IEEJ: February 2013 All Right Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (120)

February 13, 2013

Growing Japan-China Tensions and Energy Problems
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanA new development has emerged with regard to growing Japan-China tensions. On
February 5, the Japanese government announced that a Chinese naval frigate locked its fire-control
radar onto the destroyer Yudachi of Japan's Maritime Self-Defense Force in the high seas of the East
China Sea on January 30. On January 19, the government also stated that a Chinese naval ship might
have locked such radar onto an MSDF helicopter in the East China Sea. Locking fire-control radar
onto a target is a procedure that comes just before firing a missile. Given that U.S. forces frequently
attacked Iraqi radar sites in response to their locking of such radar onto U.S. targets under theSaddam Hussein regime, the Chinese action can be interpreted as likely to bring about a grave result.
The Japanese government made a solemn protest against the Chinese action that it described as "veryunusual" and "a dangerous act that could lead to a contingency." The government then vowed to urge
China to prevent any similar action and exercise self-restraint to avoid any escalation of the standoff.
Later, the Chinese side denied the Japanese announcement and claimed that warning radar
was used then rather than any fire-control radar. In response, the Japanese government has been
rebutting the Chinese claim while considering publishing the evidence of the fire-control radar
operation, calling for Beijing's self-restraint. The government has also noted that Japan shouldclosely cooperate with the United States, avoid any escalation of the standoff with China, and holdtop-level and other high-level talks with China under the principle of the strategic partnership ofmutual benefit.
On February 4 just before the Japanese government's first announcement on theradar-locking, the British daily Financial Times carried a story headlined "The Shadow of 1914 Falls
over the Pacific." Given the historical fact that the Assassination at Sarajevo triggered a world war
beyond the confines of Europe, the story noted that the Japan-China tensions and the United States'
involvement in them were a matter of grave concern for the entire world. The United States may
become involved in any escalation of the Japan-China standoff or a bilateral armed clash. Anyemergency situation involving the world's three biggest economies would affect not only Asia
Pacific stability but also global stability.
At a high-level Japan-U.S.-China conference on security in late January, I directly saw thevery hard-line attitude of Chinese participants and their concerns and opposition against Japan over
the Senkaku Islands problem and against the United States over its “pivot” to Asia. Any escalation ofthe standoff or an armed clash would be the worst case, exerting grave negative impacts on Japanand China, on the United States and on the entire world. Reasonably, no one wants such case. But anaccident can trigger a serious problem no one wants as indicated by history, as noted by the Financial
Times story. Relevant countries should exercise self-restraint and promote mutual understanding anddialogue through composed, accurate information exchange using hotline channels linking
high-level and front-line officials.
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IEEJ: February 2013 All Right ReservedAt an international panel discussion among experts on the international energy situation inTokyo on February 5, geopolitical risks regarding the future energy situation became a topic.
Interestingly, discussion was made that the growing Japan-China dispute or tensions should beviewed as a geopolitical risk that could in a sense exert more grave and serious impacts than the“Arab Spring” movements, Iran’s nuclear weapon development, the terrorist attacks in Algeria andother problems in the Middle East and North Africa, which had been matters of concern regardinggeopolitical risks in the energy market.
I feel that the following two viewpoints are important for the growing Japan-China disputeor tensions and energy problems. First, a grave risk is that the dispute could escalate in a manner todestabilize the energy market. Impacts of an escalation of the dispute may differ depending on how it
would escalate and evolve. But any form of escalation may greatly affect the two leading economies.
Spillover impacts on Asia and the world may drag down global economic and international trading
activities. As a result, global energy demand may plunge. This possibility cannot be denied.
Meanwhile, there are great uncertainties about energy supply. Since Japan and China,
unlike the Middle East, are not energy suppliers for the global market, any escalation of theirstandoff may exert no great impact directly on global energy supply. But any escalated dispute maytrigger worries about stable oil and LNG supply through maritime transportation and become anenergy security challenge for Northeast Asia or the whole of Asia. The two countries and theirneighbors may give top priority to energy security and enhance efforts to secure energy supply. Ifsuch efforts become excessively exclusionary, the energy market may be destabilized. While there
are many unclear and uncertain factors, any contingency involving Japan and China could exert agrave impact on international energy market stability. Such event would be undesirable for anyone
and bring about no winner. Maximum efforts should be made to avoid the worst case.
The second viewpoint is how to position energy problems to avoid the abovementionedrisk. As leading energy consumers in the world, Japan and China have common challenges including
stabilization of energy supply and reduction of the environmental loads of energy development andconsumption. If the two countries cooperate in tackling these common challenges to their mutualadvantage, it may be significant for promoting mutual understanding and dialogue and for securing
their common ground. Joint Japan-China energy conservation efforts have played a key role inbilateral energy cooperation. I believe that even when Japan-China tensions continued under theKoizumi government, energy conservation cooperation after the hard period contributed toenhancing overall bilateral cooperation and relations symbolically and practically. In fact, however,some people view the present bilateral tensions as far greater and more difficult than those in thepast. Energy cooperation itself may be seen as difficult. Meanwhile, the problem of Asian premiums
on liquefied natural gas prices, Russia’s “look east” policy and other major common challenges forthe entire Asia including Japan and China have emerged due to new developments in theinternational energy market. The serious deterioration of air pollution in China has come as a newdevelopment. In this sense, we should consider and analyze energy problems as a potential area forJapan-China dialogue and cooperation rather than bilateral competition or wrangling.
The environment surrounding Japan-China relations at present is very severe. No simple
optimism or easy prediction can be warranted. Japan should promote dialogue with China in asteadfast manner while cooperating with the international community including the United States.
Particularly, the two countries must search and consider areas where they can promote mutual2

IEEJ: February 2013 All Right Reservedunderstanding and share common perceptions to prevent their dispute from escalating. At the sametime, Japan may be required to work out and implement a defense-in-depth strategy to avoid andmanage crises.

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