Factors Which Could Lead to Improvements in Sino-Japanese Relations in the East China Sea

On November 7^th China and Japan issued a carefully worded statement which indicates that Beijing and Tokyo are seeking to ease the tensions between the two countries which have risen dramatically since 2012 when Japan nationalized the islands in the Easy China Sea known as Senkaku to the Japanese and Diaoyu to the Chinese. The statement admitted that "Different Positions" exist in regard to who has sovereignty over the islands and announced plans to create a "Crisis Management Mechanism" to try and prevent the situation from worsening. A mechanism such as this could ideally set the stage for some form of formal agreement as to the legal status of the islands. A victory for China is that the original draft of the statement apparently stated that Japan had sovereignty over the islands but was aware of China’s claims. If Japan had refused to modify this wording it would have greatly complicated discussions and made it less likely that Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe would meet during the APEC Summit in Beijing, that is currently under way, to discuss the matter further. Japan's apparent concession here indicates that Tokyo is serious about finding a resolution.

Both Japan and China have incentives to resolve this dispute. China has seen a significant drop in Japanese investment which is problematic during at time when the economic implications of potential shifts, such as reigning in China’s Shadow Banking Sector and reforming its Real Estate Market amongst other things, could severally compromise the growth rates that China has seen in recent decades and lead to an increase in social instability. (In theory China could refuse to make any meaningful reforms but that could lead to even worse consequences in the long-term). Japan meanwhile is facing its own degree of economic uncertainty as an increase in consumption taxes has limited economic growth, and the deflation of the Yen, while good for Japanese exporters, has negatively impacted the wealth of much of the Japanese populace. Both countries also have negative demographic trajectories which, barring a dramatic change to immigration policy, will lead to a context in which relatively fewer workers will be supporting a rapidly graying population. All of this comes at a time when China is working to transform its Navy into a Blue Water Navy, Japan is seeking to remilitarize, and the United State has made it clear that it will back Japan in the event of any military disputes.

It is pretty clear that both Beijing and Tokyo have a variety of pressing concerns. Resolving the disputes over the islands would afford both China and Japan more bandwidth to address these obstacles. A resolution could also afford Tokyo a degree of flexibility as Japan’s activities in the East China Sea are similar to those of China in the South China Sea. In January 2013 the Philippines filed a lawsuit against China in the Permanent Court of Arbitration alleging violations of the United Nations’ Convention on the Law of the Sea. If the court findings favor The Philippines it could set a legal precedent that Beijing could use against Tokyo. Such a finding would not be an issue for the Japanese if the dispute over the islands were already resolved.

Despite the incentives to find a resolution the islands enflame nationalist sentiment in both countries. If either side is perceived as giving in too much there could be political consequences. It is also not impossible that any resolution in the East China Sea could be used as a template to resolve disputes in the South China Sea, thus, Beijing will not want to set any precedents that could be used against China. After all, Japan (backed by the US) and China are far more evenly matched than China and countries such as The Philippines and Vietnam. Beijing has no interest in setting precedents which weaker countries can use to the detriment of Chinese interests. In the next week we shall see how this potential compromise progresses. How far it goes and what each side is willing to give up will be telling not just for the Senkaku/Diaoyu Islands but also for disputes in the broader Western Pacific Region.

The Impact of Russian Demographics on the Crisis in Ukraine

There are numerous driving factors for Russia's involvement in Ukraine. These include the strategic imperative to retain a malleable border state, the need to ensure Russia's ability to maintain military bases in the country (especially the warm water naval base in Sevastopol), and the capcity to use Ukraine as a transit state for Russia oil and natural gas. A pro-Western administration in Kiev complicates these demands. All of these issues explain Moscow's actions, however, there is another factor in play here. The unfavorable demographic trajectory which Russia's faces and the need to make economic and security arrangements during at time when Moscow is relatively strong.

Russia is seeing a declining population. The CIA’s 2013 estimate for population growth was -0.02%. In fact population growth has usually been negative since the end of the Cold War and 1988 was the last time that the country has the replacement fertility rate of 2.1. These unfavorable trends will complicate Moscow's ability to project its authority in the future. Despite this challenge the country is relatively strong at the moment. For this reason it makes sense for the Moscow to try to cement deals while it is in a position of strength. The reality is that Crimea is of strategic importance to Russia and it is of much less significance to Europe and the Untied States. Of course Western leaders will condemn any effort to annex the territory of another country but they will not back their words with actions, as it is not in their interest. The United States has no stomach to become involved in another foreign conflict and forbidding US firms from conducting business in Russia is unlikely to say the least. Many European powers are dependent upon Russia for energy and trade and have made it clear that though they disapprove of Russia’s actions business will continue as normal. Moscow’s history of shutting off energy flows when it has a dispute has also demonstrated that Putin is willing to hurt the Russian economy in order to advance the country’s political and security interests. In short Russia knows that the West is all talk and no action and the West knows that Russia has no problem with acting on its threats.

By annexing Crimea Moscow will solve a potential security problem. Russia will presumably compensate Ukraine as such an action is necessary as it will add a degree of credibility to whatever form of treaty ends this impasse. The compensation would also make a Ukrainian default less likely. Though the Russian economy has taken a hit since the conflict began Moscow can afford the bill now far more easily than it might be able to in the future. Preventing Ukraine from defaulting is essential as it could lead to the spread of financial contagion into the European, Russian and global banking systems (this is also why the US offered Kiev a billion dollars in loans. That wasn’t altruism. That was self-interest). The situation in Ukraine also sends a message to country's in Russia's Near Abroad who harbor designs for greater integration with Europe. Moldova and Georgia certainly come to mind here. The likelihood of anymore countries in Russia’s Near Abroad joining NATO and the European Union is less likely. After all if Russia were to invade a member of NATO or the EU concrete action would need to be taken. Neither Brussels nor Moscow has a interest in allowing stakes to rise that high. Negotiations will continue between the EU and countries seeking greater integration but as long as Russia is capable of protecting its interests these talks will come to nothing.

The US has threatened consequences for Russian actions. Though military operations or bans on US businesses working in Russia are highly unlikely it is possible that the US will try to aid other powers in diversifying away from Russia energy. We might see increased activity in developing shale reserves in countries such as Poland where, after initial excitement, major energy firms pulled out as unfavorable geology made fracking uneconomical. Promoting Western interests by subsidizing such operations is not an impossible course of action, though it remains to be seen what form such a policy would take. The cooperation between Turkey, Georgia and Azerbaijan will likely be encouraged though that approach will encounter challenges due to Russian pressure on Georgia and Azerbaijan and current political tensions in Turkey. US-Iranian détente could also see the development of pipelines which transverse Iran. Russia of course understands these threats and for the time being is capable of countering them. In the long term unfavorable demographic trends will likely see Moscow lose a great deal of influence. However, for the time being we can expect Moscow to bully the weaker powers in its Near Abroad while trying to strike a more conciliatory tone with more powerful states. The intent will be to secure treaties which can help protect Russian interests while it is relatively weak. One way or another the situation in Crimea will be resolved in a manner which will be favorable to Russia. In the coming years it is likely that we will see some form of resolution to conflicting territorial claims in the Arctic between Russia and countries such as Norway and Canada. Moscow will also use a combination of threats and economic incentives to try and enlarge Russia’s Customs Union. In the meantime the political and social instability will continue in Ukraine while global markets remain vigilant of the financial contagion that could result if Kiev defaults on its debts.

Will Shifts In East Asian Demographics Impact Reactions To North Korean Aggression?

Relations between Seoul and Pyongyang are especially tense this month due to the annual "Foal Eagle" joint military drill conducted by the US and South Korea that will be held at the end of February. North Korea views these exercises as a provocation and has already threatened to cancel the proposed family reunions scheduled for February 20^th to the 25^th stating that "Dialogue and exercises of war" are incompatible. This comes at a time when Kim Jong Un is trying to consolidate his power with the recent execution of his uncle Chang Song-thaek providing an example of the brutality of this process.

When we look at the current tensions on the Korean Peninsula it is important to remember that North Korea has a history of taking action when the US military is in the region. For example the attacks on Yeonpyeong Island on November 23^rd, 2010 coincided with the Hoguk Exercises which were a joint Korean-US undertaking on the western shore of the Korean Peninsula. Last year’s drills were especially tense provoking North Korea to threaten pre-emptive nuclear strikes. Given the statements coming out of Pyongyang this year it is likely that tensions will be as bad if not worse. For these reasons some form of aggression from North Korea would not be unexpected. What is different this year is that the geopolitical climate of East Asia has shifted. This shift is attributed to numerous factors one of the most important of which is changing demographics.

Much of East Asia is facing a demographic crisis in which the population is aging rapidly while birth rates have fallen. Since 1978 China has had a one-child policy (which is now being reformed) and in the past few decades certain parts of Japan and South Korea have in many ways had a de facto one child policy due to a variety of reasons such as the high cost of raising children. 1984 was the last year that South Korea’s total fertility rate was 2.0. This metric has fluctuated between 1.1 and 1.2 for over a decade. Japan’s total fertility rate has not been 2.0 since 1974 and has ranged from 1.3 and 1.4 since 2002. From an economic standpoint this demographic shift is a challenge as the youth must provide more support to the elderly than in previous decades and the percentage of the population that can be classified as elderly is becoming much larger. This change is also forcing countries to stake territorial claims and make security arrangements now when they are in a position of relative strength.

From a security standpoint declining populations will mean a significant decrease in the number of people who are fit for military duty (immigration could mitigate this issue but at the present none of the countries in question are particularly keen on welcoming large numbers of foreigners). This dynamic combined with the reality that the US will not guarantee security in the manner that it has in the past are forcing China, South Korea, and Japan to shift their policies in a more aggressive manner. This change takes numerous forms such as the establishment of China’s Air Defense Identification Zone over a significant portion of the East China Sea and Japan’s efforts to build up its military. Such a situation increases the chance for conflict. In the past North Korea has been able to get away with a high degree of brinkmanship. Given the current geopolitical shift and evidence that Beijing is beginning to lose patience with Pyongyang it is not impossible that acts of aggression that in the past would only provoke condemnation might now produce more concrete action. For these reason we must be particularly concerned with East Asia this February. History provides us with countless examples of incidents that usually would have stayed minor but have become amplified due to social, political and economic changes such as a major shift in the demographics of a country. Though it can be a challenge to predict the exact form that a potential conflict will take we do know that major structural shift will usually increase tensions. Understanding the nature of these shifts better equips us to address these challenges.