As the United States began downsizing its military and Vladimir Putin’s Russia swallowed the Crimea with only nominal opposition from the West, China has decidedly toughened its stance in the China Sea. In alignment with the American "pivot to Asia," Japan’s military resources are beginning to uncloak. The possibility of a near-term skirmish between China and Japan is real. Neither nation is angling for a large-scale confrontation, but leaders of both countries are aware of potential benefits from nationalist sentiments generated by a show of force. A substantial confrontation, or even a public belief that one is imminent, will result in the flight of capital from Asia, especially to U.S. markets, particularly in the energy, technology and property sectors, and possibly even health care.
Flexing its muscles, China in November declared a new air defense zone around tiny disputed islands called Diaoyu in China and Senkaku in Japan. The prize is not so much the tiny, uninhabited, rocky formations, but control over some of the busiest shipping lanes in the world and natural resources, especially oil, in the East and South China Sea.
Japan has largely ignored the new, unilateral covenants set by China and most recently announced its new interpretation of Japan’s pacifist constitution that for the first time in 60 years frees up the Japanese Self-Defense Forces to play a more assertive role in the East and South China Sea. While Germany has gone a long way toward healing the post-WWII sentiments with its leadership role in the European Union, Japan’s Asian neighbors have been less forgiving. Prime Minister Shinzo Abe’s visit to the Yasukuni war shrine that honors, among others, vanquished, convicted war criminals, continues to fan the flames. The recent review of Japan’s 1993 apology for sexual slavery of thousands of women is seen by many as a "regression of history."
Abe traveled to Australia this past week to sign a joint trade deal and a defense cooperation agreement. He also asserted his view that China poses a direct threat to regional stability.
Japan’s actions are consistent with the Obama administration’s 2012 "pivot to Asia" intended to strengthen bilateral security alliances, forge a broad-based military presence and expand trade and investment. It includes the decision to station U.S. marines in Darwin, Australia.
Meanwhile, China and Russia have agreed to hold military drills to strengthen bilateral cooperation. China is also fortifying its economic alliances with Brazil, Russia, India and South Africa and is expected, according to the Economist, to create a $50 billion "BRICS" development bank as an alternative to the World Bank. It is also working to establish a BRICS contingency fund comparable to the International Monetary Fund.
The race is on, and deeper lines are being drawn in the sand. Yet, unlike the eve of WWI when the world was tightly locked into myriad military alliances that only needed a match to ignite, today there is far too much interdependence, especially in the financial sector, to re-create that terrible war.
Still, as China and Japan, together with their respective affiliates, continue to posture over the disputed islands, Asian markets could begin to feel what they like least: uncertainty.
This comes at a time when the U.S. markets are raging back from recession, recently hitting all-time highs. Of course there will be pullbacks, but certain sectors are looking very shiny. Acts or even threats of belligerence will play to American financial markets. Energy, technology and property sectors are on top of mind, and investors are eyeing the large caps. The health care industry, still in transition, is waiting for Obamacare to find its legs.
The Chinese comprised fully one-quarter of the record $92 billion of U.S. residential property purchased by foreign investors during the past 12 months.
During the past 12 months, the energy sector has gone up by 20 percent with information technology up 27 percent, while biotechnology is up 26 percent.
Obamacare may be finding its legs at last. Since its rollout, the number of those covered under Medicaid has expanded by 6.7 million while those covered under private insurance through new exchanges is up by 8 million. So far, about one-quarter of those previously uninsured are now covered.
Will Obamacare now get a boost from an Asian pivot to American markets?
Ira “Kawika” Zunin, M.D., M.P.H., M.B.A., is a practicing physician. He is medical director of Manakai o Malama Integrative Healthcare Group and Rehabilitation Center and CEO of Global Advisory Services Inc. Please submit your questions to info@manakaiomalama.com.
