EDITOR: | December 2nd, 2013 | 4 Comments

The Battle of the Seabed, Week Two – The Resource Wars Have Begun

| December 02, 2013 | 4 Comments

What a difference a week makes.  China, as InvestorIntel readers know, revived the simmering dispute over a set of disputed islands in the East China Sea — the Diaoyus, to the Chinese; Senkakus to Japan — by declaring an air defense zone over the contested islets.  In the days since, the issue has gone from scattered wire reports to front page news and cable TV maps with commentary from retired admirals.  There’s no shooting yet — and pray there will not be — and likely none is intended, but the battle is joined.

The question is:  Why — and over what?

First, a little history. As InvestorIntel readers will know, the battle began in fall 2010, when the last skirmishing over the disputed islands flared. At that time, Japan’s Coast Guard took a Chinese ship captain into custody — and nearly overnight, exports of Chinese Rare Earths, critical components for Japan’s technology manufacturing sector, ground to a full stop.

At the time, a leading Japanese politician drew larger lessons from China’s claims over the islands:

“In a nutshell, this very dangerous idea posits that borders and exclusive economic zones are determined by national power, and that as long as China’s economy continues to grow, its sphere of influence will continue to expand.”

“Some might associate this with the German concept of ‘lebensraum’” – the Nazi concept of the aggressive annexation of “living space.”

The speaker? Then-opposition leader, Shinzo Abe – now Japan’s Prime Minister. For good measure, Abe then tossed in a reference to the Cuban Missile Crisis. So in the view of Japan’s PM, China’s actions steal a page from the Nazi or Soviet playbook, or both.

But the lebensraum jab may not be far from the mark. China — with its goal of bringing hundreds of millions of its people from near-subsistence living into the middle-class in the next 20 years, a goal integral to its ruling class’s continued grip on power — has been buying up arable land in Africa, and mines for every conceivable metal on every continent, to feed the needs of this rapidly rising cohort.

Nor is the outreach limited to land. To its east and south, China’s reach extends into the open ocean, and the mineral rights beneath the seabed. Successfully pulling the contested islets into its orbit would swing a full 40,000 square miles of seabed into China’s control. Its claims in the South China Sea – advanced against 9 other sea-bordering nations – amount to 90% of the sea lane through which one-quarter of the world’s oil supply passes. Deep-sea extraction may not be imminent, but China notoriously plays the long game – and the time to claim title is now, when China’s rise takes place as Japan and the U.S. continue to show little more than anemic recoveries from the global recession, and the U.S. especially is distracted by multiple crises far from East Asia.

Japan-v-China-Gets-Worse-by-The-Day-300x187Compared to the dust-up in 2010, this new battle appears to be a significant escalation. By declaring the islands, and the Exclusive Economic Zone around them, to be under its air defense umbrella, China is now committed to patrolling their skies. And Chinese military leaders knew there would be an immediate test – the massive “AnnualEx” U.S./Japan naval exercises, conducted yearly for the last two decades and more. The 2013 exercise, a year in the planning, began November 25, two days after the Chinese airspace announcement. It brings several dozen U.S. navy vessels, led by the George Washington carrier group, plus their Japanese counterparts into the area due west of the disputed islands – in waters claimed by both China and Japan.

In the week since the Chinese put up their air cordon, U.S. action has been contradictory. On the military side, the U.S. Air Force immediately sent two B-52s through the zone — carefully briefed to the media as “unarmed” — ignoring China’s insistence on prior notification. A few days later, however, U.S. agencies told civilian airliners to identify themselves to Chinese authorities before charting flight paths through the zone. Whether the U.S. can maintain this bifurcated military/civilian posture – and how China will react — is far from clear.

While the U.S. seeks to defend its interests without unduly provoking China, not so South Korea and Japan, which have both sent military aircraft through the zone, and continued civilian flights without notifying the Chinese (in fact, Japan’s government issued a directive to its civilian airlines, which initially complied with the Chinese edict, to cease filing pre-flight plans). It will be interesting to see whether civilian flyers on All Nippon Airways, Japan Airlines, Korean Air and Asiana will react to the fact that their flights are shadowed by the Chinese PLA’s air force.

As another indicator of China’s strategic plan, the country’s first aircraft carrier, the “Liaoning,” left port in eastern China. According to the PLA, it will deploy to the South China Sea to “conduct scientific experiments and military training.” The route there? Via the East China Sea, with a phalanx of four battleships for good measure.

From their base on Okinawa, the U.S. will now run Global Hawk drone patrols over the area – at 12-plus miles in altitude, well beyond the reach of Chinese fighter jets. Potentially, it’s a vast 3-dimensional “battlespace” offering plenty of opportunities for unintended clashes.

And that may be the real worry. Mid-week, a Chinese source downplayed a suggestion that China was seeking a confrontation, noting that comparatively inexperienced Chinese air force pilots are not trained for air-combat in the close quarters of the East China Sea airspace. That’s hardly reassuring. There’s not a lot of margin of error when an F-15 streaks past at Mach 2 or more – at its top-rated speed of 1,900 miles per hour, that’s a half-mile per second.

So, major U.S./Japan war games, a new Chinese air craft carrier, cat-and-mouse flights overhead, under the ever-present eye of American drones: All proof that the Battle of the Seabed is underway. As for the larger conflict, call it the Resource Wars. And the skirmish over eight barren rocks in the East China Sea is only the beginning.


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  • Ben-at-it

    thx for the excellent coverage on how the REE sector will be affected by rising tensions here — any call on week 3?

    December 2, 2013 - 6:56 PM

  • Jack Greene

    Good topic, it will be in the news. BUT it was not four “battleships” but it was two modern destroyers and two modern frigates. Also, fighters, especially a long long way from an airbase or mid-air refueling will not be flying anywhere near full speed when they sight each other on radar or visually. It has been reported that the new US Navy P-8a long range Sea Recon airplanes will be flying in the self-proclaimed Air Zone. And several more are on their way to the Far East.

    December 3, 2013 - 4:52 AM

  • lea


    December 3, 2013 - 11:58 AM

  • Daniel McGroarty

    Thanks, as aways, for the comments — to Jack, for the details on the carrier complement, and yes, the P-8a, stepping in fro the old P-3’s (one of which was involved in the 2001 U.S./China wing-clip incident). To Ben, hoping for calm and deep-breaths all around for Week 3, and not an upgrade to Armageddon. Lastly, re Lea’s plea — sad thing is that Tibet’s highlands look to be rich in lithium — yet another reason for Beijing to hold tight, in spite of world opinion.

    December 3, 2013 - 4:07 PM

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