market for alternative products. This could turn out to be a boon for the American industry: Anyone seeking to increase REE production is going to find a friend in the Pentagon, and no one can lobby Congress quite like the military.

The fourth category comprises goods in which REE are a critical component and a significant price impact but that are made by industries with a long habit of adapting to adverse price shifts. The poster child for this is the Japanese auto industry. There is a long list of vehicle systems that the Japanese have adapted over the years as the price of various inputs has skyrocketed. In 2000, the Russian government banded together the country’s disparate platinum group metals (such as palladium and platinum, critical in the manufacture of catalytic converters) exports into a single government-controlled cartel. Platinum group metal prices subsequently skyrocketed. By March 2001, Honda had announced a new advance that reduced the need for palladium by roughly half. Platinum group metal prices subsequently plummeted.

In anticipation of this type of disruption, the Japanese have been developing substitutes to REE. Presently, the Toyota Prius uses roughly one kilogram of neodymium. At pre-2010 spike prices, that neodymium used in one Prius cost $20, a marginal impact on the Prius’ sticker price. Should prices rebound to pre-China levels, however, the average Prius buyer would notice a roughly $450-price hike due to magnetic components alone. One week into the China-Japan REE spat, government-funded researchers announced a magnet system design that can completely replace the neodymium used in the Prius.

This hardly solves the problem overnight; it will take months to years to retool Toyota’s factories for the new technology. Still, consumers of REE are going to find ways of lessening their use of REE. The information technology revolution has proceeded unabated since 2000 in part because REE have been one-tenth to one-twentieth of their previous prices. Absent any serious price pressures, industries have had no need to invest in finding means of cutting inputs or finding substitutes. (REE are so abundant that in China they are used in fertilizers and road building materials.)

The shift in prices could well give a much-needed boost to non-REE dependent technologies hampered by relatively inexpensive REEs. For example, the REE lanthanum is a leading component in the Prius’ nickel metal-hydride battery system. (The Prius uses ten kilograms of lanthanum). Toyota has been edging toward replacing the nickel-hydride system with REE-free lithium-ion batteries, but has demurred due to the low price of lanthanum. Increase that cost by a factor of 20, of the factor of three of recent months — and add in the threat of a full cutoff — and Toyota’s board is likely to come to a different conclusion.

Computer hard drives may fall into a similar category. A major cause of the increased demand for REE has been the demand for neodymium in particular and a specific intermediate product made from it, the neodymium-iron-boron magnet (which also uses some dysprosium). The magnets are a critical component in hard drives, particularly for laptops. But like lithium-ion batteries, a new technology is gaining market share: solid-state hard drives. Currently, the consumer’s cost difference between the two is a factor of four, but sustained price hikes in the cost of neodymium and NdFeB magnets could cause demand to plummet.

The fifth category comprises goods where the laws of supply and demand are likely to reshape the industries in question. These are goods where price is most certainly an issue, and where consumers will simply balk should the bottom line change too much. Compact fluorescent light bulbs that use phosphors heavy in terbium, LED display screens that use europium and various medical techniques that use erbium lasers all fall into this category. None of these industries will disappear, but they are extremely likely to see far lower sales as none of these products are economically indispensable and all have various product substitutes.

The sixth category comprises goods for which there are very low ore and metal stockpiles for which demand is both high and rising rapidly, and for which it will take the longest to set up an alternate supply chain. The vast majority of these industries depend on the same type of neodymium magnets used in hard drives, but do not have a replacement technology waiting in the wings. These magnets are a critical component in the miniaturization (and convergence) of electronic devices such as cellular phones, MP3 players, computers and cameras. They are also central to the power exchange relays for electricity-generating wind turbines used in today’s wind farms.

But even within this category, not all products will be impacted similarly. Many of the miniaturized electronic consumer goods manufacturers will face growing pains as they find their supply chain increasingly concentrated in China. But cheaper production costs could offset rising materials costs, and technological innovation will also help lessen the impact. Alternative energy is not likely to be as lucky. Neodymium magnets are critical to windmill turbines, one of the specific areas the Chinese hope to dominate. Each 1-megawatt windmill uses roughly a metric ton of NdFeB magnets.

For green energy enthusiasts, this is a double bind. First, green power must compete economically with fossil fuels — meaning rather small cost increases in capital outlays could be a deal breaker. Second, the only way to get around the price problem is to advocate greater neodymium production. And that means either tolerating the high-pollution techniques used in China, or encouraging the development of a not-particularly-green mining industry in the West.

Read more: China and the Future of Rare Earth Elements | STRATFOR

[G M]

http://www.washingtontimes.com/news/2010/oct/11/obama-loosens-sanctions-on-c-130s-to-china/print/

Koutou.

[Crafty_Dog]

Kow tow?  Or Manchurian candidate?

[Crafty_Dog]

Rare and Foolish
By PAUL KRUGMAN
Published: October 17, 2010
Recommend
Twitter
comments (17)
Sign In to E-Mail
 
Print
 
       
Reprints
 
Share
CloseLinkedinDiggMixxMySpaceYahoo! BuzzPermalink Last month a Chinese trawler operating in Japanese-controlled waters collided with two vessels of Japan’s Coast Guard. Japan detained the trawler’s captain; China responded by cutting off Japan’s access to crucial raw materials.

Enlarge This Image
 
Fred R. Conrad/The New York Times
Paul Krugman

Go to Columnist Page »Blog: The Conscience of a LiberalReaders' Comments
Readers shared their thoughts on this article.
Read All Comments (17) »
And there was nowhere else to turn: China accounts for 97 percent of the world’s supply of rare earths, minerals that play an essential role in many high-technology products, including military equipment. Sure enough, Japan soon let the captain go.

I don’t know about you, but I find this story deeply disturbing, both for what it says about China and what it says about us. On one side, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.

Some background: The rare earths are elements whose unique properties play a crucial role in applications ranging from hybrid motors to fiber optics. Until the mid-1980s the United States dominated production, but then China moved in.

“There is oil in the Middle East; there is rare earth in China,” declared Deng Xiaoping, the architect of China’s economic transformation, in 1992. Indeed, China has about a third of the world’s rare earth deposits. This relative abundance, combined with low extraction and processing costs — reflecting both low wages and weak environmental standards — allowed China’s producers to undercut the U.S. industry.

You really have to wonder why nobody raised an alarm while this was happening, if only on national security grounds. But policy makers simply stood by as the U.S. rare earth industry shut down. In at least one case, in 2003 — a time when, if you believed the Bush administration, considerations of national security governed every aspect of U.S. policy — the Chinese literally packed up all the equipment in a U.S. production facility and shipped it to China.

The result was a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants. And even before the trawler incident, China showed itself willing to exploit that monopoly to the fullest. The United Steelworkers recently filed a complaint against Chinese trade practices, stepping in where U.S. businesses fear to tread because they fear Chinese retaliation. The union put China’s imposition of export restrictions and taxes on rare earths — restrictions that give Chinese production in a number of industries an important competitive advantage — at the top of the list.

Then came the trawler event. Chinese restrictions on rare earth exports were already in violation of agreements China made before joining the World Trade Organization. But the embargo on rare earth exports to Japan was an even more blatant violation of international trade law.

Oh, and Chinese officials have not improved matters by insulting our intelligence, claiming that there was no official embargo. All of China’s rare earth exporters, they say — some of them foreign-owned — simultaneously decided to halt shipments because of their personal feelings toward Japan. Right.

So what are the lessons of the rare earth fracas?

First, and most obviously, the world needs to develop non-Chinese sources of these materials. There are extensive rare earth deposits in the United States and elsewhere. However, developing these deposits and the facilities to process the raw materials will take both time and financial support. So will a prominent alternative: “urban mining,” a k a recycling of rare earths and other materials from used electronic devices.

Second, China’s response to the trawler incident is, I’m sorry to say, further evidence that the world’s newest economic superpower isn’t prepared to assume the responsibilities that go with that status.

Major economic powers, realizing that they have an important stake in the international system, are normally very hesitant about resorting to economic warfare, even in the face of severe provocation — witness the way U.S. policy makers have agonized and temporized over what to do about China’s grossly protectionist exchange-rate policy. China, however, showed no hesitation at all about using its trade muscle to get its way in a political dispute, in clear — if denied — violation of international trade law.

Couple the rare earth story with China’s behavior on other fronts — the state subsidies that help firms gain key contracts, the pressure on foreign companies to move production to China and, above all, that exchange-rate policy — and what you have is a portrait of a rogue economic superpower, unwilling to play by the rules. And the question is what the rest of us are going to do about it.

[DougMacG]

Did I just read a Krugman column where the whole thing almost made sense and the facts were  accurate?  Our environmental standards caused the surrender of a crucial market to China.

I especially like the part where Krugman is shocked and disappointed that a murderous, tyrannical, totalitarian, dictatorial regime hasn't yet risen to the responsibilities of their superpower status.  Who knew?

"China accounts for 97 percent of the world’s supply of rare earths, minerals that play an essential role in many high-technology products, including military equipment."

This Idaho editorial says that we closed our last rare earth mine for environmental risks that must not scare the Chinese:

"Fifteen years ago, the United States was the world’s largest producer of rare earth minerals. But the last major rare earth mine in the U.S. was closed in 2002. Last year China produced more than 97 percent of the world’s rare earth minerals even though it has only 36 percent of the world’s reserves."

http://voices.idahostatesman.com/2010/10/04/rockybarker/rare_earth_minerals_put_idaho_middle_us_china_relations

A global production chart at Wikipedia shows that the US had the lion's share of the production as recent as the mid-1980s.  
http://en.wikipedia.org/wiki/Rare_earth_element

Small point of learning here.  When we think of passing a law to ban production of something here to save the earth but we know it will just be done by our competitors and enemies anyway, ask what is gained?  Production of wind turbines and hybrid cars according to our EPA pose unacceptable environmental risks (because of the mining of rare earth elements).  Once again, who knew that banning production here, buying it elsewhere and then subsidizing those purchases would cause a market imbalance threatening our leadership in technology and manufacturing.

I should add that I support 'urban mining' but the recycling of old computers and electronics as a primary strategy for developing new technologies sounds very much like a guarantee of never again being the leader in anything.

Decline is a choice.

[G M]

Recycling electronics is expensive and creates serious environmental impacts. Most of our e-waste is sent to China for processing.

[G M]

http://www.cbsnews.com/video/watch/?id=4586903n

The Electronic Wasteland

November 18, 2008 9:04 AM

Where do the millions of computer monitors, cell phones and other electronic refuse our society generates end up? Scott Pelley reports.

[DougMacG]

Seems to me that like nuclear 'waste', e-waste could be condensed and stored safely as a future resource until the technology to safely mine it for resources catches up.  The original point remains, we pass production restriction laws here and then consume the same product produced elsewhere.  That saves the earth nothing, eliminates a US business, costs the consumer and enriches our competitor/ enemy.  In this case - China.

What bugs me most about ordinary recycling is that we think we save energy and the earth by requiring huge diesel trucks to drive regularly down all our streets, and charge us for it.

[G M]

http://www.nytimes.com/2010/10/20/business/global/20rare.html?pagewanted=print
October 19, 2010
China to Halt Some Exports to U.S.
By KEITH BRADSHER

HONG KONG — China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of those materials to the United States and Europe, three industry officials said on Tuesday.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle.

“The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.

They said Chinese customs officials imposed the broader restrictions on Monday morning, hours after a top Chinese official summoned international news media Sunday night to denounce United States trade actions.

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of products as diverse as cellphones, large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies.

[JDN]

Tit for tat.
Everyone plays the cards they hold.

What do you suggest America should do?
In the short run?

In the long run, as Doug seemed to imply exceptions should be made.
I'm all for clean air, but national defense comes first.

[JDN]

Maybe it's time to make some changes....

And article back in March, 2008 had a good point....


Lifton has also suggested that many U.S. companies have not jumped into the market because China's state-owned mines keep rare earth prices artificially low. But if U.S. companies do not begin mining American rare earth deposits soon, they may be left scrambling if China does one day stop exporting rare earths.

But Cowle, the CEO of U.S. Rare Earths, seems hopeful that momentum has already begun building for the U.S. government to encourage development of its own rare earth deposits.

"From what I see, security of supply is going to be more important than the prices," Cowle said.

http://www.technewsdaily.com/us-sitting-on-mother-lode-of-rare-tech-crucial-minerals-0281/

[G M]

Playing protectionist games with China will hurt us far worse than it will them. I cringe to think how this will play out with the cokehead in chief doing the decision making.

[Crafty_Dog]

Trade wars are very bad things and tend to have consequences far beyond those originally envisioned.

That said, we must consider the possibility that China is starting one with us whether we like it or not.  In case such is the case, then we need a clear-headed assessment of who "wins" (i.e. loses less).

GM, you've been a serious observer of China for some time now.  Why do you say they win a trade war with us?

[G M]

China sells to the world. China buys our debt, and Chinese consumers are increasingly buying US made products. The cheaper yuan means the American consumer's dollar goes farther at Walmart. Obama's pandering to his union goons will not end up creating jobs, just making consumer goods more expensive.

The Smoot–Hawley Tariff Act supporters though it was going to bring jobs back in the great depression, instead it like much of what was done by the dems lengthened and worsened it. China believes it can take the pain, and if needed, it will let the PLA party like it's 1989 should the street protests get out of hand.

We, on the other hand can tolerate much less pain as a society. China calculates that we will blink first, and China is correct in that assessment. So all this financial saber rattling will accomplish is to place China in a better position than when we started.

[Crafty_Dog]

Perhaps I read too much into what you say, but I am not seeing a point at which you would draw a line.

[G M]

We are in no position to get into a trade war with anyone, much less China. We need free trade and we need them to ignore how they are throwing money away continuing to fund our irresponsible spending habits. Like I said before, the low yuan actually helps US consumers. A 40% increase in Chinese made goods would cause tangible pain for us and would not result in comparable increase in employment domestically.

[DougMacG]

Again I agree.  People forget how low prices from a consumer point of view raise our standard of living.  The benefit of freedom to trade goes both ways.  We would lose the low price and wide availability of widgets and happy meal toys. They would lose their second largest customer, cash flow they depend on and have widespread factory shutdowns and layoffs with a regime that derives its consent only from the security and continuous economic growth it can provide.  The damage of ending that relationship economically goes both ways. I think we could withstand the disruption and resulting economic depression better than they could, but not by much and not with any certainty.

[Crafty_Dog]

"we need them to ignore how they are throwing money away continuing to fund our irresponsible spending habits"

GM, I am going to nit pick a bit on this one.  NO we do NOT need to fund our irresponsible spending habits.  Rather we need to spend responsibly.  We can get along quite nicely without the plastic knicknacks and poison laced products (including children's toys! ) and we can get along quite nicely without further increasing their leverage over us.

[G M]

Believe me, I in no way want us to continue our destructive spending habits. We MUST address it immediately. However, until we get our feces coagulated, we had better not make things worse with a neo-Smoot-Hawley act.

[Crafty_Dog]

To quote myself:

"That said, we must consider the possibility that China is starting one with us whether we like it or not.  In case such is the case, then we need a clear-headed assessment of who "wins" (i.e. loses less)."

In other words, I am not advocating Smoot Hawley, I am asking what to do if China starts it up.

[G M]

Our salvation, no matter what China does or does not do, is to get back into a free market, innovation based economy. Cut corporate taxes and watch foreign investment flood in. It is an utter shame that right now, it's easier to start up a cutting edge tech company in China rather than here. If we do not reverse this and other trends, our best option in the future will be as a tourism destination for wealthy asians.

[JDN]

That is very interesting JDN, from what you say, China seems to have a plausible claim at least.  Should I want to cite a source, what source would that be?

Last weekend, angry young protesters in China and Japan took to the streets to demonstrate to the international community their countries' claims over what Tokyo calls the Senkaku Islands and Beijing refers to as the Diaoyu.

One of the sides must be wrong, historically. But which side? Each government, of course, says it has the better claim.

http://search.japantimes.co.jp/cgi-bin/nn20101023x1.html

[ccp]

From the recent Economist:

China's succession
The next emperor
A crown prince is anointed in a vast kingdom facing vaster stresses. China is in a fragile state
Oct 21st 2010

“WITH you in charge, I am at ease,” Mao Zedong is supposed to have told his successor, Hua Guofeng. It proved a disastrous choice. Mr Hua lasted a couple of years before being toppled in 1978. A decade later succession plans once again unravelled spectacularly, against a backdrop of pro-democracy unrest. Only once, eight years ago, has China’s Communist Party managed a smooth transfer of power—to Hu Jintao. Now a new transition is under way. The world should be nervous about it for two reasons: the unknown character of China’s next leader; and the brittle nature of a regime that is far less monolithic and assured than many foreigners assume.

The man ordained to take over Mr Hu’s twin roles as party chief in 2012 and president the following year is hardly a household name. On October 18th Vice-President Xi Jinping was given a new job as vice-chairman of China’s Central Military Commission, which Mr Hu heads. This is a position for leaders-in-waiting. The portly son of one of Communist China’s founders, little known to the outside world until a few years ago, Mr Xi is preparing to take the helm of a country with the world’s second-biggest economy and its biggest armed forces—and which is in the midst of wrenching social change.

Quite how he has risen so high in a party that, for all its growing engagement with the world, remains deeply secretive, is unclear. Mr Xi’s appointment was eerily similar to the recent anointing of Kim Jong Un in North Korea: he too was made vice-chairman of a military commission after a closed-door party conclave, without public explanation. China’s leaders at least offered a sentence on Mr Xi’s appointment, albeit at the end of an arid 4,600-character communiqué after the fifth party congress (see article).

Related items
China's economy: A new epic
Oct 21st 2010
China's next leader: Xi who must be obeyed
Oct 21st 2010On the positive side, Mr Xi has held some big posts in the most economically dynamic and globally integrated parts of the country: the coastal provinces of Fujian and Zhejiang as well as, briefly, Shanghai. He is a relatively cosmopolitan figure. His wife is a popular singer. But it is impossible to assess how well qualified he is to run the country or how assured his succession is. On the face of it, one engineer whose father was denounced during the Cultural Revolution is handing over to another. But Mr Xi is a relative newcomer to the inner circle; he has not served as long as Mr Hu had in 2002. There are plenty in the party who resent the rise to power of well-connected “princelings” like Mr Xi. A two-year transition will be a test.


All this one day will be yours

All the same, it is the immensity of the task, not the obscurity of the man, that should make the world nervous. For all their outward expressions of unity, there are signs of disagreement among Chinese leaders over what the country’s priorities should be—both on the economy and on political reform.

The economy is sprinting along by Western standards, but China faces a hard adjustment to wean itself off excessive investment and exports in favour of more reliance on consumption. The communiqué unveiled guidelines for a new five-year economic plan (see article). This calls for a more sustainable pace of growth, with wage-earners getting a bigger share of the national income. This would be good for China and the world, helping to narrow the trade surplus that annoys America so much. But the change will not be painless. Exporters fear business will suffer if wages soar or the yuan rises fast. Powerful state-owned enterprises, used to cheap credit, land and energy, will resist threats to these privileges.

As for political reform, Chinese leaders have talked about democracy for the past 30 years, but done little. Rapid growth and the spread of the internet and mobile phones have enabled Chinese citizens to communicate, vent their grievances and pursue their dreams more freely than before, so long as they do not attack the party. But some are now demanding more say in how the country is run. In the past few weeks China’s more liberal newspapers have enthused about calls by the prime minister, Wen Jiabao, for “political reform”. Conservative newspapers have censored them.

There is next to no chance of the cautious Mr Hu bringing in big reforms before he steps down. This week’s communiqué hailed the “political advantages of China’s socialist system” and mentioned political reform only briefly, saying—as Chinese leaders so often do—that it will require “vigorous yet steady” effort. Even Mr Wen, who will step down at the same time as Mr Hu, has wanted to move at glacial speed.


Expect paranoia and you may be pleasantly surprised

Might Mr Xi speed things up? There is no shortage of conservatives arguing for caution, but there is also a pragmatic argument for change: China’s economic gains could be jeopardised by a failure to loosen the party’s hold. Explosions of public discontent, fuelled by resentment of government callousness towards ordinary citizens, are becoming increasingly common in villages, towns and cities across the country. The (admittedly patchy) official data show a more than tenfold increase in the annual number of large protests and disturbances since 1993, with more than 90,000 cases reported in each of the past four years. In the past China’s leaders have relied on growth to secure social stability. If and when a more serious slowdown strikes, popular grumbles could increase.

The right path for Mr Xi should be clear: relax the party’s grip on dissent, lift its shroud of secrecy and make vital economic reforms. But the rest of the world would be unwise to assume that reason will prevail. In times of uncertainty, the regime is wont to appeal to nationalist sentiment. Large anti-Japanese protests erupted during the latest party meeting. America and the West have also been subjected to tongue-lashings. The party meeting called on officials to strengthen “the country’s comprehensive national power”.

Too many Westerners, including those urging trade sanctions over the yuan, assume that they are dealing with a self-confident, rational power that has come of age. Think instead of a paranoid, introspective imperial court, already struggling to keep up with its subjects and now embarking on a slightly awkward succession—and you may be less disappointed.