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However the Senkaku islands crisis is resolved, the questions that it has posed on globalisation will be debated. The fact that the relatively minor incident of the arrest of a Chinese fishing boat captain by Japanese authorities could so quickly escalate to threaten economic ties between the world's number two and three economies cannot but raise questions about the benefits of globalisation. It has become an article of faith among economists that growing interdependence serves as a guarantor of peace. China is, after all, Japan's biggest trade partner and Japanese investment in China is second only to its commitments in North America. The mutual economic damage that would result from an escalation of tensions was clear to see and, yet, neither seemed prepared to back down. So what happened?
Tensions may take time to subside and so will the questions raised by the episode. If globalisation has indeed created deep interdependence, then how does one explain China raising the ante to a dangerous level with seeming unconcern about the fallout on Japanese trade and investment? Can China ignore the impacts of decreasing Japanese FDI and reduced imports of Chinese goods? Japanese businesses were clearly rattled and pleaded for a peaceful resolution. The informal ban on the export of rare earth material to Japan in the past week alarmed manufacturers from hybrid automobile maker Toyota to electronic and other green technology companies relying on rare earth (92 per cent of its supply coming from China) to manufacture a whole host of export products. Preoccupied with its effort to restart its economic growth engine, Japan can ill afford to suffer setbacks such as those brought on by a confrontation with China.
The question is, why do global integration and interdependence not lead China to feel similar constraint? How can it ratchet up the dispute without worry about the consequences for its economy? The answer seems to lie in the asymmetric interdependence. China, flush with its $2.5 trillion reserves and still growing at 8 per cent, can risk taking a few knocks more than Japan's ageing and debt-laden economy. At a time of political transition, Chinese leaders' need to appear strong in defending the country's territorial claims. They also need to mind the rising anti-Japanese sentiment of China's internet-savvy youth.
Read more: When globalisation falls short - The Times of India http://timesofindia.indiatimes.com/home/opinion/edit-page/When-globalisation-falls-short/articleshow/6666503.cms#ixzz11DUqjvvs
The question is, why do global integration and interdependence not lead China to feel similar constraint? How can it ratchet up the dispute without worry about the consequences for its economy? The answer seems to lie in the asymmetric interdependence. China, flush with its $2.5 trillion reserves and still growing at 8 per cent, can risk taking a few knocks more than Japan's ageing and debt-laden economy. At a time of political transition, Chinese leaders' need to appear strong in defending the country's territorial claims. They also need to mind the rising anti-Japanese sentiment of China's internet-savvy youth.
Read more: When globalisation falls short - The Times of India http://timesofindia.indiatimes.com/home/opinion/edit-page/When-globalisation-falls-short/articleshow/6666503.cms#ixzz11DUqjvvs
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