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Spain’s Bankia eyes stake sales after record bailout
profit.com.pk
Sunday, 27 May, 2012
Another matchstick lit to ignite the CNG dynamite
AND COUNTING…
Seven feet under g
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Defaults on foreign banks’ loans swell beyond Rs7b, cash recovery downs
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Govt proposes 10pc duty on import of CNG buses in FY 12-13 ISLAMABAD ONLINE
KARACHI
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ISMAIL DILAWAR
hE bad debts of the foreign banks operating in the country are increasing and have ballooned to over Rs 7 billion during the quarter that ended on March 31 this year. Also, the foreign banks’ cash recovery against their Non-Performing Loans (NPLs) witnessed a downward trend during the third quarter of current fiscal year, January-March FY2012. The bankers viewed that this increase in the international banks’ bad debts might be on account of defaults from the telecommunication sector, including Warid and Wateen. Another major reason they see is that of the consumer side. The central bank data show that the foreign banks’ gross NPLs rose by Rs 164 million or 2.1 percent to Rs 7.765 billion compared to last quarter’s Rs 7.601 billion. The international banks’ net NPLs depict a more worrisome trend by swelling to Rs 952 million against Rs 756 million of last quarter. This shows an increase of 26 percent or Rs 196 million, in monetary terms, over the last quarter. The foreign banks also could not help their cash recovery improve which remained confined to Rs 83 million, down Rs 51 million or 38 percent compared to Rs
134 million of the previous quarter. In recovery terms, the 3QFY12 did not augur well for other categories of the banks and DFIs which recovered low cash compared to what they had in last quarter. Overall, the banks and DFIs recovered cash worth Rs 14.318 billion against Rs 20.252 billion of 2QFY12. The recoveries of the commercial banks depleted to 12.404 billion from Rs 15.906 billion. The public sector banks, local private banks, specialized banks and the DFIs saw their cash recoveries plunging, respectively, to Rs 2.09 billion, Rs 10.22 billion, Rs 1.54 billion and Rs 372 million from Rs 3.67 billion, Rs 12.09 billion, Rs 3.32 billion and Rs 1.02 billion. About poor recoveries, a banker said the banks were masterly suffering from a slow-paced judicial system in the country that, he said, was encouraging the borrowers to “willfully” default on bank loans. “Besides genuine defaults that are caused by the country’s volatile economic conditions amid power crises, poor law and order etc, there are some who willfully don tend to repay the loans,” the banker told Profit. Such borrowers, the banker said, were not afraid of the consequences of committing default on the bank lending. “The most the banks could do to such defaulters is to take them to the banking courts where completion of a case takes at least five years,” he said adding “Why should they fear the courts then?”
Perhaps this very factor is playing as a stimulus for the banks’ bad debts which have aggregated beyond Rs 600 billion. The State Bank reported, during the quarter in review, the gross NPLs of the banks and DFIs accumulated to Rs 625.432 billion against Rs 625.778 billion of preceding quarter, October-December FY12. This takes net NPLs of the banks and DFIs’ to 5.71 percent of their net loan portfolio. A central banker said the above five percent volume of NPLs was not a positive indicator as the same should rest below five percent, somewhere between three to four percent. The economic observers believe that the increasing size of NPLs was one of the attributable factors in making the banks risk-avers. The central bank figures show that the banks are lending more to the government through investing messily in the risk-free government securities, including T-bills, PIBs and Ijara Sukuk. During July-May 11, the banks’ budgetary loans to the cash-strapped government amounted to over Rs 1.05 trillion compared to 620.6 billion of same period in FY11. While the growth-oriented private sector could avail bank loans worth only Rs 234.8 billion during the review period. This risk-aversion by the banks, in terms of lending, the analysts warn, puts growth prospects in the troubled country to risk.
The government has planned to further tighten noose around the Compressed Natural Gas(CNG) industry by imposing a 10 percent duty on import of CNG buses in the country in upcoming budget 2012-13,say sources. According to an official of the ministry of Industries, this is an additional step which government is going to take to end use of CNG in transport sector as ministry of petroleum had already proposed a massive hike of Rs 15 per kg in CNG prices from the next financial year by raising rate of Gas Infrastructure Development Cess. “The plan of imposing duty would hamper the efforts of introducing CNG business in big cities. Punjab province is already working on a plan to introduce CNG buses in Lahore city,” said the official. “The government has planned to reverse its CNG policy in an effort to bring CNG prices at par with POL prices and to replace it with LPG,”said the official adding that a ban had already been imposed on the import of CNG kits and cylinders which was badly damaging investment. According to the government estimates during the last decade, gas production had been increased by only 7 percent, while its consumption increased by 40 percent per annum. CNG sector is identified as the major user of gas whose consumption has increased by 39 percent per annum during the last decade. According to All Pakistan CNG Association the proposal for imposing more CESS tax and an increase of CNG retail price will crush CNG industry as both the proposals were unjust with 4 million vehicle owners and 50 Million CNG consumers. “We will not let LPG to disturb 50 Millions consumers and 4 Million vehicle owners and an economical travel facility of the middle class of our country,” said Chairman CNG Association, adding that in summer season LPG is at the cheapest price, the imported LPG is substandard, if it may provided to public absolutely free even then it is not feasible and suitable for public.
UP UP AND AWAY…
IMF isn’t exactly renowned for spreading optimism g
And now it expects higher oil prices in 2012 ISLAMABAD ONLINE
The International Monetary Fund (IMF) has projected that in 2012 Oil prices were expected to remain high; and spillovers from Syria could affect a number of countries in the region. According to Masood Ahmed, Director, Middle East and Central Asia it is projected to post near-zero growth in 2012 for the European Union (EU) an important economic partner for many MENA oil importers due to difficult international environment. Meanwhile, continue to post solid growth. While growth for the group as a whole fell from 5 percent in 2010 to about 4 percent last year
(mainly due to the conflict in Libya), it reached 8 percent for the Gulf Cooperation Council (GCC). Oil production in GCC states increased, particularly in Saudi Arabia, to compensate for declines elsewhere (primarily in Libya). “On the back of higher oil prices, the oil exporters’ combined current account surpluses approached $400 billion in 2011—almost double the amount in 2010—which helped lift their reserve position above the $1 trillion mark, support a further increase in other foreign assets, and enable stepped-up government spending,” he said. Masood Ahmed said in his commentary that oil exporters’ growth in 2012 is expected to strengthen to 4.8 percent and to be more evenly
spread between the GCC countries and other oil exporters, as oil prices are expected to average about $115 per barrel. In the GCC, oil and gas production is expected to remain broadly flat: Qatar’s recent rapid hydrocarbon growth is likely to tail off, pending a moratorium on capacity expansion. Saudi Arabia’s role as a swing producer, moreover, will likely entail a smaller oil production increase than was required in 2011 to keep global energy demand and supply in balance. And government spending in the GCC will continue to support growth in the non-oil sector.
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news
‘PSLBF will be the game changer’
Spain’s Bankia eyes stake sales after record bailout MADRID
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REUTERS
PAIN'S fourth biggest lender, Bankia, on Saturday prepared to sell stakes it holds in companies to meet European competition rules after a state rescue that has so far cost 23.5 billion euros ($29.40 billion). Bankia's parent company BFA asked for a higherthan-expected 19 billion euros in government help on Friday, in addition to 4.5 billion the state has already pumped in, to cover possible losses on repossessed property, loans and investments. In Spain's biggest-ever bank rescue the state could end up with close to 90 percent of Bankia after it capitalizes the parent, BFA, then buys preferential shares in Bankia in October. Under Spanish law it should sell off Bankia in three years. Bad loans at Spanish banks, which are rising in an economic downturn with 24.4 percent unemployment, are at the heart of worries that Spain could have to seek international aid and take the euro zone debt crisis into a dangerous new stage. Among the newly recognized potential losses at Bankia and BFA are a 1.6 billion euros write down on corporate stakes including a 12 percent chunk of International Airlines Group and 5.3 percent of energy firm Iberdrola. Bankia, which restated its 2011 accounts to reflect a 3 billion euros loss rather than the previously reported 300 million euros profit, said European Union regulators will sign off on the rescue plan in June. "In the future logically it's in our plans, and also because of European requirements, we'll have to sell off stakes," Chairman Jose Ignacio Goirigolzarri told financial analysts. EU competition regulators typically prefer bailed-out lenders to shed noncore operations, divest banking units where they have too dominant a position and halt dividend payouts and acquisitions until they have repaid the authorities. Asked about fears of a run on deposits at Bankia, Goirigolzarri recognized that there was a "certain tension" in early May for a few days after the state takeover was announced. Bankia holds 10 percent of deposits in Spain's banking system. But he said things had normalized and he expected deposits in June to be higher than they were at the end of last year. AUDIT OF ENTIRE SYSTEM: The Bankia rescue is underway amid a broader audit of the Spanish banking sector, which has already raised wor-
KARACHI STAFF REPORT
ries more lenders will need help to cover deeper potential losses on property loans and souring consumer debt. The banks were saddled with what the government estimates are 184 billion euros of unsellable repossessed property and sour loans after a decade-long building bubble burst in 2007-2008. Spain's government will have to go to debt markets to raise the funds for Bankia at a time when its borrowing costs have jumped and it must pay a premium of almost 5 percentage points over German government debt. A government source said that the Bankia rescue would affect both the public debt level and deficit. "There's an expected loss in the asset portfolio that can be accounted for as debt, and there's an actual loss that would go to deficit but that is manageable," said the government source. "At this time we're talking about hypotheticals and the impact won't be known until the valuations are done," he said. Bankia has now recognized much higher losses than the government has forced Spain's banks to provision for, raising the question whether other banks will also have to identify even wider funding gaps. The bank provisioned for 900 million euros in refinanced debt that could sour and now assumes that 8 percent to 10 percent of its mortgages
will go bad. Spanish bankers typically argue that the bad mortgage rate can never go that high in Spain because it the law makes it difficult for people to walk away from their debt. But Goirigolzarri said Bankia's situation was different. "When you analyze Bankia's reality and the other entities we are talking about two different things, as far as the level of repossessed property, stakes in other companies and exposure to housing developers," he told banking analysts in a meeting that was transmitted live over the internet. Spain's government, which is racing to reassure investors about the health of its banking system, had previously put the amount of state help needed to help lenders at 15 billion euros - a figure now largely surpassed by what Bankia alone will need. Over three years Spain has restructured the banking sector four times without convincing investors that the clean-up was thorough enough, and is now hoping to draw a line under the banking problems without having to ask for EU help. Regarding whether Bankia, which reduced capacity by about 20 percent last year, would need to shut more branches and lay-off more workers, Goirigolzarri said he was optimistic. "I'm confident about developing a solvent brand," he said. Goirigolzarri said that he did not
envisage that about 4 billion euros in preference shares held by investors would be converted into capital. Bankia, born out of the merger of seven savings banks in 2010, was listed last July. After an aggressive campaign through its bank branches, many Spanish individuals bought shares, which have lost 57 percent of their value. BANkIA SAYS ITS SITUATION DOESN'T REFlEcT SpAIN'S BANkINg SYSTEM: The extent of potential losses at Spain's Bankia, which has been rescued by the state to the tune of 23.5 billion euros, cannot be extrapolated to the country's banking system as a whole, Chairman Jose Ignacio Goirigolzarri told analysts on Saturday. The bank's new management has identified 15.6 billion euros in provisions it must make against potential future losses in repossessed property, loans to real estate developers and other credits, much higher than what the government had already forced it to recognize. Goirigolzarri recognized there was a "certain tension" around deposits for a few days in early May, when the bank's former chairman stepped down and a state takeover was announced, but he said the situation had now normalized. he said he expected that by June deposits would reach a level higher than at the end of 2011.
The Pakistan Sri Lanka Business Forum is poised to be the game changer in accelerating bilateral trade and investment between the two SAARC countries. There is an imperative need to revisit the Free Trade Agreement so that businessmen and investors in both countries can seriously endeavor to enhance trade and take advantage of the facilities and incentives offered by both the governments." This was stated by Tarek Khan, President of PSLBF, while addressing the members of the Executive Committee. Tarek Khan further added that PSLBF has organized the most trade delegations to Sri Lanka and is the only bilateral forum that has the honor of hosting meetings with two Presidents of Sri Lanka. he said that PSLBF has facilitated and hosted many trade delegations from Sri Lanka. he also said that PSLBF is formulating a workable strategy to enhance trade and investment. he also desired that there is a need to attract more businessmen as members of PSLBF. Mr D. W. Jinadasa, Consul General of Sri Lanka and Patron of PSLBF stated that the Consulate has played a prominent role in improving trade. he disclosed that a large number of Sri Lankan businessmen will participate in the Expo Pakistan later this year. he also said that there will be Sri Lankan participation in My Karachi exhibition being organized by KCCI in July. he offered the services of the Consulate in resolving trade and investment issues faced by Pakistani businessmen. he also said that the Consulate will assist in facilitating trade delegations to exhibitions in Sri Lanka. Majyd Aziz, Founder Chairman of PSLBF, advised that the Forum should increase its interaction with Sri Lankan Chambers and Associations, government officials, and political representatives so that the fruits of FTA are realized. he also said that opportunities must be given to businessmen to have business to business meetings in Karachi and Lahore so that trade relationships are further developed. he also stated that the goodwill for Pakistan in Sri Lanka must be used to enhance trade, especially when FTA advantages are already available. Abdul Rauf Tabani, Farrukh Mazhar, Iqbal Shekhani, Aslam Pakhali, Abdul Wahab, and Babar also participated in the deliberations and offered suggestions and ideas to improve the working of PSLBF. Later, Tarek Khan hosted a dinner for all members of PSLBF.
Violation of laws and plastic industry in Pakistan ALI HAIDER Plastics industry is one of the leading business sectors in Pakistan, growing at an average growth rate of 15% per annum. But, recent manufacturing trends show the rampant violation of laws and regulations, especially related with processing, manufacturing and recycling of hazardous plastic materials in the country. As significant number of local plastics manufacturers are using the plastic waste to produce finished plastic products and articles, this shows not only the unabated imports of plastic waste, but also the continuous violation of the import policy order. It also violates the Basel Convention that defines end of life plastic product as hazardous as it contains contaminants and constituents material that falls in hazard Class 6 and 9 of the Convention, and should be immediately sent back to
the importing country. In Pakistan, according to Import Policy Order via SRO (I) 2011, “Waste, parings and scrap of plastics are importable by manufacturers only for their own use subject to the condition that shall furnish to custom authorities a certificate from relevant government agency of the exporting countries that the goods are not hazardous and comply with the provisions of the Basel Convention. As per Import policy order of other developing countries such as Malaysia & China, import of plastic scrap is allowed to manufacturer against license which is issued after detailed inspection of recycling facility, while in India, only the import of post-production plastic scrap is allowed to licensed manufacturers. In China, plastic scrap is listed in ‘Restricted Imports’ as per Catalogue of Imported Waste Management. In
China, the import of hazardous waste is forbidden, and non hazardous plastic scrap can only be imported by licensed manufacturer for its own use if it is imported by licensed importer in exporting country. In India, as per Policy circular 20/2002- 2007 and public notice 392 dated 1st January 1997 by Directorate General of Foreign Trade, Ministry of Commerce India, virgin or new plastic scrap waste (except PET bottle waste/ Scrap) generated during production process can only be imported against license, hence post-consumer-waste or end-of-life scrap cannot be imported. In Malaysia, as per Order 2008 & Custom Act 1967, plastic scrap is included in ‘prohibited articles’, and can be imported subject to import license issued from the Ministry of International Trade and Industry, Malaysia.
Pakistan, during the last 5 years, has recorded 100% increase in the imports of plastic scrap, and only in 2011 Pakistan imported more than 50k tons of plastic scrap from the other countries. According to ‘Quarterly Trade BulletinFY 2011’ issued by USAID-Pakistan Trade Project, import of plastic materials in Pakistan grew by 18.55% during FY 2010-2011. As the imported plastic scrap contains higher amount of contamination residuals, pest dumps, germs & infections, pesticides and food particles, including many other hazardous chemicals and additives, many countries have totally banned such imports, or have taken strict measures to make sure that the imported plastic waste should be utilised only for the industrial consumption after proper cleaning and sanitization, as stated by the international plastics manufacturing standards.
Despite the aforementioned policies, local plastics manufacturers in Pakistan are heavily producing those plastics and plastics-based items for both domestic and industrial consumptions that contain higher amounts of several hazardous elements and component Plastic industry in Pakistan is not heading in the right and positive direction, because repeated negligence to well-defined policies is paving the way for the unrestrained import of hazardous plastics scrap into the country. As clearly defined by the Basel Convention, plastic scrap should be sent back to the importing country. Thus, both Basel Convention and Import Policy Order, including other relevant laws and regulations regarding the import and manufacturing of plastics, should be strictly followed by both government and private sectors.
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Sunday, 27 May, 2012
news KSE WEEKLY REVIEW
WRITING ON THE WALL
Bulls got honey; bears were wrapped in the red rag g
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The week saw KSE remaining range-bound amid concerns over budget KARACHI STAFF REPORT
With the onset of budget related rumors and unending ties between Pakistan and the United States, trading activities at the Karachi bourse remain stagnant. The average traded volumes at the Karachi Stock Exchange (KSE) merely increased by 8.4 percent to 156 million shares, while average traded value surge to $ 68 million (up 3.6 percent WoW). “Regardless of happy ending NATO summit at Chicago, resumption of supplies to Afghanistan remained seal and no development has been inked in this regard,” viewed Yawar Uz Zaman of InvestCap. As a result, the analyst said, investor sentiments looked depressed and market remained in a consolidation phase where index closed below psychological level of 14,000 points and closed at 13,925 points, up 0.49 percent WoW. Furthermore, the fertilizer stock once again came under pressure on account the possibility of imposing additional gas infrastructural surcharge (cess) on feedstock gas price. however, positivity was seen in cement sector scrips, which followed another increase of Rs10 per bag during the week and expected Rs873 billion allocation for the Public Sector Development Program in budget which would further boost cement demand going forward. On the economic front, the Pak rupee depreciated to its ever high peak (1USD=Rs92.35) against USD due to repayment of IMF of $ 394 million on May 24. however, workers remittances posted a solid YoY increase of 20 percent to $10.9 billion in 10MFY12. As far as foreign flows are concerned, local equities witnessed net FIPI of $12.3 million as compared to an outflow of $6 million, registering increase of 200 percent WoW. Futures open interest up 14.4 percent, spreads decreased by 246 basis points to 9.2 percent. The market's open interest was up by Rs 397 million, up 14.4 percent, to stand at Rs 3.2 billion. While futures volumes increased by 58 percent to average 22 million shares. Moreover, futures spreads went down by 246bps to 9.2 percent. The top-5 scrips at the futures counter holding 60 percent of the total open interest were DGKC, ENGRO, FFC, AhCL and LUCK. “As the upcoming week would probably be the last week before the budget announcement for FY13, therefore, we believe, that market would prominently respond on the sector specific budgetary measures along with any positive development on PAK-US relations,” Yawar said.
Wall Street scores weekly gains, but sags for the day NEW YORK
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REUTERS
TOCKS ended their first positive week in four with a down day on Friday as investors were reluctant to buy going into a long weekend, with uncertainty still swirling around Europe. An S&P index of industrial shares .GSPI ranked among the session's biggest losers while weakness in large-cap tech stocks like Google Inc (GOOG.O) kept the Nasdaq in negative territory. Warnings about Greece kept investors cautious, as did Spain after Standard & Poor's downgraded five banks and a source told Reuters that Bankia (BKIA.MC) asked for $24 billion in state aid. however, a bullish read on U.S. consumer sentiment kept pessimism in check. Boeing Co (BA.N) and Chevron Corp (CVX.N) were the Dow's biggest decliners, followed by Caterpillar Inc (CAT.N), with each falling more than 1 percent in the thinly traded session. Google fell 2 percent to $591.53, pressuring the Nasdaq. Utilities .GSPU and telecom .GSPL were the only S&P sectors in positive territory. Both are deemed defensive plays. "The market is drifting and cautious ahead of the (Memorial Day) holiday. There's no consistency, though we do seem to be digging in after some bad weeks," said Donald Selkin, chief market strategist at National Securities in New York, which has about $3 billion in assets under management. "Still we have the overhang of Europe, and just have to hope things don't get worse over there." Belgium's Deputy Prime Minister Didier Reynders issued a warning over Greece, saying it would be a "grave professional error" if central banks and companies were not preparing for a Greek exit from the euro zone. French banks, which are among the lenders most exposed to Greece, have stepped up their efforts on contingency plans for the debt-laden country leaving the euro zone, sources familiar with the situation said. The Dow Jones industrial average .DJI fell 74.92 points, or 0.60 percent, to 12,454.83 at the close.
The Standard & Poor's 500 Index .SPX dipped 2.86 points, or 0.22 percent, to 1,317.82. The Nasdaq Composite Index .IXIC was down 1.85 points, or 0.07 percent, at 2,837.53. The U.S. stock market will be closed on Monday for the Memorial Day holiday. For the week, the S&P 500 rose 1.7 percent. That advance broke the benchmark index's a three-week string of losses with its best weekly performance since mid-March. The Dow added 0.7 percent for the week, while the Nasdaq climbed 2.1 percent. Trading was choppy all week, with volatility often spiking around the close. Even with the S&P 500's 5.7 percent drop since the end of April, stocks have held up relatively well as bear markets rage in Brazil, Russia, peripheral Europe, and many core European equity markets have given up all their gains for the year. For the year to date, the S&P 500 is still up 4.8 percent. The S&P 500's top
gainer in Friday's session was telecom services - a sign that investors were looking for safety in defensive U.S. sectors, possibly as money returns from riskier emerging markets and Europe. The S&P telecoms index .GSPL rose 0.3 percent. At the end of last week, the S&P 500 tested support at the 1,290 mark and has inched away from that level during the week. Some analysts are expecting the benchmark index to test its 200-day moving average at 1,281 and possibly fall below that. Weighing heavily on the Dow in Friday's session, Boeing shares lost 1.9 percent to end at $70. Chevron's stock dropped 1.2 percent to $98.86. Caterpillar shares shed 1.6 percent to close at $89.94. Chesapeake Energy Corp (ChK.N) gained 1.5 percent to $15.81, rising for the second day after the company announced it has put a half-million acres in Wyoming and Colorado up for sale. Data showed Thomson Reuters/University of Michigan Surveys of Con-
sumers' final May consumer sentiment index jumped to 79.3 from 77.8 in the preliminary May report. It was the highest level since October 2007. Market reaction was muted. In the aftermath of last Friday's botched initial public offering of Facebook (FB.O), lead underwriter Morgan Stanley (MS.N) will adjust thousands of trades to ensure outstanding limit orders to sell will be filled at no more than $42.99 a share, the firm told its brokers on Thursday, according to several who listened to the call. Facebook's stock lost 3.4 percent to $31.91, close to its all-time intraday low of $30.94 that it hit on Tuesday. Volume was light, with about 4.78 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's daily average of 7.84 billion. About half of the stocks listed on both the New York Stock Exchange and Nasdaq closed in positive territory.
China’s expanding core YURIKO KOIKE China is now engaged in bitter disputes with the Philippines over Scarborough Shoal and Japan over the Senkaku Islands, both located far beyond China’s 200-mile-wide territorial waters in the South China Sea. Indeed, so expansive are China’s claims nowadays that many Asians are wondering what will satisfy China’s desire to secure its “core interests.” Are there no limits, or does today’s China conceive of itself as a restored Middle Kingdom, to whom the entire world must kowtow? So far, China has formally referred to Taiwan, Tibet, and Xinjiang province as “core interests,” a phrase that connotes an assertion of national sovereignty and territorial integrity that will brook no compromise. Now China is attempting to apply the same term to the Senkaku Islands in its dispute with Japan, and is perilously close to making the same claim for the entire South China Sea; indeed, some Chinese military officers already have. The Senkaku Islands, located to the west of Okinawa in the East China Sea and currently uninhabited, were incorporated into Japan by the Meiji government
in 1895. At one time, there were regular residents working at a bonito-drying facility. In 1969, the United Nations Economic Commission for Asia and the Far East (ECAFE) completed a seabed survey of the East China Sea, and reported the possible presence of vast underground mineral resources, including abundant oil and natural gas reserves near the Senkakus. Two years passed before Taiwan and China claimed sovereignty over the islands, in 1971, but the Japanese government’s stance has always been that Japan’s sovereignty is not in question. In April, Tokyo Governor Shintaro Ishihara, a famous and articulate patriot, announced that the metropolitan government that he leads plans to acquire four of the Senkaku Islands, which are currently privately owned by Japanese citizens. Donations for the purchase from the people of Japan now exceed ¥700 million ($8.4 million). China reacted to Ishihara’s proposal with its usual sensitivity: it refused to receive the scheduled visit of Ishihara’s son, who is Secretary-General of Japan’s Liberal Democratic Party, the country’s main opposition party. Moreover, at a meeting in Beijing earlier this month between Japanese
Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao during a trilateral summit with South Korea, Wen mentioned the independence movement in the Xinjiang Uyghur Autonomous Region and the Senkaku Islands in the same breath. “It is important to respect China's core interests and issues of major concern,” he emphasized. Until that moment, the Chinese government had never applied the term “core interest” to the Senkaku Islands. Following Wen’s statement, the trilateral summit deteriorated. While South Korean President Lee Myung-bak held bilateral talks with Chinese President hu Jintao, talks between Noda and hu, and a scheduled meeting between Keidanren Chairman hiromasa Yonekura and Chinese Foreign Minister Yang Jiechi, were also canceled. The joint declaration issued at the summit was delayed a day, and omitted all references to North Korea – a prime concern of both Japan and South Korea. China’s brusque treatment of Japan’s leaders probably was intended as a rebuke not only over the Senkaku Islands issue, but also for hosting the Fourth General Meeting of the World Uyghur Congress in Tokyo in May. Previously,
such meetings had been held in Germany and the United States, and this one, which stressed the importance of protecting human rights and preserving the traditions, culture, and language of the Uyghur people, received no official sanction or endorsement from the Japanese government. If gruff diplomacy was the only manifestation of China’s expansive territorial claims, Asian leaders could sleep more peacefully. But the fact is that China’s navy is becoming increasingly active in the South China Sea, at the Senkaku Islands and Scarborough Shoal in particular, but also around the Spratly Islands claimed by Vietnam. Given China’s mushrooming military budget and secretiveness, that assertiveness has set off alarm bells among the other countries bordering the South China Sea. Moreover, China’s bullying of the Philippines included not only the dispatch of warships to Scarborough Shoals, but also the sudden imposition of import restrictions on Filipino produce. And China’s reactions toward Japan are far more paranoid since a non-LDP government took power. The struggles for power within China’s ruling Communist Party over the
purge of Bo Xilai, and the blind activist Chen Guangcheng’s escape from detention during economic talks with the US, have made Chinese leaders’ nationalist assertions even more strident than usual. No official wants to appear soft where China’s supposed “core interests” are concerned. So far, China has not unleashed the sort of mass demonstrations against Japan and others that it has used in the past to convey its displeasure. But that probably reflects the jittery state of China’s leaders in the wake of the Bo purge: they cannot guarantee that an anti-Japan demonstration would not turn into an anti-government protest. China’s real core interests are not in territorial expansion and hegemony over its neighbors, but in upholding the human rights and improving the welfare of its own citizens, which is the world’s core interest in China. But until China accepts that its territorial claims in the South China Sea must be discussed multilaterally, so that smaller countries like the Philippines and Vietnam do not feel threatened, China’s ever expanding “core interests” will be the root of instability in East Asia. Courtesy: Project Syndicate