Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Monday, April 21, 2014
Asia fault lines April 21 , 2014 -- Exodus Of Japan Inc. Slams China ........ Local anger at Japan island surveillance unit Residents scuffle with officials as Tokyo begins construction of coastal monitoring unit near islands claimed by China......... Other tensions between China and Japan in the news -- Tensions between China and Japan escalated once again, this time over a grudge dating back to WWII. The Financial Times reports Japanese Ship Seized in WWII Claims Dispute ...... With China and South korea nursing decade old grudges , not surprising to see - Japan Trade Deficit Largest in History; Imports Soar, Exports Barely Up In Spite of Collapsed Yen !
A Chinese court has seized a Japanese cargo ship over legal claims related to the second world war as escalating tensions between the two countries spill into the realm of commerce.
Japan was quick to denounce the confiscation of the vessel, warning it could have a “chilling effect on all Japanese companies doing business in China”. It is the first time a Chinese court has ordered the seizure of Japanese assets in relation to second world war.
The incident underlines strained relations between China and Japan, who have recently sparred over a string of disputed islands that some analysts say is the most dangerous faultline in Asia. Extensive economic ties between the two countries have so far served to stabilise the relationship.
The Shanghai Maritime Court seized the Baosteel Emotion at a port near Shanghai at the weekend, it said on its website. The ship belongs to Japanese conglomerate Mitsui OSK Lines and had been ferrying Australian iron ore to China’s flagship steel mill Baosteel.
Japan has consistently argued that the peace treaties it signed after the war exempt it from having to pay compensation to individuals or companies in former enemy countries. But China and South Korea, which nurse the strongest resentment over Japan’s often brutal imperial expansion, counter that the agreements only cover government-to-government reparations, leaving private groups free to sue for damages.
Still, for many years China discouraged any claims by its citizens against Japan, whether for forced labour, sexual slavery or asset seizures. Former premier Zhou Enlai explicitly rejected the prospect of any Chinese wartime claims, in return for assurances of Japanese development aid and investment. As a result, Chinese activists have had to pursue claims in Japanese courts.
“Overall China is dissatisfied with Japan, so a lot of matters have re-emerged,” said Shen Dingli, an expert in Northeast Asian geopolitics at Fudan University in Shanghai. “In the past they might have discouraged suits like this but now they don’t stand in the way.”
Last year, South Korean courts ruled against Japanese corporations in two landmark cases involving Koreans forced into labour for the Japanese war effort.
Trade wars, currency wars, and beggar-thy-neighbor tactics are hallmarks of deflationary times. When the global economy is good and jobs plentiful, age-old disputes like these seldom surface.
The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134bn), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s.
Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012.
But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports.
Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2 per cent on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5 per cent.
A steady outflow of Japanese manufacturing jobs to lower-cost countries and declining competitiveness in some sectors, such as consumer electronics, has limited the power of a cheap yen to lift exports.
Overall Japanese exports increased 0.6 per cent by volume last fiscal year, Monday’s data showed, leading to a 10.8 per cent rise by value in light of the weaker yen. Imports rose 2.4 per cent by volume and 17.3 per cent by value.
Japan has 50 nuclear reactors. Every one of them is offline. Abe wants to bring them back online, but the Financial Times reports "analysts think that at most 12-15 of the reactors will ultimately be restarted."
A falling Yen and rising energy imports, coupled with a slowdown in China and tax hikes in Japan suggest Abenomics is going to be a dismal failure unless the goal is to goose stock prices rather than goose the economy.
Mike "Mish" Shedlock
Local anger at Japan island surveillance unit
Residents scuffle with officials as Tokyo begins construction of coastal monitoring unit near islands claimed by China.
Last updated: 20 Apr 2014 07:13
Japan has started to construct a coastal surveillance unit near a string of islands at the centre of a bitter territorial dispute with China.
Radar equipment will be placed on Yonaguni island to monitor ships and aircraft in the East China Sea, the Kyodo news agency said on Saturday.
The Ground Self Defence Force (SDF) surveillance unit, comprising around 150 personnel, will be deployed on Yonaguni by the end of March 2016, the news agency said, citing Japan's defence ministry.
"It's very important to take a solid surveillance posture on remote islands," said Itsunori Onodera, Japan's defence minister, after attending the ground breaking ceremony.
The island lies around 150km southwest of the Tokyo-controlled Senkakus, which Beijing claims and calls the Diaoyus.
On Saturday, some Yonaguni residents opposed to the new surveillance unit scuffled with officials connected to the defence ministry.
Locals are concerned the island could become a target in any future conflict between Japan and China.
The surveillance unit will "fill a void of SDF presence" in Japan's remote southwestern islands, Onodera said.
Chinese vessels and aircraft have regularly approached the disputed East China Sea archipelago - thought to harbour vast natural resources - after Japan nationalised some of the islands in September 2012, setting off the latest spate of incidents in a long-running territorial row.
The ceremony comes at a time when Japanese Prime Minister Shinzo Abe is pushing to reconfigure Tokyo's role on the international stage, specifically that of its armed forces.
Abe wants to reinterpret a law to allow Japanese troops to take up arms to defend an ally under attack, so-called collective self-defence.
Beijing has sought to paint Abe's moves as a dangerous slide back towards Japan's militarism of the last century.
The Japanese-Chinese imbroglio over the Senkaku Islands – or Diaoyudao Islands, as they’re called on the other side of the pond – has been artfully kept on the front burner with a mix of symbolic gestures, carefully orchestrated military provocations and reactions, “scholarly” papers, articles in the media, government pronouncements, and all manner of other artifices. And Japanese businesses, particularly automakers, have paid a steep price in China, where sales collapsed following the outbreak in the fall of 2012.
But now, decisions made one at a time by Japanese businesses are hitting the Chinese economy, at a moment when it can least digest such hits.
It didn’t help that the Shanghai Maritime Court seized a Japanese-owned iron-ore cargo ship. The owner, Mitsui O.S.K Lines Ltd., “still refuses to perform its obligations,” the court ruled, according to the Asahi Shimbun. These “obligations” date back to 1936, just before the Second Sino-Japanese War, when Zhongwei Shipping Co. in China leased two ships to Daido Kaiun, a predecessor of Mitsui O.S.K. The two ships were promptly confiscated without compensation by the Japanese military and sank in 1944.
Family members of Zhongwei’s founder first filed suit in Japan, but lost. In 1988, they filed suit at the Shanghai Maritime Court. In 2007, the court ordered Mitsui O.S.K. to pay $28.3 million in damages.
Other lawsuits have been filed in China against Japanese companies, demanding compensation for various wartime damages, including forced labor. Chinese authorities, adhering to the 1972 Japan-China joint communique by which China had relinquished its right to demand compensation for wartime damages, have long dismissed these lawsuits. But in March, as an indication that the honeymoon was over, a Beijing court allowed such a lawsuit to move forward for the first time.
And so the seizure of the ship was another “demonstration that the judicial authority is willing to take a hard line,” a source in Beijing told the Asahi Shimbun.
“Extremely regrettable,” is how Chief Cabinet Secretary Yoshihide Suga called the seizure during a news conference on Monday. “The move can undermine the spirit of the 1972 Japan-China joint communique from its very foundation and discourage Japanese corporations from doing business in China.”
And that’s exactly what has been happening for months – in a most dramatic way, and where it hurts China the most.
As if to underline that Japan wasn’t about to be cowed by China, Prime Minister Shinzo Abe sent a ritual offering of “masakaki” tree stands to Yasukuni Shrine, which honors nearly 2.5 million Japanese war dead, including 1,000 war criminals from World War II. Visits by officials to the shrine are a sore point with China and other countries that have not forgotten the atrocities that the Japanese military committed on their soil generations ago. And so the masakaki offering was eagerly reported on Monday, showing Abe’s name and title on wooden plaques in front of the small trees.
At first, when the hostilities over the Senkaku Islands erupted in China, Japanese executives, though taken aback by the violent aspects of it all, figured that this too shall pass. When it came to trade and investment, they’ve been able to work their way around political minefields. Even as sales by Japanese automakers, retailers, and others plummeted in China, and even as they struggled with disruptions of all kinds, corporations continued with their investment plans, and the amount of direct investment in China actually increased for a few quarters after the events of 2012.
But since then, the tide of Japanese money has been receding. Direct investment by Japanese companies plunged 47.2% in the January-March quarter from a year ago, according to the Chinese Ministry of Commerce, the third decline in a row, and the largest decline since the January-March quarter in 2011, when the Great East Japan Earthquake and tsunami brought Japanese businesses to a near standstill.
China wants Japanese companies – or at least their money and technologies – to return to China. And said so. Last week, a delegation of 50 Japanese business leaders traipsed to China, led by Yohei Kono, former speaker of the Lower House and now head of Japan’s Association for the Promotion of International Trade. Kono met with Commerce Minister Gao Hucheng and Vice Premier Wang Yang. After which Chinese officials emphasized, as the Asahi reported, “the importance of separating business interactions from political confrontation.”
But it’s too late. Japanese corporations are now seeing risks in China that go far beyond the appropriation by hook or crook of technologies. They see that those risks are not abating, but that they’re getting more complex, and potentially more costly. And so they’ve started to plow their money into the fertile and often cheaper grounds in Vietnam and other parts of Asia. To the detriment of China.
Japanese companies have been big drivers behind the development of the Chinese economy. This pullback of their moolah and superb industrial expertise comes at a very inconvenient time for the Chinese economy. For years, it has lived off what appeared to be an endlessly inflatable credit bubble that created the largest construction and infrastructure boom in history, resulting in entire ghost cities and breathtaking industrial overcapacity.
But now the mountain of debt has started to curdle, overcapacity is taking down entire sectors, economic growth is slowing, and the credit bubble is cracking. The last thing China needs is the exit of such a large foreign investor and source of advanced technologies. But that’s what it’s getting. And countries in Southeast Asia are already licking their chops and counting yen.
Japanese corporations are falling all over each other grabbing the Bank of Japan’s freshly printed dough and investing it overseas, anywhere but in China. But ironically, they no longer even try to invest in Japan, which is the other side of the coin. Read....Total Abenomics Fail Hits Industrial Japan