The China Syndrome  

China is getting a lot of attention lately, which reminds me a little of 1995, when the red peril supposedly posed by China was the subject of much discussion in magazines like the Economist.

This time round the muttering seems a lot more serious, with the recent teeth baring over Taiwan now being overshadowed by tensions flaring between China and Japan over oil and gas in the east china sea.

Japan was accused of a "serious provocation" by China Thursday for its plans to drill for oil in a disputed area of the East China Sea. The tension escalated when Japan's Ministry of the Economy, Trade and Industry said Wednesday companies will be permitted to analyze energy deposits in an area east of Shanghai that spans a maritime economic zone partially claimed by both countries.

"This move by Japan is a serious provocation of China's rights and international border norms," Qin Gang, spokesman of China's foreign ministry said. "China has already made a protest to Japan, and reserves the right to take further reaction."

Anti-japan rallies seem to have become the latest fashion in China over the last month, with thousands of people joining protest marches on the weekend.

Its not just Japan that is starting to butt heads with China - the US also seems to adopting a policy of containment that mirrors that used against the Soviet Union. Michael Klare notes in "Imperial Reach":

Most significant, overall, is the revised calculation of America's geopolitical interests. During the cold war, when "containment" was the overarching strategic principle, the United States surrounded the Soviet bloc with major bases. With the end of the cold war, however, this template no longer made sense, and many of these bases lost their strategic rationale. Meanwhile, other concerns--terrorism, the pursuit of foreign oil and the rise of China--have come to preoccupy American strategists. It is these concerns that are largely driving the realignment of US bases and forces.

There is a remarkable degree of convergence among these concerns, both in practical and geographic terms. Oil and terrorism are linked because many of the most potent terrorist groups, including Al Qaeda, arose in part as a reaction to the West's oil-inspired embrace of entrenched Arab governments, and because the terrorists often attack oil facilities in order to weaken the regimes they abhor. Similarly, oil and China are linked because both Washington and Beijing seek influence in the major oil-producing regions. And the major terrorist groups, the most promising sites of new oil and the focal points of Sino-American energy competition are all located in the same general neighborhoods: Central Asia and the Caspian region, the greater Gulf area and the far reaches of the Sahara. And the United States is establishing new basing facilities precisely in these areas.

There is also a very detailed discussion of the economic, energy and military issues related to China here - "Crisis on the China Rim: An Economic, Crude Oil and Military Analysis" (pdf). I recently received this link via email, and it appears I wasn't the only one. The key issue in here is that east asia has very few energy resources of its own, and is extremely dependent on energy from the caspian sea and middle east regions.

Another view of the US - China competition for oil is shown in the "Crude Dashboard" (pdf) from Atlantic Monthly.

From an Australian point of view, this is an increasingly difficult issue to deal with. While we generally adopt a completely subservient pose towards the US, and in many ways act like a colony, China and Japan are our 2 biggest trading partners, with Chinese trade growing rapidly.

Unlike almost every other country in the world, we have a trade deficit with the US (helped along by the "Free" trade Agreement our leaders were weak enough to sign) but large trade surpluses with China and Japan - so tensions to our north and any isolation of China will not be working in our favour economically.

The government has been trying to keep a foot in each camp, with the recent behind-the-scenes arm twisting of BHP to cave in and accept a meagre 74% price increase for iron ore supplies to China the latest move to try and keep in China's good books, after recently trying to stay neutral during the sabre rattling over Taiwan. This has met with some success, as a "free trade agreement with China may be negotiated (hopefully a better one than was signed with the US). Opposition leader Kim Beazley has changed his usual pro-american stance and declared that China and India are the key to our future security (sensibly echoing Jacques Chirac's call for a multipolar world).

Of course, trying to stay friends with everyone can be risky as well - as one Chinese thinktankologist noted, we may end up like the bat in Aesop's fable.

Of course, the rising tension over energy in the east may end up derailing Australian export efforts anyway - The Stinkin Desert Post notes:

Do these people use their heads for anything besides putting their hats on? From an article this weekend in the Japan Times:

"WASHINGTON (Kyodo) Finance Minister Sadakazu Tanigaki and U.S. Treasury Secretary John Snow agreed Friday that stubbornly high oil prices pose a risk for the global economy, Japanese officials said."

Now there's a blinding insight. I hope they are well paid for articulating such a subtle idea.

"Tanigaki said a spike in crude oil prices is a risk for the Japanese economy. In reply, Snow said high oil prices are also a risk for the global economy, including the U.S., the officials said."

And what if it's not a spike? What's going to happen when the price goes up and doesn't come back down? Instead of mouthing platitudes, the "leaders" should be grappling with the really big problems thundering down the pike. I can't speak for other countries, but one of the issues in the US is that our power structure (government+corporations+media+theocrats) has been captured by a collection of scoundrels not seen since the height of the Gilded Age.

As if peak oil wasn't enough, it's worth considering the possibility that China is economically, financially, socially, and environmentally a house of cards. If Snow et. al push on that house too hard, it may come tumbling down.

Of course, some people believe that as we go past the peak, pushing down the house of cards may be US policy. Paraphrasing the speculations of one peak oil maven recently (analysing the situation from a US point of view rather than advocating what should happen):

Given the importance of oil in our civilization, the imminence of Peak Oil, and the fact that most of the world's remaining oil reserves are in the Middle East, control of that region is crucial. We must, at the least, prevent others from getting control of any significant part of that area of the world if we are to remain the world's hegemon.

As push comes to shove over oil, this is likely to mean ongoing and even escalating warfare in that region.

Given that the downside of the Hubbert Curve is imminent, oil in the ground will be increasingly valuable with every passing year. This means that escalating violence in the Middle East - and even short (or intermediate) term chaos in the region - can be in our favor, provided that we end up in control of what's left in the long run.

An alliance of China, India, Russia and others has been forming in opposition to the U.S. - given that this alliance has increasing ties to Iran, and that Iran will soon have nuclear weapons and has very large oil reserves, it is going to be necessary to attack Iran in the near future.

The best justification for this might be an attack on a full oil tanker leaving the Persian Gulf. If we cannot provoke Iran into such an attack, we could have our own operatives carry it out in such a way that Iran can be blamed - for example with a missile hitting the port side (the side facing Iran as a tanker leaves the Gulf).

Given that we get a smaller percentage of our oil from the Middle East than China and some other challengers of the Empire do, if we can dramatically slow or stop the flow of oil from the Middle East it might achieve a number of useful objectives. Not the least of which relates to the world's precarious financial/economic situation. Specifically, if we can dramatically slow or stop the flow of oil from the Middle East in the near future, we can blame the bursting of the Credit Bubble (which is inevitable in the near future anyway) and the collapse of the world's economy (inevitable when the Credit Bubble bursts in any case) on "the enemies of freedom and democracy."

I think we will see significant escalation in the Middle East and significant conflict with China dominating the years ahead.

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