Sept. 28 (Bloomberg) -- You know things are really bad when pop stars and pandas get drawn into a diplomatic dispute.
It started as a minor fender bender at sea -- a Chinese fishing boat colliding with two Japanese coast guard ships. It exploded into a diplomatic crisis that produced a chilling message: Asia’s future is one in which two economic powers will increasingly be at odds over issues so petty that they beg credulity. And markets will be caught in the crossfire.
Following the Sept. 7 detention of the Chinese fishing-boat captain, China severed senior-level contacts and street protests sprung up there demanding his release. Next came reports that China was banning the export of “rare earths” to Japan, threatening supplies of a raw material vital to hybrid cars, laptops, wind turbines, weapons and iPhones.
Oddly, the real indignity involved pop stars. Chinese organizers canceled concerts in Shanghai by boy band SMAP. Its five members are Japan’s biggest celebrities. Just try getting through an hour in Tokyo without seeing them on television and billboards or hearing their sugary tunes blaring out of karaoke bars. The souring tone of China-Japan relations went viral once Japanese learned SMAP got dissed.
And then there’s the bizarre panda scandal. Beijing dispatched investigators to a Kobe zoo to get to the bottom of the death of a giant panda on loan from China. Some conspiracy theorists connected Xing Xing’s Sept. 9 death during a medical procedure to the boat incident -- all apparently an effort to annoy China’s 1.3 billion people.
Dustup Has Legs
Japan released the captain, making Prime Minister Naoto Kan look wimpy. He faces a public angry that he bowed to Beijing. China demanded an apology and compensation. Japan responded by calling for China to pay for repairs to its coast guard vessels. This dustup still has legs.
This is the first major tiff since China replaced Japan as Asia’s powerhouse. China’s overreaction smacks of diplomatic immaturity and makes a mockery of its charm offensive in Asia. Anyone who thinks the changing of the guard in Asia will go smoothly is dreaming, and that’s bad news for investors.
Really, folks, can we all take a deep breath and relax? There’s just too much at stake here, not only for Asian relations but for the sake of the world economy.
The shifting balance of Asian power adds new tension to old disputes. Thankfully, the ruling Democratic Party of Japan has avoided a visit to Tokyo’s Yasukuni Shrine since taking power a year ago. It houses memorials to war criminals and irks Asian neighbors who say it celebrates Japan’s wartime atrocities.
This latest Japan-China stalemate is colored by geopolitical destiny. China is steadily eclipsing Japan, and officials in Tokyo don’t like it. Their counterparts in Beijing aren’t about to back down now that the economic wind is at China’s back and Asian dominance beckons.
China’s efforts to draw neighbors away from the U.S. orbit just took a huge blow. It also has opposed U.S.-South Korea military exercises aimed at deterring North Korea, and dismissed regional efforts to mediate maritime territorial claims. None of this is sitting well in Asia.
All this makes an even bigger mockery than normal of meetings of the Asia-Pacific Economic Cooperation and Association of Southeast Asian Nations groups. They get little done in the best of times, never mind with China and Japan exchanging barbs and weighing trade sanctions.
No One’s Interest
Officially, this dispute is over a group of tiny uninhabited islets and outcroppings about 200 miles (322 kilometers) off the northeast coast of Taiwan, for which there are rival claims. The tension is a product of past conflict and Japan’s penchant for whitewashing its World War II aggression. Really, it’s related to Asia’s future.
Even a whiff of a chance of further confrontation will dent Asia’s future. China is Japan’s biggest trading partner, and Japan is a major source of the foreign-direct investment on which China relies for its 10 percent growth. Asia’s two biggest economies at loggerheads is in no one’s best interest.
China’s purchases of Japanese debt are also raising concerns. At first, Japan was elated at a new source of demand for its securities. Skepticism quickly set in as Japan saw China gaining financial leverage over its economy. China’s purchases also strengthen the yen.
Its tentacles reach far beyond bond holdings, be they in yen or dollars. While the U.S. waged two wars and its economy crashed, China spent the 2000s gaining access to resources -- oil, gas, metals, you name it. It has craftily filled its fuel tank while Western powers became complacent.
China and Japan must stay focused on the big picture. Flexing muscles won’t raise China’s per-capita income, which is a 10th of Japan’s. Japan must remember that China is becoming the growth engine on which its future rests. It’s never good to alienate your biggest customer.
Asia’s rocky economic seas just got rougher, as even pop stars and pandas can attest.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
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