As The China-Japan Conflict Escalates, Whom Will The US Support?

Tyler Durden's picture

When the time finally comes for the inevitable discussion of just whom the US will support in the escalating China-Japan conflict: its long-term political ally Japan, where numerous naval bases are located, or its key inflation-exporting recipient and world economic powerhouse (ghost steel receipts notwithstanding) China, there will be much political rhetorical, many promises, even more lies, but in the end only one thing will matter. Money, or more specifically, debt and credit formation. Which brings us to the just released TIC data, which among other things shows that in July, Chinese holdings would have dropped to a 12 month low, if only the June print of $1164.3 billion had not been mysteriously revised to a fresh multi year low of $1147.0 billion, just so the July print of $1149.6 billion can be an uptick. More curious it that Japan, quite mired by its own debt "situation" of Y1 quadrillion in public debt and rising, continue to grab US paper with both arms, and as of July touched on an all time high of $1117 billion (maybe in another all-in gambit to show its "solidarity" with Big Uncle Sam in hopes Big Uncle Sam will support the Senkaku incursion).

The net result is that the spread between Chinese and Japanese US Treasury holdings has declined to a tiny $33 billion, from $430 billion one short year ago (we know that China is now actively buying gold with its current account cash instead of US paper but that is irrelevant for the time being). What is more importantly is which of its top US Treasury holders (the Fed being naturally the largest) will the US end up disappointing: China or Japan, because as much as it wants, it won't be able to support both. What happens if and when the snubbed party decides to dispose of its $1.1 trillion in US securities?

Source: TIC

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LULZBank's picture

Samurais Vs Shaolin Monks... Whom will the Cowboys shoot first Bitchezz!!!

GetZeeGold's picture



10 bucks on the Monks.


Put your money down boys.


LongSoupLine's picture

10 bucks on the defense industry...which supports both sides.

TIMBEEER's picture

250 bucks on the Chinese and their Made in China weapons!


No, wait..

Precious's picture

In one month no one will even remember this episode.  Fucking island that's smaller than some sports stadiums.

ParkAveFlasher's picture

I'll plunk $10 on the 800lb yin-yang elephant in the room: Korea.

Things have been awfully quiet in K-Town as of late. 

Why fight directly when the MIC can sell arms and merc services into a proxy battle for the same price?

Precious's picture

The Koreans are busy voting up the most viral video in the history of YouTube.

ParkAveFlasher's picture

See?  They really are bad ass.

edit: (\sarc)

DeadFred's picture

Catchy west coast swing music.

unrulian's picture

It's what's under the Island that counts

Precious's picture

Yah.  Yah.  All the oil everywhere.  Just fucking leaking out of the ocean, there's so much.  Notice all the drilling platforms?  All the oil companies are just climbing over themselves to sign leases.  Sure.  There must be petabarrels of oil under that island. Enough to fill the Cadillacs of every Chinese and Japanese gangster for the next thousand years.

GetZeeGold's picture



Notice all the drilling platforms?


All those guys are down in Brazil.


Precious's picture

Yah.  Where there are no typhoons every year to fuck up their rigs.

ParkAveFlasher's picture

"Go-zira!" [points to the sea, screams]

Precious's picture

Captain America, what happened to your shield?

ParkAveFlasher's picture

Well, I ordered a shield, but all I got was a warehouse receipt.  Looked like this:

Overfed's picture

How 'bout the Chinese and their made in Russia weapons?

mjcOH1's picture

"How 'bout the Chinese and their made in Russia weapons?"


Yep.   Now that the bugs have all been worked out by the Iraqis, Afghanis, Libyans, Yemenis, Yugoslavians, and Syrians, "this time it'll be different".

Frozen IcQb's picture

My neg vote above represents a bet that the Samurai gets shot

However, this is a no-win scenario. The US will persuade the Samurais to let it ( the islands) go for some diplomatic (economic) concessions

DeadFred's picture

This could just be economic warfare. The Shanghai index is very close to dropping below its last support. The Japanese (and Americans?) may be adding a new page to the Beggar Thy Neighbor playbook.

YuropeanImbecille's picture

Hahahaha that was seriously fugging funny =) whom will the cowboys shoot first :D


Thanks for cheering me up on this miserable day

DeadFred's picture

Are there any samarais around the aapl plant? Thought not. Nasdaq would drop overnight below the endofworld levels if 'rioters' surrounded Foxconn. 20 bucks on the monks. Exciting times.

BandGap's picture

We need an over/under here AND a spread.

My money would be on the Japanese, at least initially and in a defensive posture.  The Chinese have the numbers but lack discipline. That is, unless they commit their top level troops to any engagement, which would leave them vulnerable in other geographical areas.

In a 1 on 1 conflict the Chinese win. But if the conflict is to just have the Japanese hold out till John Wayne arrives I give them the edge.

Frozen IcQb's picture

"I fear all we have done is to awaken a sleeping"...Dragon

cossack55's picture

Support Iceland and screw the rest.

prains's picture

Icelandic Fundamentalists will be pissed or was that Islamist always get them mixed up

malikai's picture

10/10 Icelandic Fundamentalists are free.

Ljoot's picture

With two, you get eggrolled.


LULZBank's picture

Talkin about your avatar?

1100-TACTICAL-12's picture

Currency WAR's check, Trade WAR's check, World War ????????


the 300000000th percent's picture

Looks like the fed will have to secretly buy a whole bunch of paper to add to the "unofficial list" if they are even keeping a list anymore

LawsofPhysics's picture

If there is profit to be made, we will support both.

The truth is what it is, some things never change.

prains's picture

Sell The Japs military hardware and sell the Chinks the countermeasures there's a movie about that

DeadFred's picture

The Chinese built the components of the hardware we would sell. They already have the countermeasures installed.

CrimsonAvenger's picture

we are good little ferengi, aren't we?

Sorry in advance for the noise of a thousand geek detectors going off.

bigkahuna's picture

I have a feeling that supporting both sides in this conflict will not work. Who knows though. Logically, if we support both sides, both sides hate us, Japan loses, and we end up having an Asia Pacific/trade poop storm to deal with.

Logic of any kind has not got me too far lately though.

falak pema's picture

US has military treaty with Japan; not with China. Japan is Western surrogate, not China, only economic partner. 

LULZBank's picture

US has never been known to turn a blind eye to treaties... or anyother imperialist for that matter.

exi1ed0ne's picture

Simple.  War with China means all Chinese assets are siezed by the US Gov. including monies on deposit at the Fed.  Instant vaporization of a lot of debt.

What's not to love?  Well besides the cost in iron, blood and gold.

post turtle saver's picture

Ding ding ding, we have a winner... +1

falak pema's picture

yes the corruption of US money line and outsourcing strategy pains point to China being "reigned in" by Pax Americana before its too late; from the US perspective. 

Although ME oil stays vital nerve to energy and to oil petrodollar hegemony; all recycled to west. That oil/monetary pump is #1 asset of Pax Americana. If China goes militarist, then USA has a problem as its loses its big stick monopoly; something which is now old history, impossbile, as far as Japan is concerned.

A temporary downturn of China,  loss of momentum in the Oligarchy game, better not entrain a policy change knee jerk, like reverse  Pearl Harbour tactics to quelch USA's JApanese ally; as that would be crossing a Rubicon with the US at a moment when China is not ready military wise. (We know little on this capability). Lets hope and pray they are not tempted by populist pressure and in-house dissensions that upset their oligarchy mindset and whole national apple cart.

We will get through this spiralling crisis, which will stay regional thorn for years to come if the oil potential therein is significant, a feel for inhouse political maturity of their ruling class. Tipping times, as China will bid for hegemony in Asia further down the road; thats a given. 

exi1ed0ne's picture

China has one problem, and that is force projection.  Sure they have ICBMs and other long range ballistics, but they have no way to put boots on the ground in any real size.  So how do you goad them into conflict in a location where they CAN force project if that is the goal?  Rub a lot of salt in their nationalist pride with a proxy who happens to be a neighbor.  Remember, there is at least 1.1 trillion dollars in debt that can be zeroed out, in addition to any other Chinese national assets residing in the US.  That is a lot of motivation.  Since they stopped playing along and buying treasuries, and the bulk of the hardship is borne by mainland Japan, there is little reason not to.

I don't agree with it, but it is very easy to see the motivations in the fog.

sushi's picture

China has a significant asset in the treaties signed at the Postsdam conference post WWII.

These returned to China those territories seixed by Japan in the war of 1895. These territories include Formosa (Taiwan) and the disputed islands. This was agreed by all the great powers on the Allied side

Circa 1951 the US, which occupied and administered Okinawa, unilaterally extended its administrative jurisdiction to include the disputed islands which were then used as a bombing range.

When Okinawa was returned to Japanese jurisdiction the US also transferred the islands over which they had no true legal right of ownership and jurisdiction.

As for the debt, I am sure that should the US seize Chinese assets the Chinese will reciprocate. You need to total up the full investment of the Fortune 500 in China in plant and equipment. The Fortune 500 will never permit the US government to destroy their assets. Most Japanese firms also locate production facilities in China. So no more cheap $10 toaster ovens. And no relocation of production faciilties elsewhere in aisia pacific as this turns into a war zone. Good luck building toaster ovens in Af-Pak.


falak pema's picture

wow, intricate politics about these rocks in the sea.

exi1ed0ne's picture

True dat.  Better than any who dunnit book I ever read.

easterner's picture

In 1889, after the first sino-japanese war, China was defeated and signed the Treaty of Shimonoseki - China ceded DiaoYu island, group of small islands considered part of Taiwan:

"Articles 2 & 3: China cedes to Japan in perpetuity and full sovereignty of the Penghu group, Taiwan and the eastern portion of the bay of Liaodong Peninsula together with all fortifications, arsenals and public property."

In 1943, as part of the allies during WWII, China, US, UK, made the Cairo Declaration:


All territories Japan had won from China, such as Manchuria (Dongbei), Formosa (Taiwan), and the Pescadores (Penghu), shall be restored to the Republic of China.


In 1945, Potsdam Declaration:


Japanese sovereignty shall be limited to the islands of Honshu, Hokkaido, Kyushu, Shikoku and such minor islands as we determine." As had been announced in the Cairo Declaration in 1943.


So, after WWII, Japan has no sovereign claim over anywhere except its four major islands. Before 1972, DiaYu Island was under US administration, and served as some sort of weapon testing ground. In 1972, US transferred the "administration right" to Japan, intentionally leaving a hot zone of conflicts in the East Asian area.

Since then, there was a gentlemen's agreement between China and Japan, that the issue be put aside, so the two countries could cooperation in a broader economic and political range. However, as yuo already know, the Japanese government attempted to "nationalize" the island and change the "administration right" into ownership, that is the reason of the recent flare up in the region(could this be the price Hilary Clinton stated that China would pay after China and Russia veto the UN Syria resolution for the third time?).

Make no mistake, this is a serious strategic miscalculation on the part of Japan and US. This action of Japan is not only act of aggression towards China's sovereignty, but also an act of challenging the post WWII world order. By encouraging Japan's reckless action, US is putting the current world order in danger, and ultimately will hurt its own interests. They assume China would just take it in their ass. But China actually has been preparing for this kind of war for the last decade (DF 21D ballistic missile, aka "air carrier killer", land base anti-satellite missile, aka "satellite killer", and formidable submarine power, etc.), which would deter US intervention.

At this very moment, China has sent 12 more patrol ships to the waters of Diayu Island, and I don't see any possibilities of compromise. Either Japan back down and leave the island, or a major war.

P.S, in 1949, China splitted into P.R. of China and R. of China(Taiwan), so both have claim over DiaoYu Island. It is a great news that both sides are co-operating against Japan during the current conflict.

exi1ed0ne's picture

Excellent historical summary of the region!  It is important to note that there is no such thing as international law - it's all a gentleman's agreement that lasts only as long as the disadvantage of maintaining the status quo outweighs the disadvantage of upsetting it.   The real wild cards are Russia and N. Korea, and what their reactions would be in another sino-japanese war.  My bet is they sit on their hands and pick up the pieces afterwards, but I'm in the cheap seats.  The US benefits massively on several fronts.  Debt seizure, end to Chinese buying Africa with US dollars, more blood tears and treasure for the war machine.  China ALSO benefits from a conflict - citizen anger focus outward, ready made population control, and seriously enhanced status on the world stage for taking on the top dog.  The US has blunted the military with all the foreign wars, and having China and Iran go hot at the same time would be an unmitigated disaster due to the Navy stretched thin already.  I'm not sure that China is in such a good position either to be the clear victor in a conflict of the region.  They also have India on the other side that would love to take some territory off of China's hands that they have been quarreling over for forever.

Grab the popcorn.  The Archduke is about to have a bad day.

Rylie's picture

Can they just write off the Chinese debt like that? what would other countries do with their USD if they think that their US bonds can just be written off?


I would think that would constitute a default on the debt owed to China.

Either way I would never lend another RED CENT to the US, and I think that others would feel the same way.

exi1ed0ne's picture

Congress has the power to seize the US assets of countries (and their citizens) we are at war with.  It would not be a default, but a legal (lol) and normal operation in the time of war - denying resources to the enemy.  For a historical example, please see Bayer and their aspirin patent in WWII.