Categorized | Geopolitics, Opinion, SEAS

South China Sea: Red Lines And Propaganda Wars Flare Up Tensions – Panos Mourdoukoutas | Forbes

13 February 2017

by Panos Mourdoukoutas | Forbes (New York/US) Investors seem to be spending too much time these days analyzing the Fed’s next interest rate move and Washington’s next fiscal and deregulation measures, and not enough time watching the gathering of geopolitical storms that may take a toll on their global investment holdings.

(AP Photo/Bullit Marquez, File)

One of those storms is gathering over the South China Sea, and it’s threatening to disrupt one of the world’s largest trade routes with devastating consequences – for the economies of the region and the multinational companies that draw a big chunk of their revenues from there.

The South China Sea disputes began as a regional tug of war between China and its neighbors, but they quickly turned into a showdown of economic and military might between China and the US.

Almost three years ago, China elevated the tensions in the region by building artificial islands in the South China Sea. America countered by expanding its naval presence in disputed waters, and by advancing its missile capabilities in South Korea.

In the beginning, China confined its response to a few loud statements about America’s “violation” of international law, and by recruiting American allies with the AIIB initiative.

Then, Beijing raised the stakes by announcing that it would send nuclear submarines into the area to “deter” US presence.

Compounding the dispute was an international arbitration ruling last July, which determined that China has no historic title over the waters of the South China Sea–a ruling, serving to limit China’s drive to control trade and resources in the region.

Defiant of the ruling, Beijing flared up tensions, reaffirming its determination to continue the artificial build up, setting “red lines” and sending loud messages to neighborhood countries. Beijing, for instance, warned Japan to “not send Self-Defense Forces to join U.S. operations that test the freedom of navigation in the disputed South China Sea,” according to a Japan Times editorial.

Last month, following a show of naval force in the Taiwan Strait, Taiwan sent a blunt message to China by preparing its military forces to fend off Beijing’s threats.

Taiwan’s defense minister Feng Shih-kuan told Taiwan Central News Agency that the “enemy’s threats are increasingly expanding” as he issued orders for the military to step up training exercises.

Last week, America drew its own red line in the China Sea by asserting its determination to defend Japanese islands claimed by China, drawing Beijing’s angry protests.

In the meantime, allegations have surfaced that Japan has launched a propaganda war against China, further flaring tensions between the two countries. That’s something Tokyo has yet to refute.

Still, financial markets fixated on central bankers’ easy money and the prospects of a massive US stimulus have been treating the South China Sea disputes as a noise rather than as something more serious. But for how long?

Index/Fund 12-month Performance 2-year Performance
iShares China (FXI) +26.24% -12.29%
iShares MSCI Japan (EWJ) +16.34 +10.20%
iShares Philippines (EPHE) +8.30 -16.10%

Source: Finance.yahoo.com

(Original version is available at Forbes)

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