South China Sea: Beijing Sends A Strong Message To America And Taiwan

28-Dec-2016 Intellasia | Forbes | 6:00 AM Print This Post

One month after telling America to stay away from its “own” South China Sea, China is sending another strong message to America.

The message has another recipient, too – Taiwan.

This time the message came in the form of a naval force demonstration, as a group of Chinese warships that included the country’s only aircraft carrier, made their way to the South China Sea after passing south of Taiwan in a “routine” exercise.

Last time, the message came from the Hainan-based National Institute of South China Sea Studies.

The Beijing-backed think tank, which reported that American naval and air forces carried out more than 700 surveillance patrols in the South China Sea region during 2015, warned that Beijing is ready to set up an Air Defense Identification Zone if Washington continues its military presence in the region.

Do Beijing’s moves have any significant effects in Washington’s determination to enforce the freedom of navigation in South China Sea? That’s something for military experts to answer.

In the meantime, the rise of tensions between Beijing and Washington over the South China Sea have been adding to investor concerns over the direction of Asian markets following the sharp rise in US long term interest rates – the 10 year US Treasury Bond yield has gained more than a full point since last July.

As a rule, higher US interest rates are negative for Asian emerging markets, as they reverse the “carry” trade – borrowing in dollars at low rates, and investing in Asian emerging markets where interest rates are high.

Disputes in the South China Sea started as a regional tug of war between China and several neighbours, but they soon turned into a showdown of economic and military muscle between Beijing and Washington, with each side eager to impose its own navigation rules for the world’s biggest trade sea route.

Two years ago, Beijing raised tensions with the construction of artificial islands in the sea. Washington countered in two ways – by escalating its naval presence around those islands, making the statement that those are international waters; and by advancing its missile capabilities in South Korea.

Then came an international arbitration ruling last July, which found that China has no historic title over the waters of the South China Sea.

But China has been defiant of the ruling, cozying up to Philippines, continuing the build up of artificial islands, and sending strong messages to Washington which raise the prospect of a military confrontation in the world’s busiest trade region.

Investors should cast a wary eye.


Category: Taiwan

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