China and Japan Move to the Brink - One Nation Will Lose Face Over Standoff

On September 7, 2010, an incident that in the future may be seen as analogous to the assassination of Austria’s Archduke Franz Ferdinand or the Marco Polo Bridge Incident occurred: the apparently intentional collision of a Chinese fishing boat with two Japanese coast guard boats near the disputed Senkaku island chain in the East China Sea. Japan has since released the Chinese ship’s crew, but has held the captain, pending an investigation.

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Soon after the collision, in a rich fishing ground thought to contain vast oil and mineral wealth, the People’s Republic of China allowed a series of small, but passionate protests against Japan, calling for the immediate release of the boat captain. These “protests” underscored China’s determination to make the return of the boat captain a very public international issue.

Japan’s leader, Prime Minister Naoto Kan, recently survived a rough internal leadership struggle and saw his party lose big in Japan’s upper house, appears to be holding a hard line in the diplomatic row with China – so far.

But the People’s Republic of China has ramped up the pressure with a dangerous escalation that will make it very difficult for both nations to save face with all the bitter history between them. China has slapped an embargo of critical rare earth elements exports to Japan through the end of the month, subject to being extended pending the release of the boat captain.

Vitally important to modern economies and to sophisticated weapons systems, China mines 99 percent of the planet’s most critical rare earth elements, some of which sell for hundreds of dollars per pound. Japan has stockpiled some rare earth elements, but it is unclear how long their supplies will last. Japan uses the minerals to produce consumer products such as hybrid automobiles and military hardware such as missiles.

In July, before the incident with Japan, China announced it was cutting its rare earth element export quotas by 72 percent. This move sent prices soaring.

Interestingly, a delegation of Japanese business leaders met with Chinese Communist Party officials in Beijing on September 7 to protest China’s export reduction. This was the same day that the Chinese boat captain rammed the Japanese coast guard ships.

Japan’s foreign ministry has begged China not to cut rare earth element exports, warning of major disruptions in global trade – and that was before today’s total embargo.

Chinese communist leaders have often boasted that China is to rare earth elements what the Middle East is to petroleum.

America no longer mines rare earth elements in any quantity, with the last major mine closed in 2002 in California due to a combination of tough environmental rules and low Chinese prices. Congress may decide to subsidize a restart of the American rare earth mining sector for national security purposes.

The People’s Republic of China has set down a marker. Either they win by forcing the release of their aggressive fishing boat captain or Japan wins by fully investigating the Senkaku Incident and applying rule of law to the Chinese captain.

Given China’s moves in July to restrict rare earth element exports, their escalating a diplomatic confrontation with Japan to an economic embargo that could damage the global economy is highly worrisome.

China may be playing for more than just sovereignty over the East China Sea’s Senkaku island chain (known as the Diaoyu islands in China). Of particular note is that China has mobilized “protesters” from both Hong Kong and Taiwan to sail to the islands to confront the Japanese coast guard in an act reminiscent of Greenpeace’s seaborne protests. This choreographed effort smacks of a Chinese attempt to very publicly set Japan up for humiliation and defeat, potentially setting off geo-strategic ripples in Korea, Taiwan, Vietnam, the Philippines and beyond.

The People’s Republic of China holds almost a trillion dollars of short-term U.S. government securities and mines 99 percent of the world’s most important rare earth elements. China has the second-largest economy in the world, having surpassed Japan’s earlier this year. China makes the most steel and cement in the world. Chinese military spending is soaring faster than their economy. In short, the People’s Republic of China is a rising power.

In the meantime, American forces are focused on the fight in Afghanistan and Iraq while our political establishment is very much focused on domestic matters.

This growing Asian imbroglio needs the immediate and full attention of the American President and his diplomatic and military leaders.

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