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Putting The Genie Back In The Bottle

Business, China, Company Strategy, Economics, Japan
By John Richardson on 23-Sep-2012

Senku.jpgSource of picture: Flickr

 

By John Richardson

“How do you put the genie back in the bottle?” asked China scholar Victoria Hui in this New York Times article, referring to the difficulty that China now faces in stepping away with something tangible from its dispute with Japan over the East China Sea islands.

Japan might not be able back down either and so the risk here, as we discussed last week, is that this could escalate into a military conflict with the US obligated to support Japan. Most other Asian countries could end up backing the US.

What is really motivating Beijing in all of this?

“For a long time, the legitimacy of the Chinese government has been based on two things,” wrote Deng Yuwen, an editor at Study Times, a magazine run by the Communist Party’s Central Party School.

“One is high-speed economic growth. The other is patriotism and nationalism,”

Now that economic growth is slowing, he added that “the Chinese government very possibly may become increasingly dependent on nationalism and patriotism.”

Let’s hope that both sides can find a face-saving compromise and that the crisis is, as a result, defused.

Meanwhile, as long as this political crisis rumbles on, everybody down all the petrochemical value chains might be well-advised to keep their raw material inventories at minimum levels.

The temptation, as oil prices rise, is to “buy forward”, but one chemicals industry source told us: “If some kind of conflict did break out, oil prices and stock markets, which move together these days, would, I think, halve in value overnight.”.