New arms race as South China Sea boils

14 July 2016 - 10:14 By AMBROSE EVANS-PRITCHARD

The South China Sea has become the most dangerous fault line in the world. Beijing and Washington are on a collision course over these contested waters, the shipping lane for 60% of global trade. The International Court of Justice in The Hague has ruled that China has no "historic title" to areas of this sea stretching all the way to the "nine-dash line" - deep into the territorial waters of a ring of Southeast Asian states.Beijing has dismissed the verdict with scorn, accusing the tribunal of "shamelessly abusing its authority". State media said the country "must be prepared for any military confrontation" with the US, and must not flinch from war if provoked.It is the latest in a series of ominous developments in Asia and Europe that are subverting the Western international system and setting off a global rearmament race with strong echoes of the late 1930s.Tensions are flaring up across so many spots in East Asia that global investment funds are actively betting on defence stocks and technology companies linked to military expansion. Nomura has launched an "Asian Arms Race Basket" as a hedge against potential conflicts in the East China Sea, the Straits of Taiwan and the South China Sea.The Stockholm International Peace Research Institute says China spent $215-billion on defence last year, a fivefold increase since 2000, and more than the whole of the EU combined. It is developing indigenous aircraft carriers. US experts say its "Two-Ocean Strategy" implies a fleet of five or six aircraft carrier battle groups to project global power.Japan has upgraded its once invisible Self-Defence Forces to a full-fledged fighting machine. The country has been increasing military spending for the past four years, especially under its nationalist leader Shinzo Abe, commissioning its largest warship since World War 2, an 800ft DDH-class helicopter carrier.Rearmament has paradoxical effects. It acts as a form of Keynesian economic stimulus, as it did in the late '30s. The spending might absorb some of the Asian savings glut and eat into excess industrial capacity, lifting the world out of secular stagnation, but it is a lethal way to do it.A parallel process is under way in Europe, where defence spending has been shooting up since the Russian invasion of Crimea, ending years of neglect and austerity budgets. Outlays are expected to rise by 20% in central and eastern Europe this year, and 9.2% in southeastern Europe, according to the French think-tank IRIS.Flash points are now legion.But the South China Sea is where matters are coming to a head. The Pentagon has made it clear that any move by Beijing to "weaponise" the Scarborough Shoal off the Philippines would be a step too far, leading to a military response.The great worry is that parallel dramas in East Asia and in Europe could feed on each other. Washington's "Asian Pivot" is diverting US focus and power from Nato to the Far East, creating an opening for Russian President Vladimir Putin.Putin's arms build-up has equipped him with a formidable military machine just at the moment when the EU has been slashing spending on modern weaponry. He has a window of opportunity to press his advantage, perhaps by testing Nato solidarity in the Baltics with his hallmark form of hybrid warfare."I am convinced that Europe stands on the edge of several strategic and political precipices and could well see more change in the next five years than in the preceding 50," said Julian Lindley-French, vice-president of the Atlantic Treaty Association."What if a conflict breaks out in Asia-Pacific in parallel? Would an overstretched America be able to continue to fill the gaps in Europe's defences?"Nobody knows the answer. The world has not been in such peril since the Cuban Missile Crisis.- ©The Daily Telegraph..

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