The Independent Market Observer

9/26/12 – Chinese Seas Get Even More Crowded

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Sep 26, 2012 11:22:25 AM

and tagged Yesterday's News

Leave a comment

China rolled out its first aircraft carrier, in a significant symbolic move. The Financial Times (FT) covered the story in “Sea change: China enlists first aircraft carrier” (p. 6), the Wall Street Journal (WSJ) in “China Adds Carrier to Its Navy” (p. A9), and the New York Times (NYT) in “China Launches Carrier, But Experts Doubt Its Worth” (p. A4). I say symbolic because it will only be used for training and the Chinese do not yet have planes capable of carrier landings, as the NYT article points out. This is a sign of things to come, but not of things right now.

It does raise the ante across Asia, though. Japan is feeling it, per “Island spat raises military heat” (FT, p. 6), which talks about how the confrontation is getting more military in nature. Most people do not realize this, but Japan actually has an extremely capable military, including an excellent navy. If these confrontations result in Japan starting to re-arm, that will change everything about the Asian environment. This is a big deal for the next 10 years and forward.

Japan is not the only one feeling the heat either. Taiwan has put its chips into the pot on the Senkaku/Diaoyu island dispute as well, as highlighted by “Near Disputed Islands, Japan Confronts Boats from Taiwan” (NYT, p. A9) and “Taiwan Enters Island Fray” (WSJ, p. A9). Everyone wants a piece of the resources around the islands, per “Century of dispute over rich resources” (FT, p. 6).

As the military face-off heats up, the economic consequences are starting to mount as well. The FT has “Toyota cuts China output among unrest” on the front page, and the WSJ has “Toyota Pulls Back Amid Chinese Chill” on page A9. Toyota, one of the largest and most global manufacturers, is probably the best placed of any company to withstand political winds; the fact that Toyota is starting to make meaningful economic decisions based on the situation with China is a sign that this will be a major economic problem going forward for both countries, at the very least. China is Japan’s largest trading partner, and Japan is China’s second largest trading partner. Any disruptions will be meaningful.

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®