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Asian defence giants in focus as South China Sea dispute rages

Beijing and Washington are on a collision course over these waters, the shipping lane for 60pc of global trade.

Published: 13th July 2016 07:27 AM  |   Last Updated: 13th July 2016 07:27 AM   |  A+A-

South China Sea

South China Sea| File/AP

LONDON: The South China Sea has become the most dangerous fault-line in the world. Beijing and Washington are on a collision course over these contested waters, the shipping lane for 60pc of global trade.

As expected, the International Court of Justice in The Hague has ruled that China has no "historic title" to areas of this sea stretching all the way to the "nine dash line" - deep into the territorial waters of a ring of south-east Asian states. Equally expected, Beijing has dismissed the verdict with scorn, accusing the tribunal of "shamelessly abusing its authority".

The state media said the country "must be prepared for any military confrontation" with the US, and must not flinch from war if provoked.

It is the latest in a series of ominous developments in Asia and Europe that are rapidly subverting the Western international system and setting off a global rearmament race with strong echoes of the late-1930s.

Tensions are flaring up across so many spots in East Asia that global investment funds are actively betting on defence stocks and technology companies linked to military expansion. Nomura has launched an "Asian Arms Race Basket" as a hedge against potential conflicts in the East China Sea, the Straits of Taiwan, and the South China Sea.

Among the companies listed are Mitsubishi Heavy Industry and Sumitomo Precision in Japan, China Shipbuilding and AVIC Aircraft in China, Korea Aerospace and the explosives group Hanwha, as well as Reliance Defence and Bharat Electronics in India.

The Stockholm International Peace Research Institute says China spent $215bn (pounds 162bn) on defence last year, a fivefold increase since 2000, and more than the whole of the European Union combined. It is developing indigenous aircraft carriers. US experts say its "Two-Ocean Strategy" implies a fleet of five or six aircraft carrier battle groups to project global power.

Japan has upgraded its once invisible Self-Defence Force to a full-fledged fighting machine with a humming new headquarters and an air of determined alertness. The country has been increasing military spending for the last four years under its nationalist leader Shinzo Abe, commissioning its largest warship since the Second World War, an 800ft DDH-class helicopter carrier.

Rearmament has paradoxical effects. It acts as a form of Keynesian stimulus, as it did in the late 1930s. The spending might absorb some of the Asian savings glut and eat into excess industrial capacity, lifting the world out of secular stagnation, but it is a lethal way to do it.

A parallel process is under way in Europe where defence spending has been shooting up since the Russian invasion of Crimea, ending years of neglect and austerity budgets. Outlays are expected to rise by 20pc in Central and Eastern Europe this year, and 9.2pc in south-eastern Europe, according to the French think-tank IRIS.

The ruling in The Hague is a harsh rebuke for Beijing, which never accepted the legitimacy of the case brought by the Philippines and stated that any ruling would be "waste paper".

The great worry is that parallel dramas in East Asia and in Europe could feed on each other. Julian Lindley-French, vice-president of the Atlantic Treaty Association, says: "What if a conflict breaks out in Asia-Pacific in parallel? Would an over-stretched America be able to continue to fill the gaps in Europe's defences?"

Nobody knows the answer. The world has not been in such peril since the Cuban Missile Crisis.



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