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Is the Shooting About to Start in the South China Sea?

It continues to pose the biggest risk to the health of the U.S. and global economies, and that risk keeps escalating.

It could even be the source of the world's next big armed conflict.

But it continues to be badly underestimated by the "experts" and the U.S. news media.

I'm talking about the growing dispute in the East and South China Seas.

We've been telling you all about this tinderbox-like situation since last summer, and with every new development, have given you an update.

With what we've seen in just the last few weeks alone, we felt it was time for another.

Just this week, for instance, the Filipino government put Beijing on notice; it announced plans to have an international arbiter declare China's actions – its attempts to claim that entire region as its own – as being "illegal and invalid."

Earlier this month, when Chinese and Japanese fighter jets met for the first time over disputed islands in the East China Sea, Japan brashly asserted its right to fire live "tracer" ammunition. The policy announcement outraged Beijing and struck fear in the military community – whose experts warned it could qualify as an actual "first shot" and lead to a possible military conflict.

Finally, in December, Vietnam alleged that a China fishing boat slashed a seismic cable attached to an oil-and-gas exploration ship in the Gulf of Tonkin, claiming this was the latest deliberate attempt aimed at keeping the small nation from discovering new energy deposits. In response, Vietnam and India (Vietnam's partner in the initiatives) will step up naval patrols in the region – increasing the odds of an escalating spark.

Professor Huang Jing, an expert on regional security at the National University of Singapore, believes there's cause for concern – and says the situation grows more and more dire with each of these incidents. And right now, it's China and Japan that are the most likely to square off against one another.

Though "I think there's still a fine line neither side is trying to cross … political survival on both sides is more important than avoiding a skirmish, or even war," Huang told Britain's Guardian newspaper. The countries could take a step back as long as peace endured, but it would be far harder "to catch up or patch up after something happens," Huang said.

We've been telling you for months about the ongoing territory disputes in the East and South China Sea regions – and warning that it wouldn't take much to spark a major confrontation.

Now you see why.

The East China Sea dispute centers on the Senkaku Islands chain and is mostly about China and Japan. The islands (known as the Diaoyu islands by China), have been claimed by Japan since 1895. They were taken over by the United States after World War II, and were turned over to Japan in 1972. They are also claimed by Taiwan and Mainland China.

This is just one of several disagreements involving a number of countries over disputed territories in the China Sea region (click here to see accompanying map). The bigger disputes are in the South China Sea.

Those disputes are escalating – and they're also confusing.

Here are the players – and their disputes–in an area known as the "cow's tongue".

There's the Scarborough Shoal, which is claimed by China, and the Philippines and Taiwan. There's also the Pratas Islands, claimed by China and Taiwan. The Paracel Islands are claimed by China, Taiwan and Vietnam. The Macclesfield Bank is claimed by China, Taiwan, Vietnam and the Philippines. And the Spratly Islands are claimed by China, Taiwan, Vietnam, Malaysia, the Philippines and Brunei, a tiny "sultanate."

This region is flush with resources – it contains as much as 213 billion barrels of oil (10 times the proven U.S. reserves) and 900 trillion cubic feet of natural gas (equal to all the reserves held by Qatar). There's also a rich fishing ground that employs thousands and feeds millions.

Obviously, China wants (actually needs) those resources to continue along its torrid growth path. But Beijing believes that China's emergence as the dominant player in the region means it should have control over the islands, the seaways that surround them, and the rich resources they would bring.

Beijing has rebuffed all attempts to have this morass of claims negotiated in a "multilateral" setting – like with the Association of Southeast Asian Nations (ASEAN). Instead, it wants any negotiations to take place "bilaterally" – between it and one other nation at a time.

And China has become quite irritated with U.S. efforts to bring about a multilateral negotiation – an effort that U.S. Secretary of State Hillary R. Clinton has been working to pull off as part of Washington's "pivot" toward Southeast Asia.

Beijing lashed out at the Obama administration after Clinton said the United States isn't taking an official position on who controls the East China Sea islands that China and Japan are sparring over, but noted that America opposes "any unilateral actions that would seek to undermine Japanese administration."

The entire China Sea brouhaha is shaping up to be a major challenge for the Obama Administration, which realizes that closer economic ties with Southeast Asia are crucial if this country is to recover from the debt-lined black hole the financial crisis has left us in. We obviously want to maintain our ties with China, the dominant economy there. But we also want to maintain our allegiances with Taiwan and the Philippines, and build an economic bridge to such fast-growing "emergers" as Vietnam.

Those smaller countries are looking to us for both help and leadership. And we're being graded on our performance, American Enterprise Institute (AEI) Scholar Michael Auslin wrote recently.

"The credibility of the Obama administration's "pivot' to China is also being tested, and Washington must decide how to respond to Beijing's growing assertiveness," Auslin said. "To simply leave far weaker neighboring states to face China alone risks surrendering U.S. influence in Asia and making conflict more likely."

It will take time for the United States to establish itself in the manner that Auslin describes. But sparks could intercede.

As Shogo Suzuki, an expert on Sino-Japanese relations and visiting associate professor at the University of Copenhagen, told The Guardian: "All it takes is one hothead to pull the trigger and the whole thing spirals out of control. It's a dangerous situation and I think both sides have trapped themselves."

We've been writing about this situation for several months now – penning the first Private Briefing columns on the controversy well before the mainstream U.S. media wised up to the fact that this is an important story with huge ramifications for this country (we wrote about it in the July 24, 26 and 31 issues of Private Briefing, and in several subsequent issues of Money Morning (including Sept. 18), if you'd like to do some additional research click here and here).

We'll keep an eye on this for you – and will report on the key developments.

  1. lehman | January 24, 2013

    Yours is the only platform I have seen or heard that brings this China Seas debacle to the American [perhaps world-wide] public's attention. I am glad the Obama Administration is aware of the situation, but has said nothing. My fear is that they are doing nothing more than Hillary's complaining — but, complaining most politely. Obama must speak up and alert the public of the problem. As you have shown, most importantly, this mess is not only a political problem, but the economic problems posed by the great intrinsic wealth of that which lies below the water's surface makes this a far greater m

    Thanks for keeping this China Seas problem on a front burner where it belongs.

    Please do me a favor and send your various reports to the President, Congress and others whom I fear are too wrapped-up with their petty politics, disagreements and spats.

    • (Admin) Bill Patalon | January 24, 2013

      Dear Lehman:

      Thank you for the kind words … and for taking the time to notice. And please allow me to pay you the highest compliment possible for making such a shrewd and insightful observation (and I say that in complete sincerity).

      We, too, have been puzzled by the lack of urgency the mainstream U.S. news media seems to be giving this disagreement, which could very easily escalate into a true shooting skirmish.

      As a longtime news guy, I have also been a longtime (and regular) listener to the international shortwave broadcasters from around the world. Granted, these are goverment-run entitities, but they aren't the blatant propaganda machines of the sixties and seventies … they've become much more polished.

      I mention this because this China Sea affair has been headline news for NHK/Radio Japan, China Radio International, Radio Voice of Vietnam, Radio Taiwan International and KBS (Voice of Korea) since last spring … what that means is that they believe this issue, which is being ignored here in the U.S., is the No. 1 or No. 2 issue being faced in that part of the world right now.

      Again, I thank you for taking the time to comment. I know that you are a fairly regular poster here … your comments and constructive criticisms are both welcomed and appreciated.

      We will continue to follow this.

      Respectfully yours;

      William (Bill) Patalon III
      Executive Editor
      Money Morning & Private Briefing

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