China Angering Japan While Improving Ties With US

A Sino-Japanese clash sparked by Japan’s capture of a Chinese trawler is spreading to the economic sector.

The fishing boat collided with two Japanese patrol vessels off Japan`s Kuba Island, just north of disputed islands known as Senkaku in Japanese and Diaoyu in Chinese. About 120 miles (190 kilometers) east of Taiwan, the islands are controlled by Japan but are also claimed by China and Taiwan.

The incident has fueled rising tension between China and Japan. Suffering from a strong yen, Tokyo is blaming Beijing for raising the value of the Japanese currency. China’s GDP has also exceeded that of Japan, fueling chilly bilateral ties.

In contrast, Sino-U.S. relations are entering an appeasement phase after the two countries had confronted each other on a host of issues since early this year.

○ Foreign exchange war

Japanese Finance Minister Yoshihiko Noda told the Diet Thursday that China has bought a huge amount of short-term Japanese government bonds in a short time.

“I don’t know what (China’s) true objectives are but we’d like a clarification of objectives,” he said.

Noda did not link Chinese purchases of Japanese bonds to the yen’s rise. Experts say, however, that he was complaining that Chinese purchases of the yen are causing the Japanese currency to appreciate.

Between January and July this year, China purchased Japanese government bonds worth 2.3 trillion yen (27.4 billion U.S. dollars), more than six times China’s combined net purchases in the previous five years.

“There is something unnatural about China’s ability to Japanese government bonds and Japan’s inability to buy Chinese bonds," Noda said, indirectly criticizing Beijing for excessive control of its foreign exchange market.

The strong yen is hurting Japanese exporters’ competitiveness in the global market, and has reached an alarming level to undermine the fundamentals of the Japanese economy.

This is not the first time for the two countries to clash over economy. At a high-level bilateral economic dialogue last month, Japanese Foreign Minister Katsuya Okada spoke of Japanese companies in China having difficulty in labor disputes.

Chinese Premier Wen Jiabao rebutted the claim, blaming the disputes on the failure of Japanese companies to increase wages for Chinese workers.

China’s increased purchases of Japanese government bonds are interpreted as part of Beijing’s policy to diversify management of its massive foreign exchange reserves. Certain experts say that after accepting to a certain extent the repeated U.S. demand for a stronger Chinese yuan, Beijing aims to maintain a low value of its currency against the yen.

○ Thaw in Sino-US relations

In contrast, Sino-U.S. relations, which worsened early this year over Washington’s resumption of weapons exports to Taiwan and joint naval exercises with South Korea in the Yellow Sea, are beginning to thaw.

In Beijing Wednesday, Chinese President Hu Jintao stressed the need for continued bilateral exchanges to Lawrence Summers, director of the White House National Economic Council. Robert Einhorn, U.S. coordinator for Iran and North Korea sanctions, will visit Beijing next week to discuss financial sanctions on Iran and the North.

In addition, Chinese Premier Wen will hold talks with U.S. President Barack Obama on the sidelines of the U.N. General Assembly in New York late this month.

China had nixed a visit to Beijing by U.S. Defense Secretary Robert Gates, but he is likely to make the trip before year’s end.

U.S. Defense Department spokesman Geoff Morrell said Thursday that as China will apparently invite Gates soon, the Pentagon will “certainly look for the possibility of trying to schedule that before the end of the year.”

“What we are looking for is a resumption of productive, transparent, military-to-military engagement so that we can both gain a better understanding of what our ambitions are, what our intentions are when it comes to our military budgets, how we operate, where we operate and so forth," the spokesman said.

In June, China rejected Gates’ proposed visit to Beijing on his way to the Asia Security Summit in June, calling the timing inappropriate. The refusal symbolized chilly bilateral relations, so if Gates does go to Beijing, the diplomatic community will take it as a sign of improving ties.

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