The tail of the dragon
It seems that every way China swings it’s tail it is getting in an argument with another country. As Chinas economy cools, tension is escalating in the red dragon with the United States and Japan.
There are people that say that China is losing control of its people and there is jockeying for political power inside. Is it better for China to have nationalistic demonstrations against Japan, riots that they can control, instead of anti-Communist Party riots that China can’t control and don’t want to be shown globally as they jockey for power behind the scenes?
Some say the dispute is over the islands known as Senkaku in Japan and Diaoyu in China.
Last week China dispatched six government vessels to the East China Sea. On September 11, Reuters reported that the Japanese cabinet approved the purchase of the islands from a Japanese private owner for 2.05 billion yen ($26 million).
The ownership of the islands has been in dispute for decades. After the Tsunami, earthquake, nuclear meltdown, Japan had reason to be concerned about energy. The order came from the Japanese government that Japan is to be nuclear-free by 2023. Japan will have to go from a domestic made energy, which allowed their money to stay on the Island, to buying energy, unless they can find another domestic source.
Is it the liquid gold, oil that is, that these two nations are drawing their swords over? Is Japan trying to gain ownership of the islands now in hopes that there are enough energy resources to make up for the energy loss from nuclear power?
An oil colleague sent me an email, “My best understanding is that there are some pretty small gas fields discovered nearby (perhaps 2-5 tcf) and not much else. This is not that exciting an area for large scale hydrocarbon exploration.” Japan said today it would reconsider phasing out of all nuclear energy.
My friend went on to say, “The furor has to about the strategic significance of the islands re the disputed border for national and military objectives. If China gains control they could push their continental shelf area out to the Okinawa Trough. If the Japanese retain control then the median line option with the Exclusive Economic Zone (EEZ) of less than 200 miles for each case might prevail.”
Weibo’s website, Chinas version of twitter, shows pictures of riots in the streets of Shanghai, a burning Toyota dealership, people standing in front of a dealership with a sign that Reddit translates to “We will kill every Japanese person, even if it means deaths for our own; even poverty will not deter us from reclaiming the Diaoyu Islands.” A friend of mine translated it as, “The direct translation is: Even if China is all a graveyard, we will kill off the Japanese; Even if China cannot grow a single blade of grass, we will reclaim Diaoyu Island.” Panasonic, Toyota, Nissan, and Honda have reported damage. None have reported employees being hurt, but operations for Japanese factories and dealerships are not normal.
Businessweek has confirmed that “Many dealerships in China that sell Japanese cars have shut (their doors for business) for now after some outlets were attacked and vandalized, according to Luo Lei, deputy secretary-general of the China Automobile Dealers Association. Besides those boycotting Japanese goods, most Chinese citizens won’t dare to buy Japanese-brand cars due to concerns over safety, Luo said.”
Reuters reported that sales of Japanese-branded passenger cars fell last month in China, compared with gains of more than 10 percent for German, American and South Korean vehicles according to the China Association of Automobile Manufacturers.
Chinese Automotive Monthly acknowledges that “The Diaoyu island dispute between China and Japan caused by the “nationalization” of Diaoyu Island is becoming more and more disturbing,” but says “The real reason for the drop in market share of Japanese cars in China is the decreasing competitive ability coupled with slow strategy adjustment. With the introduction of a large number of hightech Volkswagen vehicles in China, Japanese compact and mid-sized cars are being attacked by German or even Korean cars.”
This comes at the same time that China is in a trade war with the United States. In an interview with Don Butler, Vice President of global marketing for Cadillac, Butler acknowledged that sales weren’t’ as brisk as they could be in China if China would take off the 22 percent tariff for imported American cars.
China says the United States was at fault first and retaliated and filed a grievance with the World Trade Organization (WTO) saying the United States put tariffs on Asian goods imported from China, including tires.
The government for each country needs to decide what their goal is on a global basis before it starts down the road of capitalism.
If the governments allow politics between countries to destroy the business paradigm it has set up, it will be the businesses that have set up shop in the foreign country that will lose economically in the short term, the countries in the long term. China and Japan need to figure out an agreement for the disputed islands, possibly a joint development of any oil fields that are located there and an agreement where the median line of each country lies.
If Politics rule, especially historical politics laced with resentment, the economies of both countries are hurt in the long run. If you want to play in the global market your country has to be a stable market, otherwise, companies will not invest in your country with their technology.
Other car companies will gain share in China right now, but it is a paradox that all companies from all countries are watching.