* The Economist/Sep 30th 2010
WHEN he woke up in Lilliput, bound by a lattice of slender ligatures, to find dozens of tiny men disporting themselves on his chest, Lemuel Gulliver let out a roar “so loud that they all ran back in fright”. Another waking giant, China, seems these days to be adopting a similar foreign policy. It has found it just as effective. But as Gulliver discovered, it has its drawbacks.
The loudest roar has been aimed at Japan. After a Chinese trawler on September 7th rammed two of its coastguard vessels in waters off the disputed, Japanese-administered, islands known as Senkaku in Japan and Diaoyu in China, Japan detained the captain for a fortnight. China’s reaction was, in the words of Seiji Maehara, Japan’s foreign minister, “fairly hysterical”. And Mr Maehara saw signs of Chinese pressure “in various places”
Indeed, as Chinese officials issued dire warnings of unspecified consequences if their skipper were not freed, some odd things started happening. Sino-Japanese trade was held up by unusually thorough customs inspections. Exports of rare earths were subject to an unannounced weeklong ban (see article). And it was hard to see the detention of four Japanese construction-company employees on mysterious charges of photographing military facilities as mere coincidence.
Japan seemed to take fright. On September 24th local prosecutors freed the captain. Bizarrely, they cited the importance of relations with China, as if the foreign ministry had subcontracted its diplomatic responsibilities to a low level of the judiciary. China refused to be mollified, insisting it was owed an apology and compensation. Japan’s prime minister, Naoto Kan, smarting from criticism for the climb-down, demanded that China pay for the repair of the damaged boats. But after the initial exchange of indignation, tempers seemed to cool (and China released three of the four Japanese detainees). Just as well. A crowded calendar of multilateral talkfests looms. After the Asia-Europe meeting in Brussels on October 4th come, in a few weeks, the G20, East Asian and Asia-Pacific Economic Co-operation summits. It would be embarrassing if all were dominated by speculation about whether the Chinese and Japanese leaders shake hands.
As diplomatic trials of strength go, this one seems fairly easy to score: China 1, Japan 0. Mr Kan’s administration has appeared unco-ordinated, confused and weak. It has made a mockery of the idea of judicial independence, and managed to make China seem to have greater respect for legal process. China, on the other hand, has forcibly demonstrated that it regards the islands as its own, despite Japan’s control of them, and has shown that it has the commercial and diplomatic clout to make its point.
The message was heard elsewhere. Members of the Association of South-East Asian Nations (ASEAN), alarmed by China’s vague, unexplained but sweeping claim to sovereignty over most of the South China Sea, encouraged America to involve itself in the issue. In July Hillary Clinton, the secretary of state, obliged. She told a regional forum in Hanoi that the sea was an American national interest, and made an oblique rallying-call to unity among China’s various rival claimants for bits of the sea.
A mild iteration of this was included in a draft of the joint statement to be issued after the second America-ASEAN summit—held by President Barack Obama in New York on September 24th. The draft deplored the “use or threat of force by any claimant attempting to enforce disputed claims” in the sea—ie, it was a warning to China. When the statement emerged, however, cooler heads in ASEAN prevailed. It avoided mention of the sea at all, merely reaffirming “the importance of regional peace and stability, maritime security, unimpeded commerce, and freedom of navigation”. Also motherhood and apple pie.
India, too, has been watching carefully. Manmohan Singh, the prime minister, has voiced concern about China’s maritime ambitions. His government has been worried by China’s provocative refusal to give a proper visa to an Indian general, apparently because he served in a “disputed” region, Kashmir. China has in the past couple of years seemed eager to prod the two countries’ huge but dormant territorial quarrels—over what India thinks of as Ladakh and Arunachal Pradesh—back into life.
As a vigorous rising power, China is predictably prickly about its sovereignty. But it must be debatable whether its “victory” over Japan has really furthered its own interests. As Japan’s Mr Maehara puts it, its behaviour over the disputed islands gave “quite a few countries a glimpse of the essence of China”. It is fair to guess they did not entirely like what they saw.
China sneezes, Asia shivers
To list some of the effects of China’s fierce—almost bellicose—reaction: forcing America to confirm that its security treaty with Japan covers conflict over the disputed islands; concentrating Japanese minds on seeking other sources of raw materials such as rare earths; and pushing South-East Asian countries closer to America. As China’s own officials might say: it picked up a rock only to drop it on its own feet.
Japanese officials see this in terms of the growing clout of China’s armed forces, a power struggle ahead of the transfer of leadership to a new generation at the next Communist Party congress in 2012 and the search for something (such as nationalism) that might give the party a new source of legitimacy. But perhaps such rationalisations miss the point. The second time Gulliver wakes up in Lilliput, it is after passing out, having drunk wine laced with a sleeping-draught. A curious Lilliputian, inspecting his comatose form, puts the sharp end of his half-pike a good way up his nostril. It tickles. Gulliver sneezes violently. Sometimes, awakening giants simply can’t help themselves—which was of scant comfort to the Lilliputians.
Rare earths and China: Dirty business
China is squeezing the supply of vital rare earths. But not for long
* The Economist/Sep 30th 2010/TOKYO
RARE by name, though not by nature, 17 elements in the periodic table—the “rare earths”—are among the most sought-after materials in modern manufacturing. In tiny amounts, their unique magnetic and phosphorescent properties make them vital ingredients in a host of gadgets and components, ranging from hard drives to lasers. Though abundant in nature, extracting them is difficult, costly, time-consuming and dirty.
China is the world’s largest (and for some of them the only) producer of rare earths. Fears are growing about the political effects of that clout. In September Japan claimed that China was blocking supplies in response to the arrest of a Chinese fisherman in disputed territorial waters. Japan, with its electronics and car industries, uses a fifth of the global supply, making it the world’s biggest importer of rare earths.
China denies that it has interfered with shipments, but Japanese traders say that supplies were stuck in Chinese ports for a week. The Chinese dominance comes from heavy investments in the 1980s. Deng Xiaoping later said that rare earths would be to China what oil was to the Middle East. As Chinese production came on stream, prices plummeted and other producers closed.
Since 2006 China has behaved in a way that resembles OPEC, the oil-producers’ cartel, cutting exports by 5-10% a year. In July the export quota was cut by 40%. Prices have soared: the cost of cerium oxide (often used as a catalyst) has increased sixfold since the start of the year, and is 20 times higher than in 2005.
The squeeze comes as a surge in demand for high-tech equipment has sent demand for rare earths soaring. In 2003 some 85,000 tonnes were shipped, valued at $500m. This year’s sales are expected to total 125,000 tonnes, worth nearly $2 billion. Demand is forecast to increase by around two-thirds over the next five years.
For now, China’s position is strong. It holds 35% of global reserves but supplies more than 95% of demand, of which 60% is domestic, according to Industrial Minerals Company of Australia (IMCOA), a consultancy. In “heavy” rare earths such as dysprosium, which helps magnets keep their properties at high temperatures, its market share is nearly 100%.
China cites environmental concerns to justify its export curbs. The real reason is probably to persuade foreign firms to move manufacturing to China before non-Chinese mines are on stream and its market control ebbs.
Market forces should be providing an answer already. But they face peculiar snags. The quantities of rare earths used in technology components are so tiny that higher prices are invisible in the cost to consumers. Recycling is tricky: just half a penny’s worth of neodymium helps a mobile phone vibrate.
In the next four years new production is starting in Australia and in California (where it ceased in 2002). Capacity is being increased at mines in India and Vietnam. The newcomers will shrink China’s market share by 15%, says Dudley Kingsnorth of IMCOA. The only existing producer outside Asia not dependent on Chinese ores is Silmet, a rare-metal firm in Estonia, which says it is now besieged by eager customers. It hopes other producers come online soon.