Are China and Japan heading for war?

Japan’s prime minister, Shinzo Abe, “sent a shiver through the global diplomatic community” at Davos, a talking shop for world leaders and businessmen, last week by comparing current tensions between Tokyo and Beijing to animosity between Britain and Germany in the run up to the First World War, says The Independent.

Abe said it was a “similar situation”. Relations between the two countries have been strained for over a year due to disputed sovereignty of an uninhabited string of islands in the East China Sea.

Last November, China established an air defence zone over the islands, which Japan controls. Abe also argued that a key source of instability in the region was the steady 10% annual rise in Chinese military spending, says Lifen Zhang in the FT.

Meanwhile, his recent visit to the Yasukuni Shrine, where some Japanese war criminals from the Second World War are commemorated, has “enraged” the Chinese.

Abe’s speech was “a red flag for a bull”, says Ambrose Evans-Pritchard in The Daily Telegraph. He is a “hard-core nationalist” and his government is “re-arming fast”: Japan increased spending on military equipment by 23% last year.

Until now, this “remarkable economic and political risk” appears to have been overlooked, says Andrew Sorkin in The New York Times, but the implications for the global economy “are profound”. China and Japan are the largest economies in the world, after America, and are trade partners.

We need not get too worried yet, says Gideon Rachman in the FT. Abe’s remarks were not “as bellicose as they sound. His tone was discursive.” Nonetheless, coming from a world leader, the comparison with pre-war Europe was “startling” and it brought a “firm rebuke” from China’s foreign minister, Wang Yi.

He said that the parallel was misleading as military conflict was “unthinkable” and compared Abe’s visit to the shrine to a European leader “going to celebrate by the graves of Nazis”.

It is clear that political relations are really “quite bad”, says Martin Wolf, also in the FT. What this means for the future was “one of the biggest questions” raised at Davos this year.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.