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China Policy Makers May Impose Sanctions On Japan Over Island Dispute

S ource: Marketwatch

China could use its position as Japan’s largest creditor or other economic leverage if Tokyo doesn’t back down in a heated territorial dispute, a senior Chinese researcher said.

Jin Baisong, the deputy director of a policy research unit affiliated with the Chinese Ministry of Commerce, said China should weigh its clout in the Japanese bond market as its seeks to find ways to “impose sanctions on Japan in the most effective manner”.

The statement suggested China could dump its $230 million worth of Japanese government bonds.

Japan’s ageing population, dwindling household savings, and declining purchasing power would add to the nation’s debt woes and create an “irreversible trend of long-term economic decline,” Jin said, writing Monday in the state-affiliated China Daily.

Jin said Japan’s “fiscal deterioration is likely to continue,” with the economy poised to slow or even slip into recession in 2013.

Anti-Japan protests continue in Beijing

Large but mostly peaceful anti-Japanese protests take place in Beijing after Japan’s government says it will purchase some of the disputed Senkaku Islands.

Tensions between the two nations have been escalating over rival claims to a group of uninhabited islands known in China as the Diaoyu islands and in Japan as the Senkaku.

Local Chinese media reported anti-Japanese protests continued in major Chinese cities Tuesday, following mass protests in dozens of China’s urban centers over the weekend.

The protests turned violent in some places, prompting some Japanese companies to shutter their Chinese manufacturing operations and retail outlets. Read analysis on the China-Japan row.

China has the capability to impose trade sanctions on other countries, Jin said, citing China’s position as the world’s second-largest economy, with the largest foreign-exchange reserves and ranked No.1 and No. 2 globally in terms of exports and imports.

He also urged Beijing to invoke the “security exceptions” clause under the World Trade Organization treaty.

He said the clause — applied in instances of protecting national security interests — could be used to impose economic sanctions on foreign enterprises, banks or even foreign governments.

Jin said that China could reduce “the export of some important materials to Japan,” in an apparent reference to China’s dominance of the rare-earths production.

Nomura said Wednesday that Japanese companies, particularly car makers, might face more severe consequences from the current wave of anti-Japan sentiment than during prior crisis periods in 2005 and 2010, which were quickly forgotten by Chinese consumers.

This time, there could be “longer lasting impact on Japanese auto sales in China,” Nomura said.

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