Why Outrage Over Islands Full of Goats Is Crazy

Posted on September 19, 2012


The Japanese call them the Senkaku Islands, the Chinese refer to them as Diaoyu. Let me suggest a more appropriate name: Goat Islands.

Goats are all you will find on the cluster of uninhabited rocks over which the Japanese and Chinese seem ready to go to war. Diplomats in Tokyo and Beijing, meanwhile, are blaming one another over a mushrooming international crisis that has U.S. Defense Secretary Leon Panetta worried about a military “blowup,” the last thing the world needs right now.

That isn’t as hyperbolic as it might sound. It is easy to envision a couple of Japanese businessmen being dragged from their corporate offices in Shanghai and beaten, or even killed, by an angry mob. Things could get out of hand very quickly, which explains why Panasonic Corp. (6752) and Canon Inc. are shutting Chinese plants. That goes, too, for naval ships near the disputed islands. Miscalculations, collisions and gunfire that lead to broader armed conflict aren’t hard to imagine.

Japan and China should end this foolish row now. Japanese Prime Minister Yoshihiko Noda and Chinese President Hu Jintao should be talking at this very moment to hash out a truce. Even better, commit to a meeting, perhaps on the very islands that their respective governments hold so dear. Or at the White House, where President Barack Obama’s team might help broker a deal.

It’s Different
This China-Japan crisis feels different. The international media tend to view it as the worst since 2005. Back then, protesters also called for a boycott of Japanese goods after demonstrations swept Chinese cities in a fracas over school textbooks that downplayed Japan’s World War II atrocities. Here we are again, seven years later, but with a more complex set of circumstances framing the issue.

We can pretend this hostility is over low-value real estate. We can engage in the delusion that it is about fishing rights or natural resources. The islands are a proxy for the war and the perception that Japan hasn’t done enough to heal old wounds. While there is plenty of blame to go around, these hard feelings will continue to flare up in ways that impede Asia’s potential.

The China-Japan spat alone puts at risk a trade relationship that has tripled in the past decade to more than $340 billion. This dispute is part of a web of disagreements in Asia’s Pacific Rim that takes in South Korea, Indonesia, Vietnam and the Philippines, among others. Philippine President Benigno Aquino is so fed up that he renamed the South China Sea the West Philippine Sea. China, as you might imagine, wasn’t amused.

Domestic Politics
What’s unique about this spike in tensions is the state of domestic politics in China and Japan.

China wants to deflect attention from scandals and snags in this year’s leadership transition. It is doing everything it can to fan the flames. Protests are never tolerated — unless they are outside a foreign embassy and advance the Communist Party’s goals. Police stand idly by as thousands of anti-Japan demonstrators converge in dozens of cities around the nation.

Japan, in turn, is struggling to regain its footing 18 months after a giant earthquake shook its confidence as much as the ground beneath it. Deflation and political paralysis are gutting the banks, manufacturers and exporters that once formed the proud core of Japan’s economy. Diplomatic efforts are being eclipsed by China’s global charm offensive and deep pockets.

Waning Influence
Japan’s waning influence irks Tokyo Governor Shintaro Ishihara, an ardent nationalist who triggered this dispute. In April, he unveiled plans to use public funds to buy the Senkaku islands from a private Japanese owner. Tensions escalated after Sept. 11, when Japan’s Cabinet approved the $26 million purchase.

Politicians in Tokyo often play the anti-China card when their approval ratings slide. Yet the nature of these demonstrations feels different. Past protests attracted the usual suspects: middle-aged right-wingers and their big, black propaganda trucks outfitted with giant loudspeakers and xenophobic epithets. Some recent ones seem almost like family affairs, such as those in the trendy Shibuya neighborhood, with young mothers and children handing out pamphlets. Japanese seem more invested this time around.

China and Japan must act to get a grip on these tensions. Sitting back and letting things escalate by the day imperils Asia’s outlook. Asia should be signing free-trade agreements; linking stock markets and bond markets; harmonizing immigration, tax and accounting standards; and discussing what to do with the trillions of dollars of U.S. Treasuries sitting unproductively on government balance sheets. None of that is possible as Asia’s past gets in the way of what should be a prosperous and peaceful future.

One last thought. Spending millions of dollars of taxpayer money to buy islands, which are closer to mainland China than the main island of Japan, shows poor judgment. Why not stick the wealthy Ishihara with the bill personally and encourage him to move to Senkaku? He will have great company.

William Pesek

Posted in: Economy, Politics