CHINA’S TEM­PER IS TEM­PERED BY TRADE

Lat­est spat with Ja­pan il­lus­trates its de­sire to show clout but not give up growth.

Los Angeles Times - - Front Page - David Pierson and Megan K. Stack re­port­ing from Bei­jing

A dis­pute be­tween China and Ja­pan over the ar­rest of a Chi­nese fish­ing boat cap­tain shows Bei­jing’s de­sire to as­sert it­self on the world stage with­out se­verely dam­ag­ing its pri­mary goal of con­tin­u­ing its rapid growth.

In the two weeks since the fish­ing trawler col­lided with Ja­panese pa­trol boats near a group of dis­puted is­lands, Bei­jing has can­celed min­is­te­rial level con­tact with Tokyo and Chi­nese travel agen­cies have been told to stop of­fer­ing trips to Ja­pan, a des­ti­na­tion for 1.8 mil­lion Chi­nese tourists last year.

But Chi­nese of­fi­cials this week de­nied a re­port that Bei­jing was ban­ning ex­ports to Ja­pan of min­er­als needed for the man­u­fac­ture of high­tech prod­ucts such as hy­brid cars and wind tur­bines. Such a re­stric­tion would rep­re­sent the strong­est move yet in the diplo­matic row and sig­nal that China sees its com­mer­cial in­flu­ence as a key way to pro­tect its in­ter­ests.

Ten­sions re­mained high Thurs­day as four Ja­panese were re­ported to be un­der in­ves­ti­ga­tion on sus­pi­cion of il­le­gally mak­ing videos of mil­i­tary tar­gets in China, the of­fi­cial New China News Agency re­ported.

Buoyed by strong eco­nomic growth, am­ple liq­uid­ity and one of the few grow-

ing con­sumer mar­kets for multi­na­tional firms to bat­tle over, China has in the last year re­jected calls to ap­pre­ci­ate its cur­rency, walked away from a global emis­sions treaty and ap­peared un­en­thu­si­as­tic about in­ter­na­tional ap­peals to ex­ert greater pres­sure on North Korea and Iran to aban­don their nu­clear pro­grams.

In­ter­na­tional firms have com­plained that they are de­nied ac­cess to Chi­nese mar­kets un­less they are will­ing to give up in­tel­lec­tual prop­erty to Chi­nese joint ven­ture com­pa­nies. Oth­ers com­plain of be­ing blocked out of govern­ment pro­cure­ment con­tracts.

“If this fight con­tin­ues, it’s pos­si­ble that China would take such hard ac­tions” as ban­ning min­eral ex­ports to Ja­pan, said Li Guanghui, a re­searcher for the Min­istry of Com­merce. “This dis­pute hurts China’s core in­ter­ests.”

In Jan­uary, China threat­ened to im­pose sanc­tions on Amer­i­can firms in­volved in a $6.4-bil­lion arms deal with Tai­wan, but those threats never ma­te­ri­al­ized. Boe­ing, one of the largest com­pa­nies that would have been af­fected, has since sold hun­dreds of mil­lions of dol­lars’ worth of planes to China’s flag­ship air­line.

“What that sug­gests is China is flirt­ing with us­ing its eco­nomic lever­age but it may not be con­fi­dent pulling the trig­ger be­cause of the im­pli­ca­tions,” said Pa­trick Cho­vanec, an as­so­ci­ate pro­fes­sor at Ts­inghua Uni­ver­sity’s School of Eco­nom­ics and Man­age­ment in Bei­jing. “It all re­flects the un­cer­tainty of China’s ris­ing in­flu­ence. There is grow­ing con­fi­dence and in­ter­est in be­ing more as­sertive. But China is also eco­nom­i­cally in­ter­de­pen­dent with the re­gion and the world. Its mil­i­tary and po­lit­i­cal heft is untested.”

Some ex­perts are skep­ti­cal that China would be will­ing to risk rat­tling its econ­omy, let alone a $230-bil­lion trade re­la­tion­ship with Ja­pan, to co­erce diplo­matic re­sults. Any ban of ex­ports such as the min­er­als prob­a­bly would in­crease ef­forts by trad­ing part­ners to tap al­ter­na­tive mar­kets or de­velop sources at home.

But ex­perts also say Bei­jing wants to ap­pear tough against Ja­pan, a neigh­bor still loathed and dis­trusted by many in China for its bru­tal op­pres­sions dur­ing World War II. Pub­lic opin­ion in­flu­ences the govern­ment’s poli­cies in­volv­ing Ja­pan, they said.

“When it comes to Ja­pan, the Chi­nese peo­ple tend to point their fin­gers at the govern­ment and say the govern­ment is act­ing too weak,” said Zhou Yong­sheng, a pro­fes­sor at the Chi­nese For­eign Af­fairs Uni­ver­sity in Bei­jing. “Anger among Chi­nese peo­ple to­ward Ja­pan has grown a lot.”

Diplo­matic flare-ups be­tween China and Ja­pan are not un­com­mon, but have rarely been al­lowed to rise to such a level of ten­sion.

In 2005, the pub­li­ca­tion of a Ja­panese his­tory book that crit­ics said white­washed its WW II atroc­i­ties led to mass protests in China. Dur­ing the ral­lies, which many be­lieve were spon­sored by the govern­ment, ac­tivists burned Ja­panese flags, threw rocks at the Ja­panese Em­bassy in Bei­jing and called for a boy­cott of Ja­panese prod­ucts. Many also op­posed Ja­pan’s bid for a per­ma­nent seat on the U.N. Se­cu­rity Coun­cil.

An­a­lysts point to more deeply seated is­sues that have di­vided the two Asian neigh­bors. In pre­vi­ous years, Chi­nese of­fi­cials bris­tled when then-Ja­panese Prime Min­is­ter Ju­nichiro Koizumi made his an­nual pil­grim­age to Tokyo’s Ya­sukuni Shrine to Ja­pan’s war dead, which in­cludes the re­mains of con­victed war crim­i­nals. De­spite the diplo­matic chill, the pe­riod was a boon for Sino-Ja­panese trade.

Along with the most re­cent dis­pute over the is­lands in the East China Sea — known in Ja­pan as the Senkaku Is­lands and in China as the Diaoyu Is­lands — Ja­pan also plans a $1-bil­lion project to drill for oil and gas in a dis­puted stretch of wa­ter west of Ok­i­nawa that both coun­tries claim as their ex­clu­sive eco­nomic zone.

China re­cently passed Ja­pan to be­come the world’s sec­ond-largest econ­omy, a mile­stone rich in sym­bol­ism for two na­tions whose pro­files ap­pear to be head­ing on un­equal foot­ing with Bei­jing’s con­tin­ued as­cen­dance all but guar­an­teed.

Though Chi­nese Pres­i­dent Hu Jin­tao’s lead­er­ship has tried to de­fine the coun­try’s for­eign pol­icy as a “peace­ful rise,” there is no deny­ing the mount­ing un­ease neigh­bors feel about Bei­jing’s ex­pand­ing pres­ence.

“Ja­pan fears China will use its grow­ing eco­nomic lever­age and mil­i­tary prow­ess to throw its weight around and dom­i­nate the re­gion,” a 2008 re­port by the Coun­cil on For­eign Re­la­tions said.

China has in­creas­ingly pressed its ter­ri­to­rial claims to wa­ters and is­lands off its coast, ar­eas rich in un­der­wa­ter oil and nat­u­ral gas de­posits. Seven other coun­tries have claims in the sea. Bei­jing has been try­ing to ne­go­ti­ate bi­lat­er­ally with the smaller neigh­bors think­ing its size and clout will give it ad­van­tage.

The Assn. of South­east Asian Na­tions, how­ever, has ap­pealed to the United States to strengthen its po­si­tion in the South China Sea to counter Bei­jing.

Pres­i­dent Obama met sep­a­rately with Chi­nese and Ja­panese lead­ers at the United Na­tions on Thurs­day, dis­cussing the is­sue of Chi­nese cur­rency as well as their mar­itime sovereignty dis­putes. He de­scribed the re­la­tion­ship be­tween the U.S. and Ja­pan as a cor­ner­stone of world peace and se­cu­rity.

On the fi­nan­cial front, China has in­di­rectly forced neigh­bor­ing coun­tries to de­value their cur­ren­cies to keep up with China’s ro­bust ex­port sec­tor.

Andy Xie, an in­de­pen­dent econ­o­mist based in Shang­hai, said China’s new mus­cle re­flects grow­ing po­lit­i­cal will to act more boldly in the in­ter­na­tional arena.

“The pol­icy of keep­ing your head down is run­ning into some re­sis­tance,” Xie said. “The gen­er­a­tion now grew up with­out the fear of hunger. They have a dif­fer­ent per­spec­tive. The govern­ment has to re­flect this mood. It’s why we’re see­ing a stronger re­sponse.”

Econ­o­mists say a full­blown trade war be­tween China and Ja­pan would be highly dam­ag­ing, but is also un­likely.

“My per­cep­tion is this is largely theater,” said Arthur Kroe­ber, man­ag­ing di­rec­tor of GaveKal-Drago­nomics, a Bei­jing-based eco­nom­ics con­sul­tancy. “His­tor­i­cally, [the ten­sion] lasts six months to a year and then it’s back to busi­ness as usual.... There isn’t a lot of abil­ity or in­ter­est in us­ing largescale eco­nomic lever­age against an­other coun­try be­cause you al­ways pun­ish the do­mes­tic econ­omy as well. It’s al­ways a two-way trans­ac­tion.” david.pierson@latimes.com megan.stack@latimes.com Seoul bureau chief John M. Glionna and spe­cial cor­re­spon­dent Kenji Hall in Tokyo con­trib­uted to this re­port.

Aly Song

ANGER: Pro­test­ers wave a Chi­nese flag dur­ing a rally near the Ja­panese Con­sulate in Shang­hai to de­mand the re­lease of a Chi­nese fish­ing boat cap­tain. Of­fi­cials de­nied ru­mors of a ban on some ex­ports to Ja­pan.

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