US Economic Decline and the Rise of China Riding the Dragon, Soaring on the Eagle By DAN SMITH
April 5, 2005
While they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.
Franklin D. Roosevelt
Everyone is entitled to their own opinion, but not their own facts.
Daniel Patrick Moynihan
Once upon a time, creditors exacted "a pound of flesh" from those who, having borrowed money at high interest rates, found themselves unable to repay loans on time and in full. John Perkins, author of Confessions of an Economic Hit Man (EHM), appearing on PBS television's NOW on March 4, 2005, described a modern twist in this vicious circle at the level of nation-states. Since World War II, the United States has deliberately manipulated the economic and political life of developing countries to create a new global imperium based on massive indebtedness as the basis for exacting many pounds of flesh. Posing as a friendly expert, the EHM advises countries to contract with large U.S. companies to build massive projects financed by loans from international financial organizations, justifying the projects as critical for improving the lives of ordinary citizens. But the loans are so large and the interest rates so high that the money cannot be repaid, and common people's lives get more, not less, desperate. Opposition by individual elected officials in victimized countries can trigger "accidents" (assassinations), and collective rejection or default may trigger military action. According to Perkins, the price for self-preservation, both personal and national, is to fall in behind U.S. "leadership."
Economic Overstretch
But this U.S. empire, built on enthralling debtor nations, may itself be in danger from economic overextension. While economists may opine learnedly about the significance (if any) of the U.S. federal debt for fiscal and monetary policy, many non-economist internationalists and ordinary citizens are convinced that the United States is increasingly vulnerable to the pressures and priorities of creditors who see the current administration as a heedless bull-in-a-china-shop recklessly threatening to destroy agreements and institutions that have helped stabilize international relations for several decades.
At the risk of statistical numbing, it might be instructive to sample a few U.S. economic facts as documented by Congress and the Treasury Department:
* Between January 2001 and July 2004, the portion of the U.S. debt privately held by foreigners rose from 30% to 42%.
* Between September 2003 and September 2004, foreigners increased their holdings by $400 billion, from $1.46 trillion to $1.86 trillion-financing virtually the entire $422 billion budget deficit for fiscal year 2004.
* U.S. Treasury Department statistics through July 2004 reveal that five of the seven top foreign holders of U.S. obligations are Asian, with Japan ($696 billion) and China ($167 billion) in first and second place, respectively. (The other three in Asia, ranked five, six, and seven, are South Korea at $62 billion, Taiwan at $58 billion, and Hong Kong at $50 billion.)
* Despite an overall increase in the value of foreign holdings for all of calendar year 2004, December saw a sharp monthly decline in foreign purchases of Treasury bonds and notes. Foreign Central Bank acquisitions nose-dived by two-thirds (from $21 billion to $7 billion) while private foreign purchases plummeted by nearly 75% (from $32.8 billion to $8.4 billion).
* Japanese non-Central Bank holdings dropped $3.1 billion (from $714.9 to $711.8 billion) from November to December 2004. South Korea's portion registered a slight decrease. In contrast, the Chinese increased their total holdings by $2.7 billion (from $191.1 billion to $193.8 billion).
* In late February 2005, South Korea's Central Bank revealed its intention to "diversify" by straying from the dollar to other currencies-undoubtedly the Euro, which has strengthened over the last few years.
These economic realities are noteworthy, because excessive debt can act as a reverse "nuclear deterrent" for a large debtor. That is, a debtor's ability to initiate or avoid action on the global stage is constrained (less "elbow room"), because those who "own" the debt may have priorities that differ from those of the debtor nation, and the creditors may decide to use their economic position to advance their preferred policies or to thwart those of the debtor. When this impasse goes "critical" in the form of "vital national interests," the fallback position is either selective or general violence in an effort to regain-or at a minimum maintain-the debtor nation's empire.
Legitimacy Crisis
Economic woes in the form of a weak currency, ballooning debt, and unsustainably large trade deficits are not the only indicators of cracks in the empire's edifice. Another in a series of international polls-this one in December 2004-looked at the role of the United States and China in the world. Nearly 23,000 individuals in 22 countries in Asia (6), Europe (8), North and South America (6), the Middle East (1), and Africa (1) were interviewed.
* In 14 countries, China is seen as a positive influence on world events by a plurality or majority-with the average across all countries standing at 48%. In contrast, the United States is viewed positively in only six countries and negatively in 15, with the averages being 38% and 4%, respectively.
* Among its six regional neighbors, approval for China ranges from 70% in the Philippines to South Korea's 49%, with only Japan lagging at 22%. Significantly, of all of China's neighbors, only Japan (at 35%) registered less than majority support for a more economically powerful China.
* Regarding military power, citizens in 17 of the 22 nations said a stronger China would not be a positive development-with the average negative response at 59%. Nonetheless, a clear majority in India (56%) viewed a stronger military role for China as a positive development. Negative responses from the remaining regional countries ranged from 79% in Australia to 46% in the Philippines. Equally interesting in light of the European Union's (EU)now-postponed plan to lift its embargo on arms sales to China, is that clear majorities in all five EU countries felt a militarily stronger China would be a negative development. Only Turkey, which has been trying for years to begin the process for EU membership, polled below 50% negative response to a more militarized China.
Even those who dismiss "street" polls as mere venting of popular passions or reflections of government propaganda can find little solace in the reality of China's growing influence in Asia.
China's Good Neighbor Policy
The numerous regional agreements between China and its neighbors indicate that Beijing has succeeded in ameliorating the fears and suspicions of most countries. This is most apparent in China's relationship with the 10-member Association of Southeast Asian Nations (ASEAN), both mainland and island states.
* In November 2002, China and ASEAN concluded the Framework on Economic Cooperation, which, among other provisions, calls for a free-trade zone between China and the original six ASEAN states: Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand.
* ASEAN and China initialed a "Strategic Partnership for Peace and Security" in October 2003, with China also acceding to the terms of ASEAN's "Treaty of Amity and Commerce."
* November 2004 saw two important additional steps. One was an agreement to resolve trade disputes, and the second affirmed the intent of all parties to resolve quarrels concerning territory and jurisdiction in the South China Sea without "resorting to the threat or use of force."
China has also been shoring up its north and northwestern fronts. The 1996 Shanghai Five (China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan) agreement recognized China's drive for reunification (to fully incorporate Macao, Hong Kong, Tibet, and Taiwan), paved the way toward resolution of remaining international border disputes among the five, initiated a demilitarizing of common borders, and affirmed the principle of state sovereignty and noninterference in the internal affairs of each country. With the accession of Uzbekistan in 2001, the renamed Shanghai Cooperation Organization (SCO) turned to regional economic arrangements and anti-terrorism concerns. With the declared intention of opposing "terrorism, extremism, and separatism," the SCO provides all six member countries a multinational platform for resisting U.S. calls for political liberalization and greater human rights.
Interestingly, India and Pakistan have both signaled an interest in joining the SCO, a bid that current members seem hesitant to approve. Of the six SCO nations, China would have the most to gain from such an expansion, for it would frustrate, to some degree, U.S. attempts to erect a "containment ring" around China. For its part, Beijing is countering these U.S. moves with more active diplomacy in what many might consider U.S. "home turf."
* On October 10, 2002, with all of the former Soviet Central Asian republics enrolled in the North Atlantic Treaty Organization's (NATO) Partnership for Peace, China formally requested the opening of a "strategic dialogue" with NATO. (In NATO's June 2004 Istanbul summit, the alliance the alliance signaled a potentially closer relationship by declaring that Central Asia and the Caucasus were "strategically important regions.")
* After years of effort and despite heavy U.S. pressure on the EU to maintain the ban, China seemed on the brink of persuading the European Union to lift the arms embargo imposed after the Tiananmen Square massacre in 1989. But with enactment of the anti-secession law codifying Beijing's threat to employ force should Taiwan take overt steps toward or declare independence, the EU decided to delay lifting the embargo for at least six months.
* For its part, China had said it would not have tried to buy "expensive" and "obsolete" European arms, but U.S. analysts worry that China might get technology such as the EU's Galileo navigation satellite. Tellingly, Australia-the main regional "Western" country and a steadfast U.S. ally-never objected to the lifting of the EU embargo. Canberra wants more information on the EU arms trade "code of conduct" and asks to be notified of any sales by EU countries. (Australia lifted its own embargo in 1992 and is now negotiating terms for providing uranium ore to China's nuclear power industry.) Similarly, Israel and Russia, both of which have a history of military sales to China and imposed no post-Tiananmen embargos, never registered objections despite the sophisticated sales competition that the EU would represent.
* China's first-ever deployment of uniformed personnel on a UN peacekeeping mission took place in 2004, when Beijing sent 1,000 riot police to Haiti.
* International Business Machine Corp. has sold its personal computer division to the Chinese firm Lenovo Group Ltd., in which the Chinese government has a stake. The sale's finalization is subject to approval by Washington, which was finally given with some restrictions on access by non-U.S. personnel to collocated but unrelated high-tech projects.
* In testimony before the House Armed Services Committee on March 9, 2005, the head of the U.S. Southern Command noted that Chinese defense officials conducted 20 visits to Latin America and the Caribbean (prompting nine reciprocal visits to Beijing). Several of the visits were to the 11 countries whose U.S. military aid was stopped, because their governments refused to sign agreements that would exempt U.S. personnel from the jurisdiction of the International Criminal Court.
North Korea and Taiwan
But economics and world image are not the only areas of concern for Washington. There are also the seemingly intractable issues of North Korea and Taiwan, both of which involve the United States as a central protagonist.
North Korea's nuclear weapons-anywhere from two to 15, depending on which U.S. intelligence agency is tallying-are not just a U.S. concern. But although Beijing does not want to see either North or South Korea (or an eventually reunited Korea) acquire a nuclear arsenal, it is not as beleaguered by the possibility as is Washington. In fact, Chinese officials have publicly questioned Washington's appraisal of Pyongyang's self-declared status as a nuclear weapons state.
Regarding the North Korean "problem," China finds itself uniquely positioned as the only country genuinely able to mediate and facilitate discussions. But as the history of the "six-party talks" illustrates, Chinese envoys have been sorely tested just to keep the deliberations going. For example, on February 10, 2005, North Korea announced it was leaving the talks, which had not been held since August 2004 because of U.S. demands that the North completely dismantle its nuclear program as a precondition for more assistance. After a four-day visit by a senior Chinese government official, the North's leader, Kim Jong Il, was said to be willing to resume the six-party discussions, if Washington showed "trustworthy sincerity." Just what counts as "sincere" remains undefined, but Pyongyang's past demands include written assurance that Washington does not seek regime change, guaranteed aid (including fuel), and conclusion of a peace treaty officially ending the Korean War.
U.S. military options are severely restricted by the ongoing war in Iraq, intelligence gaps regarding the location and vulnerability of North Korea's nuclear facilities, and the massive destruction that South Korea (especially Seoul) would sustain in either a preemptive or retaliatory military strike by the North. Nonetheless, rhetoric from the Bush administration aimed both at Kim Jong Il personally and at North Korea as a political entity-e.g., rogue state and "outpost of tyranny"-seems designed to keep the atmosphere roiling and to postpone the next meeting of the six parties indefinitely.
Given Washington's approach to negotiations, Chinese leaders may soon interpret the Bush administration's endgame as keeping China's border with North Korea under persistent threat of large-scale migration, should Pyongyang suffer economic meltdown or go to war against the South. This would dovetail with Beijing's perception that many in Washington view China as the emergent great-power competitor that the United States will have to confront early in the 21st century. CIA Director Porter Goss was quite explicit on this theme when he stated that "Beijing's military modernization and military buildup is tilting the balance of power in the Taiwan Strait." Yet of the four modernizations that China is pursuing, military modernization is the lowest priority.
Tensions in the Taiwan Strait
That said, China does not shirk from the question of Taiwan and military force. With neither Beijing nor Washington blinking, a series of intertwining events over the last 13 months has perceptibly raised tensions in the Taiwan Strait.
* In the run-up to the presidential election in March 2004, Taiwan's President Chen Shui-bian promised to rewrite the island's Constitution and free it from the "fiction" of being labeled part of China. He also proposed to seek approval of a "process" for independence via a referendum-sidestepping the Constitution-and even placed referenda to carry out the process on the March ballot. Chen was narrowly re-elected; the referenda were not approved. Under U.S. pressure to tone down his rhetoric, Chen then backpedaled on independence in his May 20 inaugural address.
* In July 2004, China, which had also castigated Chen during the Taiwan presidential race, conducted extensive military training in the Taiwan Strait while the U.S. exercise "Operation Summer Pulse 04" in the Pacific-a larger drill than usual-was under way.
* In the run-up to the December 2004 Taiwanese legislative elections, Chen again promised to move ahead with a 2006 referendum on independence specifying a 2008 implementation date, if his party won the December poll. His party lost, but the fact that Chen had reopened the independence question was enough to spur the mainland Chinese to introduce an "anti-secessionist" law at their National People's Congress.
* Beijing steadfastly insists that Taiwan and its status are internal concerns of the Chinese people, who need no "assistance" from other countries. The February 20, 2005 joint declaration by the Japanese foreign minister and the U.S. defense secretary that the state of affairs in the Taiwan Strait is a "common strategic objective" was an attack on the unified sovereignty of China, which both the United States and Japan have acceded to under the "one China" policy.
* In addition to annual State Department funding of the American Institute of Taiwan-transparently an unofficial embassy-Washington reportedly plans to send military officers to Taiwan as official representatives of the Pentagon.
* For years, many in Congress have advocated UN membership for Taiwan, though this status is granted only to legitimate national governments. On February 17, 2005, five members of the House of Representatives introduced legislation demanding that the Bush administration restore full and official diplomatic relations with Taiwan. Such a move would embolden Chen Shui-bian, who so far has been dissuaded from declaring Taiwan's independence both by the better judgment of the Taiwanese people and by Beijing's insistence on the island's peaceful reunification with the rest of China.
* Washington is trying to force Taiwan to accept and pay for $18 billion in new "defensive" weapons first authorized in April 2001. The adoption of the anti-secessionist law by the mainland's National People's Congress has energized debate in Taiwan's legislature over this U.S. aid package.
Beijing reportedly believes that one aim of the Bush administration is to turn China and Japan against each other. But China is now Japan's number one trading partner, and China has opened its doors to Japanese investments. Japan also recognizes China's role in facilitating the six-party talks with North Korea over the latter's purported nuclear weapons and long-range missile programs.
At the same time, Japan's expanding cooperation with the United States regarding ship-borne missile defense suggests that Tokyo's concerns over North Korean missiles have broadened to include the 700-800 missiles on China's mainland across from Taiwan. Moreover, the withdrawal of 12,500 U.S. troops from Korea, the repositioning of the remaining forces away from the Demilitarized Zone, statements by the U.S. Pacific Command that the troops left in Korea could be used regionally, and the twin possibilities that the combined UN command in Korea will be dissolved while the United States reconstitutes a corps headquarters in Japan all suggest a fundamental reorientation of Washington's attention in Asia away from the Korean peninsula. This policy shift is reminiscent of the perception drawn from Secretary of State Dean Acheson's January 1950 speech that Korea (and Taiwan) lay outside U.S. defense interests.
Although such maneuvering will not tempt Beijing to challenge Washington militarily, China's growing economic and diplomatic presence on the world scene is engendering greater confidence among Chinese leaders. For example, U.S. criticism of China's human rights record was uncharacteristically reciprocated by a spokesperson for China's governing Cabinet who specifically cited accounts of prisoner abuse by U.S. military and civilian personnel at Abu Ghraib, Guantanamo Bay, and other prisons in Iraq and Afghanistan.
In the foreseeable future, China's economic position vis-à-vis the United States and its role in the North Korean nuclear talks remains key to U.S.-China relations. On the economic front, because China's rapid growth has been fueled by a large surplus of exports over imports in trade with the United States, Beijing is not expected to "pull the plug" on U.S. trade short of looming and inevitable armed conflict resulting from a clear Taiwanese declaration of de jure independence. Beijing would like to regain political control of Taiwan without a fight, and to that end China will continue to enmesh the island in a web of economic relations that Taipei will increasingly be loathe to sacrifice.
Like all presidents ever since Richard Nixon "opened" China, George Bush has chosen, after initially hesitating, to try to ride the Chinese dragon--but with spurs on his boots. Having managed to climb on, he cannot get off without the risk of being thrown. For its part, China has decided to soar on the eagle to the sky's limit. Beijing believes that if it can hitch a ride while the eagle economically exhausts itself, China can at last preempt U.S. influence in Asia.
As the old song says, "dragons live forever."
Col. Daniel Smith, a West Point graduate and Vietnam veteran, is Senior Fellow on Military Affairs at the Friends Committee on National Legislation, a Quaker lobby in the public interest and a commentator for Foreign Policy in Focus. He can be reached at: dan@fcnl.org
Long but has little reported information also picture of the Dragon Mart - #msg-5105824
-Am
(Republished with permission from Japan Focus)
Jul 2, 2005
Note: This report is a condensed version of a series featured in the Yomiuri Shimbun, highlighting Japan's resource anxieties in the context of rising China-Japan tensions over issues that include the struggle for scarce oil and other natural resources and the voracious quest for energy by Japan's rapidly growing neighbor. The conflict is set within a global milieu in which oil prices are soaring above US$60 a barrel, the consumption of China, India, the US and a number of other powers continues to rise, and nations seek to secure access to oil and national gas supplies that show strong signs of reaching a tipping point at which demand exceeds supply.
Planning national strategies Countries around the world are competing for natural resources. A dispute over maritime resources in the East China Sea, for example, is one of the reasons anti-Japanese demonstrators in China have criticized Japan. Japan, which relies on other countries for most natural resources, is now thinking seriously about the changes taking place.
The East China Sea is now called the "sea of conflict". While China is exploring natural gas fields near the Japan-China median line in the East China Sea, Japan has asked Beijing to suspend exploration on the grounds that marine resources on the Japanese side could be accessed by China.
On the evening of January 22, tension mounted over the sea of conflict.
Japan's Air Self-Defense Force base in Naha was ordered to dispatch P3-C surveillance aircraft to confirm the presence of and photograph two Chinese navy Sovremenny class missile destroyers that were reported to be cruising in waters near the Japan-China median line.
The Sovremenny class destroyers are high-tech battleships purchased by the Chinese navy from Russia. The anti-ship cruise missiles carried by the destroyers are reputed to be among the best in the world.
Forty-five minutes after the order to scramble, the P3-C aircraft spotted two gray destroyers that were cruising toward the Ramform Victory, a Norwegian ocean survey vessel chartered by Japan. Officials of the Economy, Trade and Industry Ministry's Energy Agency in charge of the survey were tense after receiving the report from the Defense Agency. They reportedly thought that they should ask the ship to temporarily halt its survey and leave the area if P3-C pilots believed the Norwegian ship was in danger.
Senior Energy Agency officials focused their attention on surveillance reports from the P3-C. The two destroyers cruised on a zigzag course, closing in on and pulling away from the Norwegian ship alternately. The ships returned to China late at night.
On April 1, the government released survey findings that China's Chunxiao and Duanqiao gas fields are linked to Japan's gas fields. As a countermeasure, the government plans to begin procedures in the near future to grant private developers the right to test-drill on the Japanese side of the median line.
China may step up efforts to hamper test drilling by Japanese developers once drilling begins. This will test the government's resolve to take a firm stand. With a sharp increase in demand for energy as a result of its rapid economic growth, China is not only trying to develop gas fields in the East China Sea, but also is stepping up efforts to buy resources from other countries. Its voracious appetite for energy has become a destabilizing factor in the international energy market.
The impact will be great for Japan, which relies heavily on other countries for natural resources.
The Center for Safety and Security Research (CSSR), a research institute under the Education, Science and Technology Ministry, has released a report on two crisis scenarios concerning China that predict China's actions regarding energy and their impact on Japan.
The first scenario is a battle over energy sources. It assumes that if China reinforces its procurement of energy without taking cost efficiency into consideration, the world will be plunged into a situation in which each country competes for oil by ignoring international market mechanisms. As a result, political tension between the two countries over resources in the East China Sea will mount.
The second scenario assumes the isolation of Japan. If China succeeds in concluding free-trade agreements (FTAs) with Southeast Asian countries, their reliance on China will increase, leading to the isolation of Japan.
Both scenarios portray a shocking future for Japan.
Tokyo University Professor Horii Hideyuki, head of the CSSR, said the crisis scenarios modeled worst-case situations in order to work out what measures Japan should take. There is no guarantee that one of the worst-case scenarios will not come true if Japan sits on its hands.
Chinese leaders are taking the initiative in securing the natural resources that are vital for its economic growth. In November, Chinese President Hu Jintao visited four South and Central American countries. The agreement China signed with Brazil incorporated joint development of undersea oilfields off Brazil and joint construction of a natural gas pipeline in the country. China also discussed with Chile, the largest producer of copper in the world, a plan to jointly develop copper mines.
In January, Vice President Zeng Qinghong visited Venezuela, a member of the Organization of Petroleum Exporting Countries, to sign an agreement on 19 cooperation items, including one to facilitate oil trade. Prime Minister Wen Jiabao has also recently visited India.
The countries with which China is proposing joint development of oilfields include Sudan, which the US says is supporting terrorism, and Myanmar, which is controlled by a military junta. A high-ranking Trade Ministry official said these were problematic countries the international community keeps at arm's length.
China's powerful energy diplomacy seems to indicate Beijing is heading toward the battle for natural resources described by the CSSR in its crisis scenario.
Chinese leaders are also proposing FTAs to countries rich in resources to deepen its economic ties with them.
Mimuroto Yoshimitsu, a board member of the Institute of Energy Economics, Japan, who took part in formulating the crisis scenarios, said China was a country that exercised heavy state power, but it would gradually become a more open country because such a policy leads to a dead-end.
Japan has established a body to study the signing of an FTA with Chile and plans to begin free-trade agreement talks with Australia, one of the world's top iron ore producers.
But the Agriculture, Forestry and Fisheries Ministry and Liberal Democratic Party lawmakers representing agricultural interests are reluctant to liberalize the market for farm produce, making it difficult for the government to couple FTA pacts with procurement of resources as China does.
Mimuroto said that while a battle over resources would be terrible, the isolation scenario was more serious because Japan would be left behind China in procuring resources based on market mechanisms.
Horii, who played a key role in drawing up the scenarios, said Japan should use its scientific technology as a trade weapon, furthering research and development in the fields in which it has an edge, such as development of automobiles powered by fuel cells, clean coal technology and bio-energy.
"Japan should make good use of its technology when dealing with China. Japan has to use scientific technology as its diplomatic card," he said.
The global economy is in the midst of a sea change regarding resources and energy. The memory of high oil prices caused by the two oil shocks has faded. When oil prices hovered between $10 and $20 per barrel from the late 1980s to the 1990s, Japanese people seemed to cling to the belief that oil could be bought on the free market.
But since September 11, 2001, concerns about geopolitical risk resulting from political instability in the Middle East have mounted. With supply failing to meet China's and India's demands for energy, recent oil prices have been hovering at more than $60 per barrel.
Hatanaka Yoshiki, head of the Energy and Environment Program at the International Development Center of Japan, said China, the US and Europe acted with the understanding that petroleum was a strategic resource.
"Japan still strongly believes oil can be purchased with money. The government should realize the energy problem is a present, imminent danger. It should use all of its resources, including political power, diplomacy, defense and scientific technology to address it," he said.
It remains to be seen whether Japan can overcome an energy crisis that would affect the future of the country.
China fomenting energy crisis Bai Zhili, who teaches Japanese politics at Beijing University's graduate school, visited Japan early in March to do research on the nation's public services, which is his area of expertise. However, his trip to Japan had another purpose. Bai wanted to know how much Japanese sentiment toward China had worsened because of the antagonism between Japan and China over maritime resources in the East China Sea.
"Chinese people are increasingly interested in energy security, because if the energy supply stops, the country's economic growth also will stop, depriving the population of 1.3 billion of jobs," Bai said. "As for the dispute over maritime resources in the East China Sea, Chinese people think Japan is destroying China's energy security."
Bai said he had been concerned that the antagonism caused by the dispute would worsen the two peoples' feelings toward each other and might deteriorate into war. However, during his trip to Japan, he found that Japanese people were far less upset by the dispute than the Chinese.
Because of the explosive increase of China's energy consumption, many Japanese specialists have started to call that nation a "resource-gorging country".
China is the sixth-largest oil-producing country in the world, churning out about 170 million tons a year. However, domestic oil consumption resulting from the rapidly growing economy surpassed domestic oil production and China became a net oil importer in 1993.
According to statistics compiled by British Petroleum (BP), a major oil firm, Chinese consumption of oil exceeded that of Japan in 2003, with China becoming the second-largest oil consumer in the world after the US.
According to the 2004 World Energy Outlook released by the International Energy Agency in October, China's oil imports in 2030 will reach about 500 million tons, an amount equivalent to US imports.
The major cause for China's growing petroleum consumption comes from the drastic increase in car ownership. To ease congestion in Beijing, car access to arterial streets is restricted, with vehicles only allowed to use the city's main streets on designated days, according to the number on their license plates. Despite such measures, the number of cars on Chinese streets is expected to quintuple by 2020.
However, it is not only petroleum China is "gorging".
"The demand for steel is increasing at a surprising rate in China because the country has become the world's factory, where the manufacturing functions of the whole world have been concentrated," said Sugimoto Takashi, a professor at Osaka City University's Graduate School of Creative Cities.
The drastic increase in demand for raw materials has caused their prices to skyrocket. The price of iron ore rose by 70% in fiscal 2005 from the previous year, and that of coking coal more than doubled during that time. "A 70% increase in iron ore prices has never been observed in history," Sugimoto said. This unprecedented price surge has gradually started to affect Japanese industries. A temporary shortage of steel forced Nissan Motor Co to suspend operations at its Oppama plant in Kanagawa prefecture and two other domestic plants for five days in November and December.
Nippon Steel, a major steel producer, has asked automobile manufacturers and appliances makers to understand the reason the company had to raise steel prices. "According to our calculation, the price surge pushed up cost in the whole steel industry by 1 trillion yen [$9 billion]. We can't deal with it by ourselves," said Toru Obata, general manager of Nippon Steel's Raw Materials Division-II.
Since the two oil shocks in the 1970s, Japan has promoted petroleum stockpiles and development of energy-saving technologies. China, which was energy self-sufficient at that time, will finally start to stockpile petroleum this summer.
China is also lagging behind in energy-saving measures. Many specialists point out that the lack of experience with oil shocks has made China increasingly concerned about possible energy shortages.
Considering the economically close relationship with the country, Japan would inevitably be affected if China develops an energy crisis. "Japan should take actions to enhance energy security in the whole Asian region by helping China and other Asian countries set up systems to stockpile energy resources and provide them with energy-saving technologies," said Ken Koyama, senior research fellow at the Institute of Energy Economics, Japan.
It is time to consider the Japan-China relationship in light of natural resources and energy.
Japan losing sway over Middle East oil Japan and 120 other nations, as well as four international organizations, are currently competing through elaborate exhibitions at the 2005 World Exposition in Aichi. But it is not well known that the United Arab Emirates (UAE), the largest crude oil exporter to Japan, suddenly withdrew from the event.
The UAE said in September 2003 it would not take part in the event, even though it previously had said otherwise. A senior UAE government official gave Japan no reason other than that it had been decided by the country's information and cultural affairs minister.
The royal family has virtually complete power in the UAE, which has no parliament, and largely bases its decisions on human ties.
Sources close to the Japanese government said some members of the UAE royal family may have changed their view of Japan. Few facts are known, and many incidents followed the UAE's decision.
Britain's Prince Charles and French President Jacques Chirac visited the UAE to attend the funeral of former UAE president Sheik Zayed bin Sultan al-Nahyan, who died last November. Kawaguchi Yoriko, a special assistant to the prime minister, also attended the ceremony.
At the time, many nations saw a change in leadership as an opportunity to strengthen ties with the UAE. "It's difficult to say that Japan has a knack for dealing with oil-producing countries when it comes to diplomatic matters," a government official said. Nahyan was seen as an ally of Japan. He awarded the rights to develop oil sites to Japanese oil companies, counterbalancing the sway of international oil majors.
But Sheik Mohammed bin Zayed al-Nahyan, the UAE's new crown prince and Nahyan's third son, is the chief of staff of the UAE armed forces. He is said to have developed close ties with the US military. Within the Japanese oil industry, some are concerned that the appointment of the new prince, who tends to favor industry giant ExxonMobil of the US, could change Japan-UAE relations.
UAE Energy Minister Mohammed bin Dhaen al-Hamili also pledged to provide Japan with a stable oil supply, but hinted at a possible decline in otherwise favorable bilateral relations, saying, "The Japanese are not very well known to the UAE public."
Meanwhile, China is steadily establishing itself as a partner with the UAE. In December, Dragon Mart, a wholesale shopping complex of Chinese products, opened in Dubai. About 3,000 home appliance, textile and other Chinese companies are planning to set up operations in the UAE.
Hatanaka Yoshiki said China was trying to deepen economic relations with the UAE due to the fact that their current relationship was one-sided - China buys oil from the UAE - and could be jeopardized in the face of unforeseen circumstances. It will be difficult for Japan, as the country's population continues to age, to return to the high economic growth it once enjoyed.
Naito Masahisa, the chairman of the Institute of Energy Economics, Japan, said Japan had little time left as a powerful country that could take advantage of its influence to secure oil from the Middle East.
Japan will not be able to survive an energy war unless it breaks from an idea that was valid until several years ago, in which it was believed Japan could cope with surging oil prices by growing economically strong enough to pay more.
Asia as an oil battleground Like the Middle East, Central Asian nations that became independent following the collapse of the former Soviet Union have become the center of a power game among countries competing for resources.
Oil reserves are estimated at between 70 billion to 200 billion barrels in countries bordering the Caspian Sea. Oil-importing countries are paying close attention to Kazakhstan, which is increasing its oil production.
Oil from the Tengis oilfield in the country is mainly exported through a pipeline built by the Caspian Pipeline Consortium to the north of the Caspian Sea to Novorossisk, Russia, which is located on the coast of the Black Sea.
The Russian government, a large shareholder of the consortium, has agreed to a Kazakh request to triple its exports, but with many technological problems to be overcome, increased production will take some time to realize.
Pointing to a map of crude oil export routes, Baktykozha Izmukhambetov, first deputy minister of the Energy and Mineral Resources Ministry of Kazakhstan, stressed that his government could redirect oil exports if Russia did not increase exports from his country.
The route Izmukhambetov referred to is seen as a tactic to influence Russia. The Baku-Tbilisi-Ceyhan (BTC) pipeline is a route put forward by the US that went into operation in May, and is the first oil pipeline in the Caspian Sea region that does not go through Russian territory (see Pipelineistan's biggest game begins, Asia Times Online, May 26).
Taking advantage of Russia's failure to immediately meet Kazakhstan's request, the US has proposed that Kazakhstan export crude oil through the BTC pipeline. Energy and Mineral Resources Minister Vladimir Shkolnik expressed interest in the new route and said his government was negotiating with the US.
In a desperate attempt to secure oil, China has barged into the battle over resources between the US and Russia. Taking advantage of its border with Kazakhstan, China is building a 3,000 kilometer pipeline to its Uighur Autonomous Region.
However, Japan is not standing idly by. Japanese companies participated in developing the Kashagan oilfield in Kazakhstan, which is the largest oilfield discovered in the past 30 years and is scheduled to begin production in 2008. Japan also was involved in the construction of the BTC pipeline, a project seen as in Japan's national interest.
Last year, then foreign minister Kawaguchi Yoriko visited four countries in the Central Asian region. "I've made the greatest efforts to realize regional cooperation among the nations of Central Asia. If they cooperate with one another and gain stability as an integrated market, it will contribute to the stability of the international energy market," she said.
However, China saw Kawaguchi's trip to the Central Asia as a push for resources. An article in the September 1 issue of the Chinese weekly Global Times, headlined "Seeking political support with an eye on oil", said Kawaguchi's visit showed vision.
A high-ranking Japanese Foreign Ministry official said her visit gained little news coverage at home, but rival China gave her due credit.
The world map of energy resources is changing every day. Under the initiative of President Vladimir Putin, Russia is rebuilding itself as a resources powerhouse, while the collapse of the regime of Saddam Hussein in Iraq has made Iran the second-largest oil-producing country in the Middle East after Saudi Arabia.
Japan, lacking such natural resources, needs to show all the more sensitivity toward the actions of other countries.
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