• Thu
  • Dec 18, 2014
  • Updated: 6:08am
PUBLISHED : Friday, 12 October, 2012, 12:00am
UPDATED : Sunday, 14 October, 2012, 8:23am

You can do yourself an injury throwing your weight around

The Chinese boycott of the IMF-World Bank meeting in Tokyo in protest over the disputed Diaoyu islets was unjustified and childish

It wasn't meant to be like this.

The International Monetary Fund-World Bank meeting in Tokyo this week was supposed to be a triumph for China.

Originally this was to have been the occasion on which China stepped up to take its rightful place at the top table of international finance as a major shareholder - and power-broker - in the two institutions.

Actually, negotiations over governance reform have taken much longer than planned.

And in the event China's finance minister, central bank governor and state commercial bank bosses didn't even turn up in Tokyo; ordered by Beijing to stay away in protest at Japan's assertion of sovereignty over the disputed Senkaku/Diaoyu islets in the East China Sea.

To the rest of the world the no-show looks childish. Plenty of other countries have long-running territorial disputes - Britain and Spain over Gibraltar, for example - but that doesn't stop them sitting down together to talk over economic affairs like grown-ups.

Certainly a silly spat over five uninhabitable rocks can hardly justify a boycott of one of the international community's most important economic meetings by the senior financial officials of the world's second largest economy.

Admittedly, the meeting wasn't likely to achieve much even with a full Chinese presence. But without China's top officials, it is certain to fail.

And the most ridiculous thing is that it is China's standing and Beijing's intention to play a greater role in designing a new international financial architecture that will suffer the greatest damage.

Unfortunately, there are indications we are going to see more of this sort of self-defeating petulance over the coming months and years.

The expected elevation to the Politburo of the policy wonk tipped as China's new foreign policy supremo hints that Beijing's new leaders are planning to take a more assertive international stance under the next generation of leaders.

And it is becoming clear Beijing is increasingly prepared to use its new-found economic heft to back that stance.

This week the government announced it has set up a new department of international economics under the aegis of the foreign ministry.

In the past economic diplomacy has officially been the province of the finance and commerce ministries. Like other countries, China nominated its finance ministry and central bank to take the lead in international financial negotiations, while the commerce ministry headed up trade talks.

Now, by bringing economic relations under the roof of the foreign ministry Beijing is signalling it is prepared to subordinate its international economic agenda to its foreign policy goals, effectively using its global economic heft in an attempt to further its narrow territorial aims.

It's an approach that will do more harm than good. This column has pointed out before how Chinese calls for trade sanctions against Japan and demands that Beijing dump its holdings of Japanese government bonds are likely to backfire.

But the damage will not stop there. This week the media have been full of reports about how sales of Japanese cars have plunged in China as a result of the East China Sea dispute.

What most have failed to mention, however, is that the vast majority of those cars are manufactured in China from Chinese-made components. As a result it is Chinese jobs that are now in jeopardy.

Beijing's stance is also set to affect direct investment flows as the strength of the yen encourages Japanese companies to invest more capital in facilities abroad.

As the chart below shows, last year Japan's combined direct investments in Indonesia, Malaysia, the Philippines and Thailand overtook its investments in China for the first time.

With Japan's investments in South East Asia now growing far faster than its commitments to China, the Senkaku/Diaoyu dispute is only going to accelerate the shift.

As IMF boss Christine Lagarde said yesterday about the Chinese officials' no-show in Tokyo: "They lose out by not attending the meeting."

If Beijing goes ahead and pursues this new policy of subordinating its economic and financial interests to its regional foreign policy obsessions, China will only go on to suffer far greater losses in the future.



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This article is now closed to comments

I agree with Tom and disagree with tigerjean or taihang. Territorial dispute and economic talks are two different issues, and China should not bind the two issues together. I want to see China grow. In fact, I want to see China (and Taiwan), a united Korea and Japan form a closer and strong political and economic alliance because all three shared a Sinified past before 1860. If at all possible, all three should take a step back with regard to territory dispute. Every opportunity of reconciliation should be seized to move all of us ahead.
My main point was that Tom refers to the islands as "uninhabitable rocks", choosing to divert attention from their potential significance for defence and extraction rights. But since you mention reconciliation and taking steps back, should we not first stop people from taking steps forward? Or should Japan alone take a step forward, and everyone else take a step back?
Mr. Tom Holland writes about China with such a condescending tone and so little sympathy/understanding that one wonders why he is based in a Chinese SAR, instead of US/UK or Japan.
As a group of Japanese, led by Nobel Prize-winning Kenzaburo Oe, recently stated, Japan annexed the Diaoyu islands when China was too weak to assert diplomatic claims. A quick look at the map shows those islands are much closer to China/Taiwan than the Japanese main islands.
If the IMF event was mainly set up for China to "shine", and China chose not to show up, then that's fine. As the only emerging superpower, China will have plenty of occasions to shine.
It's true that jobs will be lost if Japanese factories close down, but other Chinese / joint ventures will be there to pick up the slack, which is fine since the ultimate goal is to build strong, domestic car companies with modern technologies and supply chain management. Similarly, if less FDI will come from Japan, other countries will pick up some of the slack, and China itself already has much reserve anyway.
"silly spat over five uninhabitable rocks" - when are commentators going to call a spade a spade. The extraction rights for any natural resources on the sea bed are determined by proximity to the nearest landmass of a country, and the extent of the continental shelf that stretches out from it. The borders that a country is entitled to defend is similarly defined (unless you are the US). Inhabitants are not required. It may be the wrong approach by China, but the escalation was started by Japan. They are now attempting to placate, by inviting to talks on the basis that that the sovereignty is not disputed. Talks about what, one has to ask.
China has two speeds: bully or baby


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