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China Unveils Supreme Weapon in Maritime Disputes

It isn’t nukes, it isn’t aircraft carriers, it isn’t submarines. China’s key weapon in its territorial disputes with its neighbors is its economy, and signs are emerging that China has unleashed a vast horde of ravening bureaucrats against Japan in the latest stage of the Asian Game of Thrones.

Specifically, it has turned its customs agents loose against Japanese corporations. Chinese customs inspections have suddenly become quite onerous for Japanese companies. The FT has the story:

Yusen Logistics, Japan’s third-biggest freight-forwarding company, on Thursday said it had experienced “severe” inspections of documents in the cities of Qingdao and Zhengzhou. Kintetsu World Express, the second biggest, also warned customers of delays caused by “worsening relations” between Asia’s top two economies …

Jun Azumi, Japan’s finance minister, has described reports of customs hold-ups for Japanese companies in China as “a matter of grave importance”, while warning of the potential of the row over islands in the South China Sea to damage both economies.

China has used these tactics before. In May, after a long standoff between Chinese and Filipino ships near the Scarborough Shoal, a series of uninhabited islets claimed by both countries, China cut off imports of Filipino bananas. Thousands of containers of bananas rotted in Chinese ports as a result. Officially, Chinese officials said the bananas were contaminated. Manila suspected this was retaliation for the maritime standoff.

Now, after weeks of tension with Japan over disputed islands in the East China Sea, China is again turning to economic weapons in its arsenal. It’s a creative and effective strategy and requires a close inspection.

Using economic power to sway the neighbors will not threaten the U.S. military, and (as we saw during Leon Panetta’s friendly meetings with Chinese military leaders) China will continue to seek good relations and engagement with the U.S.

But Beijing is simultaneously stepping up the pressure on its neighbors (one at a time, as Via Meadia discussed earlier today), using economic leverage.

Pressure on Japan is key to this strategy. Japan is by far the most powerful of China’s neighbors and America’s closest and longest-standing treaty ally in the region. Curbing Japan will send a powerful message to everybody else with smaller technologies, weaker militaries and a greener alliance with Washington.

And doesn’t Japan look like an attractive target? With so much of its business heavily invested in China, China can cause serious economic damage to Japan. Customs inspections, factory closures…there are many fell deeds that its army of patriotic bureaucrats can accomplish when duty calls.

In the meantime, anti-Japan rhetoric is popular among Chinese nationalists.

Economic power doesn’t work as quickly as military power, but it works. It’s easy to see how companies like Sony might start whispering in the ears of Japanese politicians that a few worthless islands aren’t important enough to make so much trouble about. That at least is what China hopes will happen.

This is a new version of Chinese attempts to dominate the region using economic power to simultaneously persuade and threaten its neighbors. Before the Europeans arrived, for hundreds and even thousands of years this was a basic tool of Chinese statecraft and it worked pretty well. The old concept is being dusted off for new times.

One important thing to keep an eye on as this strategy becomes clearer: will Japanese companies start to diversify their production and supply chains so as to reduce dependence on China? This would be an important indicator that Japan is recognizing and reacting to a frostier economic relationship with China. Looking at trends in Japanese foreign investments is one way to tell how the Game of Thrones is going; Via Meadia will be keeping an eye on this.

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