Good news and bad news from the Land of the Rising Sun


Japan has been having a hard time for a couple of decades.  In pro rata terms, it is the most indebted country in the world.  Its National Debt is around 230% of GDP, and second only to the USA in absolute terms.  Meantime its economy has been cut off at the knees, its world-beating electronics companies overtaken by upstart newcomers from Korea and elsewhere.

And Japan is desperately short of energy, minerals and raw materials.  It has lived on its wits, and is therefore vulnerable to other countries who compete on that basis.

But a couple of recent developments have started to alter the terms of trade.  I’ve been banging on for some time about under-sea methane hydrates as the next big thing after shale gas.  On some estimates there is more global energy potentially available from methane hydrates than from all other known fossil fuel reserves put together — coal, gas, oil.  And earlier this month, Japan announced that it had indeed extracted natural gas from methane hydrates. There’s still a long way to go, but even the possibility that Japan could have a major indigenous energy source — maybe one day even be self-sufficient — is surely a game-changer.

Then minerals.  We hear occasionally about rare earths, but perhaps we fail to grasp their importance.  They’re at the heart of electronic technologies.  They’re in our i-pads and mobile phones.  They’re important for magnets, and therefore for electric vehicles and wind turbines (I must confess I’d be glad if there were a shortage of materials for the wind industry — and even more so if the metal thieves turned their attention to that trove of rare earths in wind turbines).

Currently China has a virtual monopoly on rare earths, and is flexing its mercantilist muscles by restricting exports.  There are rare earths all around the world, but they are generally very difficult and expensive to extract.  And dirty.  There are alarming stories of environmental devastation in China around rare earth extraction.

And guess what?  Yes.  Japan has discovered readily-recoverable rare earths on the sea-bed, where they are likely to be cheaper, easier and cleaner to extract.  They come in the form of “nodules” — pebble-sized lumps rich in rare earths.

Japan’s discovery is great news for Japan — and for the rest of us.  But of course it blows a big hole in China’s monopoly.  Indeed if the sea-bed discovery lives up to expectations, it could signal the end of on-shore operations, and the demise of China’s rare earths industry.

Which brings us to the really bad news.  When I was in Manila a couple of months back, I was briefed on China’s expansionism in the South China Sea, its claim to islands and small rocky outcrops which have been previously claimed by Japan, by Korea, by Taiwan, by the Philippines and so on.  On the face of it, China is ignoring international law and the Law of the Sea, and simply demanding hegemony over the whole region.

There is particular tension and acrimony between Beijing and Tokyo over the disputed Senkaku Islands.

Of course China has no real interest in rocky outcrops.  What it wants is control over the seas, the sea lanes, the fishing, and above all the sea-bed mineral rights, the oil and gas.  It is reasserting itself in the world after decades or centuries of somnolence.  And it has the money and the economy to do so.  It is sitting on a mighty cash-pile (courtesy of Western consumers) and pouring money into its armed forces.

There are real fears now of war between China and Japan — or so says Ambrose Evans Pritchard of the Telegraph.   We have grown accustomed since 1945 to the idea that we no longer have major wars between great powers.  But don’t count on it.  This seems to be a serious threat.  If Japan is threatened, the USA is bound by treaty to come to its aid.  We live in dangerous times.   Watch this space.

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9 Responses to Good news and bad news from the Land of the Rising Sun

  1. I am fascinated by your scholarly discussion of rare earths. I think it is unique. Everyone else seems to be waffling on about global warming!
    Anyway, how about this:

    China and Japan have a stand off. USA backs Japan. USA deploys seventh and eleventh fleets to South China Sea.
    China sends a message to Washington: we would like you to repay your debts to us now, please.

    Bingo! Suez. The Americans will soon know how humiliating is for them, just as they once did to us. What goes around….

  2. neilfutureboy says:

    Japan’s indebtedness is not caused by their recession but by a series of delibertate “stimulus” packages intended, unsuccessfully, kickstart growth. Clearly von Mises was right that the only way out of recession is to go through it, allowing the (bank) bankruptcies and restructuring. Also that the best way to take medicine is quickly, not stringing it out over a couple of decades.

    I suspect that had Japan been politically willing to expand its nuclear programme it would not have gone into recession in the first place. Technically uranium may not be home grown (though it can be obtained from sea water) but it is such a small part of the nuclear cost that that doesn’t matter.

    We should insist on China settling land squabbles through international courts or, if necessary, the UN. It is not in China’s interest to start a fight since even a few months lost growth would cost them far more than these resources will be worth. Worse – if they get a taste for aggression Taiwan would be on the list (where actually they have a good legal claim).

    On the other hand with NATO having repeatedly destroyed international law with a long series of pointless wars, starting with our various wars to produce openly genocidal ethnically cleansed statelets, run by our paid (ex-)Nazis, drug lords, sex slavers and organleggers, by siezing half of Yugoslavia, it is difficult to think of any circumstances where we would have any moral high ground over China.

    • I read today that in Japan coal is about a quarter the cost of natural gas/LNG. I suspect the wily Japanese are going to soft-pedal on CO2 emissions as they see which way the wind is blowing. Incidentally, I may have under-reported their indebtedness. I think I saw a figure of 235% today.

  3. Rich Tee says:

    What makes me laugh is that the media is heavily promoting a Labour politician called Rachel Reeves, saying that she may be Chancellor of the Exchequer or even Prime Minister.

    Yet this woman, apparently a trained economist, promotes quantitative easing on the grounds that it worked in Japan so it will work here.

    Evidence: 11 paragraphs down in this article:

  4. rfhmep says:

    Mike: No one would be happier than I would to see a renaissance of the British coal industry. But my fear is that right now imported American (and other) coal would make it difficult for UK miners to compete. But we’d be better off burning American coal than building wind farms. There are also techniques for recovering energy from coal seams without mining, which I keep promising myself I’ll investigate. When I have a moment.

  5. david c says:

    link bust

  6. David says:

    Hi Roger, well said, seems a reasonable view of things. We still have big time fruitcakes in North Korea, & China, despite the apparent politeness of the new china leader, inscrutable or what.

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