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China Escalates Economic War on Japan


Several big Chinese banks say they’ve canceled participation in the high-profile annual meeting of the World Bank and International Monetary Fund to be held in Tokyo next week as well as in the constellation of events taking place alongside. Some of the banks say they’ve also pulled out of another big financial-industry conference scheduled to take place in the western Japanese city of Osaka at the end of the month.

Most of the banks haven’t given a reason for their last-minute no-shows. But the withdrawals come amid an escalating tit-for-tat between China and Japan, whose government recently purchased a set of islands in the East China Sea that are also claimed by China and Taiwan. China has shown its displeasure by canceling some diplomatic events and sending patrol boats into what Japan considers its territorial waters—with one group going through Tuesday. Some Japanese companies have reported falling demand for their goods in China and unusually strict inspections as well as processing delays at Chinese ports.

Via Meadia is not surprised. The greatest weapon in China’s arsenal in its fight with Japan and other neighbors over ocean territory is its economy. Beijing doesn’t want to mount a military challenge against Japan or the Philippines or Taiwan—all U.S. allies. But it can turn to trade weapons like a ban on Filipino bananas or onerous customs procedures for Japanese commerce.

It’s possible, perhaps likely, that, as diplomatic disputes over island chains continue and China keeps using economic weapons in retaliation for a perceived infringement on its territory, trade relations between Beijing and its neighbors will seriously deteriorate. The key thing to watch for in the weeks and months ahead is how the economy of Japan, and indeed of all Asia, responds to Beijing’s tactic. Do business elites begin to pressure political leaders to take a friendlier line with Beijing, do they look to reduce their dependence on the Chinese market, or do they do all of the above? The relationship between business interests and nationalistic passion is one of the great sources of unpredictability in international affairs; the game of thrones now taking shape across Asia will hinge in part on how those two powerful forces interact.

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