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.