Skip to content

CNN: China on the Edge?

June 18, 2011

I was on CNN the other day, being interviewed as part of a lead story on growing social unrest in China.  You can watch it here.  Since my last blog post on the subject, one week ago, there was another bombing of a government office, this time in Tianjin, and a riot by migrant workers in a factory town near Shenzhen, just across the border with Hong Kong.  CNN also ran a follow-on report focusing on the latter incident (which is well worth watching here) with some additional observations from me featured in the written version.

As I point out in the interview, none of this is really that new for China.  What’s new is that, because of the growth in reach and popularity of the Internet in China, people both inside and outside of China are hearing about — and talking about — such incidents for the first time.  What’s also new is the urgency of the government’s response, in reaction to anxieties stirred by the example of the Arab Spring.

One of the questions I was asked is whether this unrest is a reaction to the worsening economic situation in China (inflation, accompanied by slowing growth).  I noted that, if you examine them, 9 out of 10 of these incidents are related to property removals and land development (the tenth is usually related to low-level harassment of vendors for bribes).  So they’re driven, in a sense, by the boom that’s been going on, particularly in real estate, and the fact that there’s so much money to be made.  In my view, this has been, in large part, an inflationary boom caused by too much money being created, so in that sense, it is tied to inflation.  But now we’re also seeing asset inflation (which feels like a boom) leaking over into consumer inflation (which feels like hard times, and falls hardest on the little guy).  That’s the reasoning behind my quoted comment that “”The people who were being squeezed now feel like they are being squeezed even more, to the point where they can’t bear it anymore.”

The other big story this week, related to these concerns, was the new inflation figure released on Tuesday.  Of course, it’s well known by now that Chinese authorities reported May CPI rising at 5.5%, over the year before — a new 34-month high.  You can watch my comments on the latest inflation figure, and China’s likely response, on CCTV News BizAsia by clicking here (there are two interview segments, both of which take place near the start of the show).  You might find it interesting to compare and contrast my response with the very different interpretation offered by some of my Chinese colleagues here.  You can also listen to my comments on China Radio International (CRI) about the end of the Fed’s QE2 policy and its impact on Chinese inflation and monetary policy by clicking here.  Last but not least, there are these comments I gave to The National newspaper in Abu Dhabi:

Patrick Chovanec, an associate professor at Tsinghua University in Beijing, said while there was “a real tension between growth and inflation”, lower growth may not be a bad thing.

“If you look at last year, over half the GDP growth in China was generated from investment in fixed assets. A lot of that was fuelled by easy credit and cheap money,” he said. The high inflation rate, he said, was created by a huge expansion in China’s money supply over the past two years, and if this had to be curbed to fight inflation, the immediate impact would be slower growth. “That could be a good thing as some of the growth in China is not necessarily sustainable growth. Curbing inflation and slower growth is not necessarily bad,” he said.

The day after the inflaton figures were released, I appeared again on CNN, this time in response to Standard & Poor’s downgrade of the outlook for Chinese property developers from “stable” to “negative.”  Although I definitely argued that “something is seriously out of whack” with China’s real estate market, and that the prices we’re seeing are “not sustainable,” I declined to call a peak in the market, or predict a precipitous drop in property prices (some news out today suggests that my hesitation was right: according to Bloomberg, prices in 67 out of 70 top cities in China are still on the rise, despite growing worries).  Ironically, my view isn’t based on any confidence in the underlying strength of China’s property market; rather, but due to my concerns that the distortions driving China’s property market — the sickness, if you will — run so deep that I don’t see them being quickly or easily resolved by a conventional market correction.

3 Comments leave one →
  1. Dean Jackson permalink
    June 19, 2011 11:55 am

    Patrick,
    What types of signs would you be looking for to feel a top for the property market has been reached and prices will start to decline? Or would prices decline given how relatively few secondary market transactions occur?

  2. June 19, 2011 12:53 pm

    When you say property prices, I’m not sure how that’s measured…is that regarding home prices taken from the top 5 cities in China, or somehow, a metric across the Country regarding building of new homes, etc?

  3. vokoyo permalink
    June 19, 2011 6:08 pm

    They are an inalienable part of China’s territory according to historical facts and international law; Japan’s claim untenable

    Situated in the East China Sea, due east of Fujian province and northeast of Taiwan, the Diaoyu Islands are the farthest eastern islands of China. They are about 190 nautical miles from the Dongshan Island of Fujian province, 90 nautical miles to the northeast of Keelung city of Taiwan, and 78 nautical miles from the Yunaguni Island of the Ryukyu Islands. The Diaoyu Islands refer to a group of islands that include the main one, Diaoyu Island, and some smaller islands and reefs like Huangwei Island, Chiwei Island, Beixiao Island, Nanxiao Island and three other islets. They are scattered in a sea area at 123 degrees 20 minutes ~ 124 degrees 45 minutes east longitude and 25 degrees 44 minutes ~ 26 degrees north latitude, covering a total land area of 6.5 square kilometers. The surrounding waters of the islands have rich fishing resources and have long been an important fishing ground for people in Fujian and Taiwan of China since ancient times. The well-known Emery Report pointed to the existence of abundant oil and natural gas resources on the continental shelf of the East China Sea.

    (1) The Diaoyu Islands are an inalienable part of China’s territory.

    China was the first country that discovered and explored the Diaoyu Islands and obtained sovereignty by occupation. Since ancient times, the Chinese have fished, collected medicinal herbs and sought shelters on these islands and in their surrounding waters. No later than the Ming Dynasty (1368-1644), the islands had been discovered, explored and named by the Chinese. Ancient Chinese books, such as the Book on Voyage Routes and the Voyage with a Tail Wind, kept a complete record of the navigation routes used by Chinese fishermen in this sea area. Due to the natural conditions at sea and the possession of technology such as ship-building at that time, only the Chinese military and civilians could reach the islands during the monsoon season. They navigated through the islands and sought haven there in stormy weather. They carried out economic activities such as fishing, collecting herbs and picking fruits. For about five centuries until 1895, China had never been interfered in its exercise of these rights.

    One cannot speak of the Diaoyu Islands without mentioning Ryukyu Kingdom. Ryukyu Kingdom was a vassal state of the Ming and Qing dynasties to which it paid tributes, while the latter sent envoys to grant honorific titles to the kings in Ryukyu in recognition of their rule. The Diaoyu Islands were on the navigation route from China’s mainland to Ryukyu Kingdom. Chinese officials on mission to Ryukyu all referred to these islands as their navigation marks. They put down in the official documents such as the Record of the Mission to Ryukyu with detailed descriptions of their voyages through the Diaoyu Island, Huangwei Island and Chiwei Island and repeatedly confirmed the boundary between China and Ryukyu. Historical facts tell us that the Diaoyu Islands do not fall into the domain of Ryukyu. China’s historical records and official documents all show that it was the Chinese people who first discovered, developed and utilized the Diaoyu Islands. According to the international law of that time, discovery means occupation and occupation means obtainment of territorial sovereignty. Therefore, China obtained sovereignty over the Diaoyu Islands by occupation.

    The Chinese government exercised effective rule and administration, and strengthened its sovereignty over the Diaoyu Islands. Successive Chinese governments all included the Diaoyu Islands into the confines of China’s territory and exercised sovereignty and effective rule by taking measures to develop, utilize and administer the islands. In 1171, General Wang Dayou guarding Fujian established military camps on Penghu Islands and sent officers to station in the islands. Taiwan and its affiliated islands including the Diaoyu Islands were under the military command of Penghu and, in terms of administration, they were under Jinjiang of Quanzhou, Fujian province. Both the Ming and Qing dynasties incorporated the Diaoyu Island and its affiliated islands into their territory and designated them as part of the maritime defense areas. The Book on Managing the Sea (1562, Ming Dynasty) and Imperial Map of Chinese and Foreign Lands (1863, Qing Dynasty) made clear descriptions about the area. Historical facts show that the Chinese government has administered the Diaoyu Islands in various ways and effectively exercised and strengthened its sovereignty over the Islands.

    (2) Japan’s arguments about its claim of sovereignty over the Diaoyu Islands are untenable.

    There are mainly two legal arguments that Japan has evoked to justify its occupation of the Diaoyu Islands: First, occupation of so-called terra nullius, second, acquisition by prescription (prescriptio acquisitive). Both arguments are untenable.

    By international law, the object of occupation shall be limited to terra nullius. Terra nullius refers to land which has never been subject to the sovereignty of any state or over which any prior sovereign state has expressly or implicitly relinquished sovereignty. The fact is that Diaoyu Island and its affiliated islands have been subject to the sovereignty of the Chinese government as its sea defense area since the Ming Dynasty. They are an inalienable part of China’s territory. Due to the inhospitable natural environment, these islands are not permanently inhabited and fishermen only take up abode on these islands for seasonal activities. But having no permanent residents does not make these islands terra nullius. The Diaoyu Islands are not terra nullius. They are China’s territory. The Japanese government and society are well aware of this fact. The official archives of the Japanese government and documents and correspondence of Japanese officials all record and give evidence to this. For example, in the letter to Home Minister Aritomo Yamagata, then Japanese Foreign Minister Kaoru Inoue wrote in explicit terms that these islands had already been given Chinese names by the Qing government and that the Japanese government had been admonished by the Qing government for coveting these islands. Since the Diaoyu Islands are not terra nullius, Japan’s so-called occupation is non-existent. Ex injuria jus non oritur (A legal right or entitlement cannot arise from an unlawful act or omission) is a fundamental principle of international law. Japan’s so-called occupation is mala fide, illegal and unjustifiable; it therefore does not have the legal effect as what may arise from occupation recognized by international law.

    The other argument that Japan presents is “long and continuous effective administration”, that is, to obtain sovereignty over the Diaoyu Islands based on acquisition by prescription (prescriptio acquisitive).

    “Acquisition by prescription” of territory has been all along an extremely disputable issue in international law. Those against it totally deny the legitimacy of prescription as a way to obtain territory. They are of the view that this is “merely a legal argument serving expansionist countries for occupying others’ territories”. Those for it see prescription as a way to obtain territory, it is defined as “the acquisition of sovereignty over a territory through continuous and undisturbed exercise of sovereignty over it, and during such a period as is necessary to create under the influence of historical development the general conviction that the present condition of things is in conformity with international order.” International judicial practice has never clearly confirmed the status of “prescription” as an independent way to acquire territory. As for the exact time span of the “period as is necessary”, international law has no final verdict to make it 50 years or 100 years.

    If we put aside the legitimacy of “acquisition by prescription” and merely examine the key factors, it is clear that both the Chinese central government and the Taiwan local authority have been firm, explicit and consistent on issues concerning China’s sovereignty over the Diaoyu Islands and in opposing Japan’s attempt to steal them. They have launched protests, especially diplomatic protests, against official and government-supported civilian activities, including setting up a lighthouse on the Diaoyu Island by Japanese right-wingers, “nationalizing” the lighthouse by the Japanese government, paying the “rent” for land on the Diaoyu Islands to those so-called non-governmental owners, and submitting a chart specifying the so-called baselines of the territorial sea of the Diaoyu Islands to the United Nations by the Japanese government. Japan can never gain legitimate rights over the Diaoyu Islands through occupation no matter how long it may last.

    (3) Agreements between Japan and the United States cannot grant Japan sovereignty over the Diaoyu Islands.

    In the wake of World War II, the Cairo Declaration and the Potsdam Proclamation, the outcome of the Anti-fascist victory clearly defined the territory of Japan. According to the Cairo Declaration issued by China, the US and the UK in December 1943, their purpose is that “Japan shall be stripped of all the islands in the Pacific which she has seized or occupied since the beginning of World War I in 1914, and that all the territories Japan has stolen from the Chinese” shall be restored to China. “Japan will also be expelled from all other territories which she has taken by violence and greed”.

    The Potsdam Proclamation issued in 1945 reaffirmed that “the terms of the Cairo Declaration shall be carried out and Japanese sovereignty shall be limited to the islands of Honshu, Hokkaido, Kyushu, Shikoku and such minor islands as we determine”. On Jan 29, 1946, the Supreme Commander for the Allied Powers Instruction No 667 explicitly stipulated the range of the Japanese territory, which included the four major islands of Japan (Honshu, Hokkaido, Kyushu, Shikoku) and the approximately 1,000 smaller adjacent islands, including the Tsushima Islands and the Ryukyu Islands north of 30 degrees north latitude. The delimitation of the Japanese territory by the Cairo Declaration and the Potsdam Proclamation is clear-cut. The Diaoyu Islands are not included in the Japanese territory in any way.

    On Sept 8, 1951, Japan and the US concluded the San Francisco Peace Treaty in the absence of China and the Soviet Union, two victorious countries in the war against Japan, putting Nansei Shoto south of 29 degrees north latitude (including the Ryukyu Islands and the Daito Islands) under the US trusteeship. The Diaoyu Islands were not mentioned in the treaty, nor by the Japanese government’s later explanations thereof. On Dec 25, 1953, the United States Civil Administration of the Ryukyu Islands issued the Civil Administration Proclamation No 27 on the geographical boundaries of the Ryukyu Islands and defined the areas administered by the US government and the Ryukyu Civil Administration as the islands, islets, atolls, rocks and territorial waters along 24 degrees north latitude and 122 degrees east longitude. This proclamation included the Diaoyu Islands, China’s territory, into their areas of administration. These islands were also included in the areas to be returned to Japan under the Japan-US Okinawa Reversion Agreement signed on June 17, 1971. The Japanese government takes the above-mentioned agreement as the legal ground for its claim of territorial sovereignty over the Diaoyu Islands.

    On Dec 30, 1971, the Chinese Foreign Ministry pointed out in its statement that “the incorporation by the United States and Japan of China’s Diaoyu and other islands into the area of reversion under the Okinawa Reversion Agreement is totally illegal. It does not in any way change the territorial sovereignty of the People’s Republic of China over the Diaoyu and other islands”. The US government also stated that returning the administrative authority over these islands gained from Japan to Japan does not in any way undermine relevant sovereign claim. The United States cannot increase the legal right Japan had prior to its handover of the administrative authority over these islands to China, nor can it undermine the right of other claimants because of the return of the administrative authority to Japan. All the conflicting claims over these islands are issues that should be resolved by the parties concerned among themselves. On Sept 11, 1996, US State Department spokesperson Nicholas Burns said further that the US neither recognizes nor supports any country’s sovereign claim over the Diaoyu Islands.

    On Sept 1951, the Chinese government issued a statement regarding the San Francisco Peace Treaty signed by the US and Japan without the involvement of the Chinese people and the lawful government of China. It pointed out the illegal nature of the treaty. The “trusteeship” and “reversion” deriving from the treaty included the Diaoyu Islands, thus violating China’s territorial sovereignty and becoming the source of the territorial dispute between China and Japan. The San Francisco Peace Treaty and other relevant documents have no right to cover or determine the ownership of the Chinese territory, and cannot have any legal judgment that extends the sovereignty of Diaoyu Islands to Japan.

    The Diaoyu Islands are an inalienable part of China’s territory. The so-called administrative authority the US “got from” and “returned to” Japan is unjustified. Japan’s claim over the sovereignty of the Diaoyu Islands on that basis has no legal ground in international law.

    Conclusion

    Japan has never given up its attempt to gain sovereignty over the Diaoyu Islands. It first destroyed China’s markings on the islands, then renamed the islands, and built a heliport and other facilities. In recent years, Japan went even further. It abetted what it called “civilian actions” to create a fait accompli of “actual control” of the Diaoyu Islands, followed by government renting and “takeover” actions. All this aim to pave the legal grounds for its occupation of the Diaoyu Islands and gradually win recognition from the international community. However, Japan’s claim to sovereignty over the Diaoyu Islands and its encroachment are illegal in the first place. Therefore, its carefully designed “government actions” have no legal ground and do not constitute the execution of state power. They never had, and will never have, any legal effect.

    Article II of the Law of the People’s Republic of China on the Territorial Sea and the Contiguous Zone promulgated in 1992 makes clear that the Diaoyu Islands and other islands are Chinese territory, and reaffirms the legality of China’s ownership of them. In 2009, a Chinese marine surveillance and law enforcement ship was sent to the Diaoyu Islands in repudiation of Japan’s “acquisition by prescription”. This was also a concrete action of China’s exercise of sovereignty over the Diaoyu Islands.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: