posted on Sep, 19 2012 @ 12:29 PM
A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country
to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.
A member of the Chinese Commerce Ministry, writing in the Communist Party newspaper China Daily has called for China to 'impose sanctions' on Japan
as Japan's biggest creditor, presumably by dumping its $230bn of bonds on the market, while the HK Economic Journal reported that China plans to cut
off China's supply of rare earth metals, essential for virtually all electronics manufactured by Japan.
Jin Baisong from the Chinese Academy of International Trade – a branch of the commerce ministry – said China should use its power as Japan’s
biggest creditor with $230bn (£141bn) of bonds to “impose sanctions on Japan in the most effective manner” and bring Tokyo’s festering fiscal
crisis to a head.
Writing in the Communist Party newspaper China Daily, Mr Jin called on China to invoke the “security exception” rule under the World Trade
Organisation to punish Japan, rejecting arguments that a trade war between the two Pacific giants would be mutually destructive.
Separately, the Hong Kong Economic Journal reported that China is drawing up plans to cut off Japan’s supplies of rare earth metals needed for
It should be noted that 'rare' earth metals are not actually terribly rare. To set up a mine however costs around $500 million, with China having
previously put other rare earth metals mines around the world out of business by under cutting them.
Despite the threat, China's holding of Japanese debt making up only just over 2% of Japanese government borrowing (foreign ownership of Japanese
government borrowing amounts to only 8.3% ($948.5bn) of the
) making China's threat either highly symbolic or highly misinformed.
Nonetheless, the mere threat to dump the bonds and cut off Japan's supply of rare earth metals is an open declaration of economic war. It should also
be noted that China's moves to encourage other countries to not trade in US dollars has also constituted an open declaration of economic war.
It could be observed that China is making a bold move by effectively declaring economic war on the largest and third largest economies in the world.
Its threats to dump Japanese bonds and cut off the supply of rare earth metals will also presumably serve as a warning to foreign manufacturers that
China is not a safe place to either source rare earth metals or to manufacture in.
It could be argued that China is over playing its hand, with long term negative economic consequences.