Japan, China and Korea: Territory versus Trade

Following on the ideas of China Bystander here, I wanted to take a look at how the territorial dispute is influencing regional cooperation in North-east Asia.

The Senkaku dispute is slowing getting out of control again, on 3 January several Japanese (local) politicians landed on a disputed island provoking official protest by Beijing. A few days later, the Japanese government saw fit to expand the powers of the Coast Guard to detain suspicious boats in the area, providing better (domestic) legal cover for a future arrest of Capt. Zhan. Again, to further bolster their position, the Government of Japan saw fit to name several small islets in disputed territory, with very boring names.

In response the Chinese side have expanded the area of their aerial maritime surveillance to include the disputed areas, with the Shanghai Maritime Safety Administration stating that the twin-engine Harbin Y-12 can fly over the area.

I have already heard from the Japanese side that the Senkaku/Diaoyutai dispute had caused negotiations on a bilateral FTA and at the CMIM to be shelved as China refused to deal with Japan).

But on the other hand I had a sense that even if these events were being 'exploited' in bargaining positions at the official level, most Japanese people did not care. I guessed (hoped) this may be true also for the everyday Korean and Chinese too.

Fortunately some good polling has been done on this subject. A recent poll by Asahi in China, Korea and Japan found that most people still wanted a trilateral FTA to go ahead. The numbers were Japanese 52%, Korean 55% and Chinese 82% supporting a trilateral FTA. Intriguing given the posturing at the official level.

I hope that we can make a distinction between short term public outrage over a disputed territories and the very real but quite aggregate interest in just getting along in Northeast Asia.

Sino-Japanese relations: fleeting flirtation or long-term engagement?

This weekend (21-22 May) the leaders of China and Korea are hosted by Japan for the Fourth Trilateral Summit, the first such Summit since the triple disaster of March 11. As a part of this visit, Wen Jiabao and Lee Myung-bak will travel to Fukushima to demonstrate their nation’s continuing support of Japan’s reconstruction.

Indeed, both China and South Korea have already contributed significantly during Japan’s disaster response in the immediate aftermath of the crisis, providing emergency relief teams and the provision of material support. The large (and unprecedented) level of support that China offered, especially the prompt dispatch of a Chinese search and rescue team, has led some to posit that warming relationships between Japan, China and Korea may be the silver-lining to Japan’s national tragedy. Especially with regard to China, with whom Japan’s relationship slumped precariously after a fishing infraction turned into a territorial dispute in November of 2010, the quake represented for some a possible circuit-breaker.

Certainly there has been an improvement in the relationship at the societal level. China’s media commented very favourably about the Japanese people’s resilience and lawfulness under the extreme duress of the power, food and water shortages – not to mention failing communications and concerns about family members. The Chinese media wondered aloud if China could ever reach such levels of civility. That peers in Asia were viewing the Japanese societal response favourably was a story which was in turn picked up the Japanese media and became a source of national pride for the many Japanese doing it hard. At that moment the empathy and mutual respect between the Japanese and Chinese (and others around the world) was at its zenith.

Yet in the longer term it is very unlikely that the earthquake will mark a turning point in the Sino-Japanese relationship. This is because tensions in the Sino-Japanese relationship are due to more than societal distrust but the basic strategic interests and perceptions of the two powers.

In this context it worth remembering that in the aftermath of the triple disaster China’s full offer of a PLAN hospital ship and expanded rescue team were not accepted by Japan.

This refusal by Japan was due the fundamentally different strategic orientations of the two countries and a (reasonable) lack of trust of the Chinese military in Japanese policy circles, not to mention the political implications of inviting Chinese military personal into Japan to work next to the US forces under Operation Tomodachi. Japanese politicians too would have had some difficulty in explaining a major Chinese presence after recent and damaging disputes – especially over the export of rare earth (a subject that Kan has flagged for discussion during the Trilateral Summit). Japan already made clear its order of preference (and trust) during the crisis, and despite the positive appraisals of Chinese assistance in the media, the fact is that Japan accepted only limited Chinese assistance due to a fundamental differences and competing interests.

Even the initial societal level warming up of the relationship is starting to cool. The Chinese media is reporting negatively on the choice of Fukushima as feature of the Trilateral summit, while discussion is Japan about how to cope a regional order that China is increasing being able to influence and in which Japan will play a junior role is heating up. Opinion within Japan is divided. The influential journalist Yoichi Funabashi has been arguing that Japan must ‘cleave to’ China in the future, but he acknowledges that a reorientation towards China would require political courage – a commodity in desperately short supply.

There is therefore no reason to expect that Japan’s even weaker domestic political and economic situation after the crisis will help to improve the Sino-Japanese relationship in the long term. Rather, despite the current warming of ties at the societal level, the most likely course for this important relationship is unfortunately the reassertion of old and competitive patterns of interaction.

Joel Rathus is a recent PhD graduate from Adelaide University, an EAF scholar and a regular contributor to the East Asia Forum. His other posts can be found here.

Japan and territory, the cat is away?

As Japanese politicians have turned towards dealing with the reconstruction effort, and with the hawkish Maehara standing down over a scandal, Japan's neighbors are considering their choices.

Alot has already been noted on China's positive and friendly response, more than phone calls, china sent to Japan personnel to help with the disaster in the same way that Japan had sent personnel (JSDF) to China to help during their earthquake in the West. (http://www.eastasiaforum.org/2011/04/15/opportunity-in-crisis-sino-japanese-relations-after-the-earthquake/)

Korea has also been sympathetic. But the Korea defense establish has taken the opportunity to press forward its claims on the takeshima/dokdo islands. see,

http://www.asahi.com/politics/update/0413/TKY201104120653.html?ref=rss
http://www.asahi.com/politics/update/0412/TKY201104120480.html?ref=rss
http://rss.asahi.com/click.phdo?i=83f4ab513f8b7ad000ad7d990a13c63a

Unfortunate event in East China Sea

Maehara Seiji pretty made his name on the back the Senkaku dispute September of last year. His name was mud in Beijing, which ironically, is an advantage of sorts. The newly appointed Matsumoto Takeaki is unlikely to has the punch to be able to take the fight to Beijing over the East China Sea issue and will be a responsive player. As much as anything, the upcoming trilateral meeting between the CJK make making a stand on the start of production (extraction of Oil) by China's state owned SNOOC in the disputed areas (Shirakaba) too difficult I suspect.

While Chief Cabinet Sect. Edano has noted with concern the development of CNOOC going into the area to start production, he is waiting before responding.

I think Maehara would have picked up the phone and starting making a fuss already.

http://www.asahi.com/politics/update/0309/TKY201103090225.html?ref=rss

We don't owe you anything

Chinese Foreign Ministry Spokeswoman Ma Zhao Xu (馬朝旭) has gone on record stating that Japan does not have any grounds to claim damages for the Senkaku/Diaoyutai island collision.

Reason: Because China asked Japan for compensation.

This response is due to the Japan Coast Guard recent delivery of a demand for compensation to the (now heroic) Capt. Zhan.

Still, Ma is tame choice for a response. At least China did not wheel on the Ultimo Ratio Regis known as Spokeswoman Jiang Yu (scary - watch her in action here).

http://www.asahi.com/politics/update/0213/TKY201102120264.html?ref=rss

Yasukuni calms situation (reverso-land post)

Event: 66 Japanese Diet-men go to the Yasukuni Shrine (19OCT2010)11am.

Argument and Significance: This is likely to inflame China nationalist passions by conflating territory and history issues in Sino-Japanese relations. This will impact on ability to reach a political conclusion to the dispute (dragging it on).

Analysis: As Anti-Japanese protest continue to rock China (esp. Sichuan province), the decision of a number of Japanese Diet-men to visit the Yasukuni Shrine today is likely be have negative effects.

The first and most important is simply that it puts unneeded pressure on the Chinese Gov't which already calling for calm.

Secondly, it undercuts Japan gov't's own message of remaining calm, both to its own citizens and to the Chinese side.

Lastly, by conflating history and territory issues, Japan is making it easier for the East China Sea to go from a failed attempt at a 'Sea of fraternity' to an outright 'Sea of Hostility.' The Sea of Hostility is most likely to be of an unofficial nature initially, but no doubt Chinese nationalists and Japanese nationalist will be getting in their boats soon. While China has been preventing such boats from launching thus far, the CCP's ability to continue doing so is uncertain.

Senkaku flare up prospects: China pressures Google?

While the Senkaku issue has mostly blown over, the possibility for it to flare up is marked.

Firstly, today the Diet Budget committee agreed to view the footage of the actual collision - although no decision is yet made on whether to release it. I imagine it will be released however, in time and one way or another. The timing of that decision counts, too early and flare up is possible.

Secondly, Japanese media reports that China has asked Google to list the Senkaku islands under two names, the Japanese one and Diaoyutai (chinese name) - in light of the apparent territorial dispute.

After Google's fight with China over access to the market and freedom of speak, the company has less to lose by saying no but absolutely nothing to gain either. Google will probably dual list the island on google maps as asked.

Lastly, the rare earth export issue is still not resolved. This one is really bizarre and the world needs to know what is going on here.

http://www.asahi.com/politics/update/1013/TKY201010130515.html?ref=rss

The US, ASEAN and China: a new alignment emerging?

In November of last year, President Barack Obama pledged that he would be a “Pacific President.” While the audience in Suntory Hall may have wondered about the content of that statement few in attendance doubted the sincerity or conviction of the President. As relationships between the US, ASEAN and China have been re-drawn, especially after latest series of ASEAN hosted diplomatic meeting in Hanoi, the meaning of a Pacific President is starting to become clearer. Three sites of change in particular warrant special mention; the East Asia Summit, the South China Sea and the Korean Peninsula. In all three cases, the United States and ASEAN states are becoming closer, while China is finding itself distanced from decision-making. Put more directly, the early 21^st century phenomena of China-ASEAN relations being closer that US-ASEAN is reversing itself.

This realignment can firstly be seen in the United States advancing its claim for a seat at the East Asian Summit. Last week the US received an expression of general support from the Foreign Ministers after the Informal Consultation Meeting and Singapore’s Foreign Minister George Yeo later indicated that ASEAN has already decided to include the US in the EAS. Hilary Clinton’s determination to return to Vietnam in October for the EAS together with Obama being scheduled to attend the next year’s EAS in Indonesia suggests that the US is confident that its accession is assured over the medium term. As a part of this process, ASEAN Ministers also welcomed the decision to include the US in the first ASEAN Defence Minister's Plus with Eight Dialogue Partners scheduled for October.

Unsurprisingly perhaps, the only player to not greet increased US involvement in the region warmly was China. China’s Foreign Minister Yang Jiechi was quoted as saying that China "took notes with open attitude" of the ASEAN proposal for an expanded EAS and "look[ed] forward for consultations" with ASEAN on subject (the Nation, July 22). But while China is dissatisfied with the direction the EAS is taking; this is a battle it already knows it has lost. As Wu Jianmin (a member of the Foreign Policy Advisory Group) observed last year, ‘We know that China could not stop the US if it really wants to join the EAS.’ Indeed, according the declaration establishing the EAS, membership is determined by ASEAN alone – and while China is influential it simply can not veto a proposal (unlike in UNSC).

Moreover, China has seen the US and ASEAN draw closer on an issues of major interest to it, the territorial disputes in the South China Sea. Secretary of State Clinton’s identification of this issue as a “pivot” of regional security brings the United States back as a player after more than a decade of diplomatic passivity (to China’s notable discomfort).

The emerging US-ASEAN-China realignment can also be seen in Clinton’s proposal (together with 12 other Asian nations, including the host Vietnam) for a dispute resolution mechanism to be established. Such a mechanism would build on (or over) the 2002 Declaration on the Conduct of Parties in the South China Sea signed between ASEAN and the PRC. This Declaration can essentially be interpreted as a response to the 1992 ‘Law on the Territorial Waters and continuous Area‘, and reflects an agreement to shelve the issue rather than resolve it – hence the lack of a dispute resolution mechanism. ASEAN efforts to move from ‘shelving’ to ‘resolving’ this issue have been systematically thwarted by China, and so it unsurprising that China would again register dissatisfaction. China’s Foreign Minister Yang Jiechi noting, “turning the bilateral issue into an international, or multilateral one, would only worsen the situation and add difficulties to resolving the issue.” (WSJ China rebuts Clinton). Perhaps Yang meant to add “for China.”?

China’s 1947 Map: basis of the South China Sea Claim: fat dotted lines as limit of territory.

Lastly, this re-alignment can be seen in US-South Korea relations and posturing in the ARF over the sinking of the South Korean corvette, the Cheonan. Again China and the US found themselves in opposite corners over this issue, China reportedly working to remove references to the sinking as a North Korean attack. This disagreement over wording caused adoption of the Chairman’s statement to be delayed a day. Korea’s growing frustration with China’s role in diplomatically supporting the North has, similarly to ASEAN, caused South Korea to look to its traditional security provider, the US. This week’s war games off the Korean peninsula, while clearly focussed on the North, have caused concerns in Beijing. Yet notwithstanding the repositioning of the nuclear powered aircraft carrier the George Washington on the East side of the peninsula, the US and Korea have been willing to disregard China’s warnings. Intriguingly, Japanese officers are observing the joint U.S.-Korean exercises.

In conclusion, a realignment is underway in East Asia. Increasingly, ASEAN (and Korea) are moving closer to the geographically distant US, while China is finding itself surprising distant from its neighbours.

Stern Hu: Limits of the evolution

Coming back to Australia I see how big the Stern Hu corruption charge is, and while no new information is presented here, I will chip in my three cents on China’s Law, Australian identity and the interaction between these two.

Chinese leadership subscribes to the rule by law, rather than the rule of law. The concept of individual rights versus the state is not well established and the basis of western law, that justice be done and be seen to be done is also a principle that has not yet penetrated China. Hence not allowing Australian representatives sit in on hearing as guaranteed under the Consular agreement of 1999.

More than this, China does not distinguish between the state and market in quite the same clear cut (if somewhat artificial manner) of the West. While at the same time, there exists an underlying fear that outsiders, and their even more contemptible Chinese proxies like Hu, will steal Chinese wealth. The first expression of these feelings in modern China might be traced back to the “Three Anti” and “Five Anti” movements of the early 1950s, which targeted westerns and made a ‘sin’ out of “stealing state economic information”.

These ‘old’ ideas seem to have survived in Chinese law. I suspect that the reason for this is the evolutionary nature of change, which allows atavistic traits to survive by dint off their highly infrequent lack of expression – a fact brought on by lack of challenges. For an evolutionary approach to improving Chinese law to work more and more intense interaction with the outside world is necessary – and this is coming. But at the same time, the Chinese side must be willing to let die those laws which do not pass the justice test. Without justice being done, and being seen to be done, it will hard for China and Australia to build a trusting relationship, a relationship pretty valuable to both sides and for the region more widely.

Japan-India and Japan-China: Evidence of competition positive but mixed

It is often suggested that Japan's growing relations with India are due in part to a desire to balance China's influence. Specifically, that during the Koizumi administration, failure to secure top level meetings with China's leaders (due to Koizumi's Yasukuni Shrine visits), drove Japan to build up its relationship with India (and Australia).

A close look at high level meetings reveals that this explanation is flawed.

Source: MOFA Homepage, India and China Basic Information (Japanese).



In particular, the years 2005, 2006 and 2007 saw less visits to China than would be expected. These years too also saw Japan and India sign onto a strategic framework with the US and Australia which clearly is driven by concerns at some level about growing Chinese power. To an extent we could characterize these years as the "balancing" years.

But it is also clear that this pattern is a aberration, the correlation between high level visits to China and India is high. And with the exemption of the years cited above, Japan-India and Japan-China high level visits move in virtual lock-step. Indeed, 2008-09 saw both sets of meeting fall back to the pre-Koizumi levels and balance.

This suggests that continual, long term interests, both strategic and economic, is what motivates Japanese top level diplomacy, and that striking a balance between China and India is one of those interests. While the short term of Koizumi is noticable, acting overly interested in one or either party is just not good diplomacy in the long term.

Another transition: China overtakes Japan as ‘more trustworthy’ financially. Another hit for Japanese identity.

According to the Weekly Economist (Japanese publication, not the UK one), Japan’s sovereign risk is now estimated to be higher than that of China. In other words, the financial world trusts China more than Japan. That has to hurt.

The insurance premium on Japanese Government bonds rose to .71% in the CDS market as opposed to China’s (.64%) in Jaruary, reflecting the perceived rise in Japan’s sovereign risk. At the same time, major credit rating agency Standard and Poor’s has reappraised Japan’s long-term government bonds down from stable to negative.

This is yet another blow to Japan’s national identity as economic leader of Asia.

The Japanese, and the rest of the world, are waiting for when, not if, China finally overtakes Japan, (as nearly happened last year). Indeed, as Shirashi Takeshi eloquently points out in January’s Chuo Koron, Japan’s politicians are less and less couching Japan’s role in the world as that of an economic leader.

With the partial exception of Koizumi’s general policy speech (Shoshin Hyomei Ensetsu – a set piece annual speech), the most recent Prime Minister’s of Japan have progressively moved from an economic identity for their nation (Keizai Taikoku). In his general policy speech, Abe studiously avoided the economy, talking about an idealized ‘beautiful’ Japan. This shift is also true of Fukuda and Aso. Hatoyama’s policy speech last year also holds to this trend, starting off by stating that Japan can contribute in more areas than the just the economy – and talking even about how Japan needs Asia (not the other way around). His speech was even titled “Japan as a bridge”, i.e. an (in-itself useless) road connecting two places which are (in themselves) important.

It is clear that the transition with China is impacting on Japan’s identity – make a good thesis topic. Eh, Kai?

Japan’s China policy: No re-adjustment towards Beijing.

Much has been made of late about the possibility of Japan drawing closer to China. I suggest that on the major issues, Japan’s China policy is unchanged under the DPJ, and unlikely to change.

Firstly, on the question of history, Hatoyama is unlikely to make major changes here. According to the Japanese Ministry of Foreign Affairs, Hatoyama has no plans to visit Nanjing this year, and as far as MOFA is aware there is no plan for an apology of any form. Indeed, after rumors broke that there might be a “Hatayama to Nanjing, Hu to Hiroshima” swap this year, the only country not to check-in with the MOFA’s China desk about whether or not it were true was China itself, being aware that this was a dreamt up story by the French but accepted even in Japan. Yet as the recent conclusion of joint historical research by China and Japan reveals, major differences still remain in official interpretation of events. It seems unlikely that Hatoyama would visit Nanjing when the basic question of how many were killed still remains unsettled.

Secondly, on the issue of trade, Hatoyama is little different to the LDP. Hatoyama has proposed further research to be conducted into a Japan, China, Korea trilateral free trade agreement. And while this time it is official government-level research, there are no promises on the Japanese side and not much enthusiasm. No doubt a part of the reason for the elevation to official level is that the academics whom had conducted the informal research since 2001 had simply run out of areas to research.

No surprise that even now Hatoyama appears to looking for wiggle room by suggesting an investment treaty, (although a quick look at the way in which Hatayma handling Futenma suggests that wiggle is Hatoyama’s natural state). Indeed, post-LDP Japan’s real interest remains such an investment protection pact be signed either in addition, or even instead, of an FTA with China.

Of course, in any discussion of Japan’s FTA’s the agricultural issue is important – and the Ministry of Agriculture, Farming and Fishery has hardly changed its position. The MAFF is continuing to oppose any deal with China which includes agriculture (with China being Japan’s second largest supplier of food import, this rather nixes a deal unless the PM comes out clearly in favor). Of course, the establishment within the MOFA of a new FTA promotion facility is viewed generally an attack on the influence of the MAFF in FTA policy making (with the MAFF already on the backfoot) – but the target is more likely to be Australia than China at least for the time being. Indeed, Hatoyama’s administration remains positively appraised of Australia and might well be looking for new ways to further institutionalize the relationship.

Thirdly, in the field of security, Hatoyama has made no major changes. The issue of natural resource exploration by China in the East China Sea remains problematic. Foreign Minister Okada has raised Japan’s concerns with his opposite Yang Jiechi twice already, most recently on January 17th at which time Okada stated that “he would like to enter into negotiations to conclude international agreements promptly, and expressed desire for Minister Yang's cooperation and for him [Jiechi] to issue instructions to enable substantive progress to be made going forward, in contrast with the lack of progress so far.”

From the perspective of the Japanese Ministry of Foreign Affairs, this reflects a continuation of the China policy set out by the LDP in 2008 under “the Mutually Beneficial Relationship Based on Common Strategic Interests" Joint Statement. Under this Joint Statement, a commitment was made to resolve or at least ameliorate the political problems caused by Chinese exploration in East China Sea. Of course, the DPJ is still keen for military exchanges and the like to continue, but Japan’s posture on these core national interests has hardly softened.

Taken together, the Hatoyama administration has thus far changed little in Japan’s policy towards China.

Taiwan: Think further

America's sale of PAC3 Patriot Missiles to Taiwan is stirring up trouble. Excellent article by Leigh Moses here. Highly, highly recommended.

In my mind, I see the decision to go ahead with this sale as a least in part motivated by US concerns about Chinese power. Obama I think has lost patience with the Chinese already, being a liberal (and a socially-conscious lawyer) he seems more concerned about justice than order. The negative position of the Chinese at the COP15 Summit also probably a factor in turning Obama into a China skeptic.

But Obama concerns with justice over order might cause greater injustice still if Moses is correct and the sale of arms to Taiwan tips the domestic balance power away from the CCP towards the PLA in China.

BRICs or briCs: perspective

One of these things is not like others.




China is larger than the other three "BRICs" countries put together.

Can we please just put China in a catagory of its own. It is just not like anything else.

Japan’s public perception of China: Are things on the mend with Hatoyama?

In my previous post I discussed Japanese popular sentiment and some of its internal contradictions. Here is a Chart I have generated from the National Polls, conducted by the Cabinet Office on various questions. This question is “Do you trust China?”, or perhaps, "do you feel China is a trustworthy country."

Chart first, discussion later.



What I think I see here is the marked effect of Hatoyama’s victory on Japanese public opinion towards China. Hatayama was elected in August, and assumed office on September 16th. The polling for the 2009 Cabinet Office Public Opinion Survey was carried out October, (15-25th). With all the rhetoric fresh and without actually having done anything, this is almost ideal timing to see what the effect of a regime change is on public perceptions. Of course, we must not discount the fact that Aso managed, dispute himself, not to cause any major trouble in the Sino-Japanese relationship and kept it on an even till. But this he inherited from Fukuda, and neither Abe, Aso or Fukuda between them the three of them were able to improve public opinion towards China, with trust at historic lows since the Koizumi period.

Digging into the data a little more, some interesting trends come out. Firstly, compared to last year, the overall improvement of little of 8% is a little misleading. The improvement is larger, because if we disaggregate the “Do not trust (at all)” and “Do not trust, rather than trust” then we see that movement toward the latter. Secondly, the big shift was not where it mattered. The 20 to 30 year old shifting 5%, in other words the “average” adjustment. The big shift was in the 50-60, and 60-70 year olds who already tended to have a higher trust. The recovery, in other words, has not returned Japan back to pre-Koizumi times, even among the section of the population most likely to make a difference in Japan’s future policy.

Raw data can be found here.

Pro-China, Pro-Yasukuni, Half Japanese.

In this month’s issue of Voice, a public poll was conducted looking at, among other things, Japan’s China policy. Polling on three questions in particular are quite interesting for what they say about the Japanese ability to both desire a friendly relationship with China and a prominent place for Yasukuni in the national psyche without seeing a contradiction in these goals.

Firstly, the numbers. In response to the question, “do you agree with the new Administration’s China policy; East Asian community, and East Sea Joint Development etc.”, half of respondents agreed and 35% disagreed. This shows again that after a few scary years under Koizumi, most Japanese still want a closer, “warmer” political relationship with their largest neighbor.

In response to the question “should the PM visit the Yasukuni shrine on August 15 [Remembrance Day]”, again half of respondents agreed. Despite the fact that China has made it very clear that improvement in the political are dependent on the PM not setting foot in the Shrine, still half of Japanese prioritize the PM’s ceremonial role as mourner in chief.

More intriguing, in response to the question “Should a seperate facility be created to allow for formal mourning of the war dead?” I.e. should the Yasukuni Shrine lose its monopoly on war bereavement and division of state and religion be restored? Answer, 58% opposed. Most Japan view the Yasukuni Shrine itself, in and of itself, as special – thereby preventing the promising work around that Koizumi had aired before being boxed into a corner.

Hatoyama clearly is trying to take the Japan-China to the next level. This can be seen in his symbolic displays in various international fora, the recent 600 man delegation to China and more recently rumors of Hatoyama to Nanjing – which if it occurred to involve a formal apology and the possible beginnings of real reconciliation between Japan and China. While all and sundry must be aware that Hatoyama will not be visiting Yasukuni in any formal capacity (he has promised this much) – underlying Japanese sentiments about the Shrine will complicate any reconciliation effort with China that Hatoyama’s administration might attempt.

Haiti Earthquake, China and Japan

The recent and terrible earthquake in Haiti has revealed an interesting development in Japan's reporting of China.

On NHK TV News, the role of China in the international rescue effort is attracting more attention than that of Japan's own. The use of words such as "China arrived first and quickly put up its national flag" is unnecessarily evocative - creating the image of China stretching out its power world-wide. Japan it seems, really has China on the mind.

Of course, to an extend that is justifiable. China's role in Haiti is probably larger than Japan's. In fact, China had (before the quake) over one thousand riot police in Haiti to assist the UN Peacekeeping Operation (MINUSTAH) compared to Japan's presence of zero boots on ground. In fact, some of the Chinese PKO police (4 apparently) are currently missing - and are likely dead.

Japan has offered a cheque to Haiti (worth $5 mil.) and a S&R team.

Any wonder the Japanese are feeling in awe of China?

ERIA: Centrality, Odd men out, and quest for regional “research” leadership.

Previously, Malcolm Cook at the Lowy Interpreter and I briefly exchanged notes on the Economic Research Institute for ASEAN and East Asia (ERIA) and its meaning in the broader East Asian context. I should like to continue those thoughts here, arguing that the story of ERIA neatly encapsulates the story of East Asian regionalism. I will show that ERIA’s formation is not a sign of strength of East Asian regionalism but another yet manifestation of the contest for centrality in East Asia between China and Japan.

The order of the title is no accident. I tend to believe that without a clear central leader, it is impossible to define regional membership (let alone borderline cases like odd men in). Indeed, contestation over the borders of the region (such as in East Asia today) is a good indication that the position of central leader is itself contested (chiefly between China and Japan). Under these conditions, any field even the esoteric (almost irrelevantly so) field of semi-formal research into economic regionalism acquires a political connotation.

So, what is ERIA? From a technocratic point of view, the ERIA is a research body designed to help with policy development and coordination in East Asia. But politically, it represents a Japanese leadership bid in response to China’s growing influence in the field of regionalism research. Specifically, Japan’s concerns were raised by China bid to house the Network of East Asia Thinktanks (NEAT) – an idea based on the recommendation of the East Asian Study Group (the first annual conference of which was held in China in 2003).

In response, Japanese policy-makers started to propose alternative groups to carry out research. Japan first pushed for the Asian Development Bank to take on this role, but meeting US resistance (and no doubt limited, if any, Chinese support at the ADB’s Board of Executives), shifted its attention to the ASEAN+3 research groups where Japanese research institutes were doing well. However, neither provided the leadership dividends Japan was after – the only option then was to start up its own “independent” research institution. Enter ERIA stage right.

Building on then Economy, Trade and Industry Minister Nikai’s proposal for a 16 party FTA, Japan’s former PM Abe called for the creation of ERIA at the 2007 ASEAN+3. ERIA was to be a research clearing house and policy coordination facility – a sort of OECD for Asia, minus the Charter and all the western legalistic trapping. At the 3rd East Asian Summit in 2008, the ERIA idea was approved unanimously – and debate shifted on where to base the secretariat.

Not withstanding the fact that Japan was to provide the money (and most of the brains) for this enterprise, ASEAN insisted on deciding amongst itself where to base the ERIA. The intense diplomacy among ASEAN nations for the privilege of housing the ERIA only subsided when the decision was made to temporary house in the ASEAN secretariat in Jarkarta, Indonesia. Thus while officially the ERIA is only temporary in Jarkarta, the green light has gone ahead to build it its own building, something of a fait accompli for Indonesia although unlikely to garner the kind of trust ERIA will require to do its work.

I am inclined to believe that this outcome reflects not so much a weakness in ASEAN as in Northeast Asia. If ERIA was to be an OECD for Asia, then it ought to be based in a Paris-equivalent city in Asia (i.e. the capitals of either China or Japan), which Jakarta (despite being very nice) simply is not. If, on the other hand, the goal of the ERIA was to boost Japan’s presence in southeast, this outcome makes more sense (Japan would likely lose political points for insisting the ERIA be based in Tokyo, better to pawn it out to ASEAN).

In fact, Japan’s influence on ERIA was clear from the outset. Firstly, Japan offered to fund the organization through its first ten years to the tune of 10 billion yen over ten years. Secondly, ERIA was established with institutional links to the Japanese External Trade Research Organisation (JETRO). The Chairman of JETRO Watanabe Osamu has carefully played down any Japanese influence within ERIA, even as it negotiated with ASEAN members were to establish the secretariat.

Unsurprisingly, the ERIA came to support the METI’s and JETRO’s position on the merits of the 16 party Free Trade Area, (known in Japan as Comprehensive Economic Partnership East Asia, CEPEA). No surprise either that Australia, New Zealand and India have stepped forward to pitch additional monies and more importantly legitimacy to the organization – often visibly and vocally supporting ERIA as something of a hat tip to Japan. These countries would be the major beneficiary of such a trade area, and perhaps just as crucially, are keen to shed their status as “odd men” and gain acceptance as a true regional member – something Japan just might be able to provide.

P.S. One of the effects of ERIA foundation was to put pressure of the NEAT process. In fact, the NEAT itself was hardly a success. NEAT is not an international institution of the same level as the ERIA, it does not possess its own headquarters, research staff or budget and is more or less an alliance of academics with good political connections. Indeed, the 2007 report entitled “Future Direction of NEAT” prepared by Thailand notes, “NEAT activities do not governmental support and are now facing possible competition from other newly established mechanisms like Economic Research Institute for ASEAN and East Asia (ERIA).” Additionally, the Japanese CEAC seems to have taken over running the NEAT, and the whole agenda there is shifting. It seems likely therefore that ERIA will win out as the lead research body in East Asian regionalism.

America, China and Japan; military and monetary networks misaligned?

At this year’s Japanese Association of International Relations conference, Inoguchi Takashi (editor of International Relations of the Asia Pacific) chaired a session entitled “military and monetary networks.” Speakers included, T.J.Pempel, Daniel Drezner, and Chung-in Moon.

The papers themselves were all of a high quality, but it was in the discussion afterwards that the significance of the theme became apparent. Taken together, what these papers suggested to me was that the military and monetary networks in East Asia are no longer neatly aligned with each other.

It is now common knowledge that East Asia played a major role in the current financial crisis. While not dismissing the negligence of the US authorities, the global imbalance which permitted (or even encouraged) bubbles in US economy to emerge had their origin in the post-Asian Financial Crisis decision of East Asian government’s to build up excessive foreign reserves in a bid to ensure that “never again” would they need to go to the IMF.

What is less common knowledge is that this decision to rely on the dollar in Asia, (and thereby to effectively underwrite the US profligacy) has had major political implications. Make no mistake, East Asian states are not choosing to use the dollar (as a reserve currency, and importantly to denominate their trade and credit) out of the kindness of their hearts. Inoguchi called this “the kindness of strangers.” They expect something in return.

In the case of Japan and Korea, part of the kickback is a security guarantee. Japan (and Korea) support the US dollar in part (perhaps large part) because of a political logic. During the Asian Financial Crisis, Japan’s proposal for an Asian Monetary Fund was seen as a sort treachery by the US. Indeed, as Prof. Chung-In noted Korea did not endorse it for fears of US retaliation. Would a movement away from the US dollar really affect the region’s security order? Who can say. But in the minds of decision-makers at the top, clearly a link existed between the military and monetary networks.

But what about China? Now the world’s largest holder of US treasury bonds and the US’s only potential rival, what does China expect from US in return for supporting the dollar’s role until now? Obviously, China does not want any kind of security guarantee, China will provide protection for its own national integrity, national dignity and nationals - Thank-you. What about political favors? Also unlikely, as a permanent member of the UNSC, China is already at the top. The US played that card in 1972. Taiwan? Maybe, but hard to imagine.

In fact, China is most likely after an economic return. This should hardly be surprising, the CCP’s regime legitimacy depends now on being able to deliver economic growth and development – and to do so consistently. The accumulation of US dollars, whether in foreign reserves, treasury bonds or bank accounts, was a function of the decision to maintain a peg (or de facto peg) of the RMB to the USD. As Drezner argues, it was not a deliberate decision – but rather came out of China’s export orientated development strategy, a strategy which had been successfully road tested by both Japan and Korea (both of whom alliance partners of the US!). The fact that China ended up “supporting” the US hegemonic position in finance was neither here nor there.

Until now. Now China has realized that sitting of 2 trillion of USD is not a proposition that carries no costs – quite the opposite, it is risky. China finds itself having effectively bought ‘war bonds’ from the US, a country which - while a largely benevolent hegemon - is nevertheless a hegemon feeling challenged by China’s rise. China’s is now worried that that investment will not be repaid in full. Simple inflation might wipe out significant value, as would appreciation in the RMB versus the dollar – something China is now under pressure to do.

At the same time that China is reconsidering its position in the US’s monetary network, Japan and Korea are reconsidering their position in the so-called “Pax Americana” military network. Indeed, Hatoyama’s administration’s difficulties in negotiating US base arrangements (over the noise of vocal protests in Okinawa) are suggestive of this shift in Japan. Just how this will effect Japan’s orientation towards the monetary network is still unknown, but it is unlikely that Japan is going more interested in supporting the USD in the longer term.

In a related point, Prof. Tadokoro noted that while all eyes are one the big holders of US debt in North-east Asia, ASEAN countries have the possibility of “sneaking out” the US monetary network, evidence for such can be seen in the Chiang-Mai Initiatives (some of which are denominated in Yen and RMB).

The misalignment of the security network which excludes China, and the monetary network in which China and US so close as to be mutually dependent is thrown into sharp relief by the current World Financial Crisis. A crisis with its origin in this region.

(The papers presented at the session should be released in a special issue of IRAP next year.)

The Asian Develop Bank’s Regional Cooperation and Integration Strategy: Merits and Issues. Part 3

As outlined last week, the ADB’s RCI strategy confronts two problems which the close country focus does not, specifically coordination problems arising from negotiating with multiple actors at once, and the free rider problem. Today I will address the second of those, the free rider problem. Here, the ADB has sought to resolve regional countries’ concerns about a free rider in two ways.

Firstly, in cases where the client countries’ are unable to reach a consensus on burden sharing, (what this means practically is that the countries’ pledges sum to less that 100% of the expected cost of a projects), the ADB has sought to “pay the difference” from its own pockets. Of course, the ADB is unable to simply provide compensatory cash payments to the “losers” of any project, and so Bank has been required to use a more round-about method for achieving the same. Specifically, the ADB has sought to lengthen the shadow of the future by “bundling” each individual regional project in with other such projects. This bundling allows the ADB to spread out the ‘losses’ over time. Of course, in any one project some country/s might “get” more than others, but with the ADB taking a longer term view and communicating its vision to the client-nations, these individual projects can go ahead with each country feeling that it is being treated fairly. But it is hardly optimal, despite the best of intensions, and may likely create its own set of problems.

Indeed, it is precisely because the ADB is not mandated and equipped to function like the European Commission’s Structural Funds mechanism that the ADB is having difficulty with effectively and efficiently evening out the costs and benefits of regionalism.[1] In the future this might be changed; having the ADB adopt such a role is indeed a logical extension of the RCI, but for the time being the ADB risks institutional overreach in its attempts to help the poor of Asia to help themselves.

The second way the ADB has sought to ameliorate the free rider problem is rather to get someone else to “pay the difference.”[2] Here, however, there are only two candidates; Japan and China. This is because neither the US or Europe are much interested in such schemes, indeed it seems that the US is unfriendly towards the regional cooperation agenda.[3] These two regional powers have both the necessary deep pockets and deep political interests in the region to allow taking on such a role, but of course there are very obvious risks.

The most obvious of these risks is that these Great powers will start to play games in southeast’s backyard. This is precisely what has happened with North-South corridor and the East-West corridor. The North-south corridor (funded by China) links Yunan Province to the Mekong. While the East-West corridor (funded by Japan) opens an better access to the same markets for Japanese goods arriving by sea (likely at the port of Da Neng in Vietnam).

More insidiously, China has become skilled in taping the regional allowances outlined earlier, usually in combination with its own PRC Special Fund, to direct the ADB towards financing regional projects that benefits China. One example involves a project aimed at “facilitating sustainable, environmental-friendly regional power trading in the greater Mekong subregion”, co-financed by the ADB and the PRC Special Fund. The purpose of this project for “developing the hydropower plants for exporting power to Yunan province or other potential hydropower sources for inclusion in the power trade” to the tune of 2mil.[4] Another example involves providing trade negotiation training via Regional Technical Assistance to countries with which the China is in the process of negotiating trade deals. Which ought to raise some eyebrows.

The ADB is risking its reputation by letting, or appearing to let, the big powers influence and direct the RCI. If the RCI is to be “done right”, and to win approval and acceptance which will see it live past the end of Kuroda term, the ADB will need to maintain scrupulous, and unquestioned, ethnical standards. As always it is a question of money however. If the ADB is to undertake such regionalist activities, then it ought to be given the resources to successfully do so.

[1] Giovanni Capannelli, "East Asian and European Economic Integration: A Comparative Analysis," in Working Paper Series on Regional Economic Integration (Manila: Asian Development Bank 2009).
[2] "Regional Cooperation and Intergration Strategy," (Asian Development Bank, 2006). See, Article 94. “Additional financial resources will also be required. Two types of financial resources are needed to implement　the strategy effectively. First, with regard to the lending component of the strategy, for the immediate future, it is　proposed to use existing OCR and ADF resources within available headroom and to catalyze additional public　funding (particularly from larger economies).”
[3] The US is one of the few countries willing to be on record as opposing a proposal at the Board of Directors, for its own reasons the US has consistently voiced its opposition to regionalist approaches. The US opposed the creation of the Regional Cooperation and Integration Fund on the 22 March, 2007. However, US opposition can also look mean-spirited, such as the opposition in November 2005 to a Communicate-able Disease Control Project for the Mekong.
[4] "Indicative Rolling Regional Cooperation Operations Business Plan," (Manila: ADB, 2007). 8, 22