In this issue:

China Acquires Stake in Canadian Oil Company

Japan Snubs China on Gas

Growth of Non-Performing Assets Threatens China

Chinese Premier Invites India To Join the SCO

Asia Expert: Chance To Negotiate with North Korea 'Gone'

U.S. Diplomat Provocatively Warns of 'New Mecca for Terrorism' in Mindanao

G-7 Not Likely To Bully China Into Revaluing Yuan

Indonesian President Seeks Reconciliation with East Timor

From Volume 4, Issue Number 16 of EIR Online, Published Apr. 19, 2005
Asia News Digest

China Acquires Stake in Canadian Oil Company

The China National Offshore Oil Co. (CNOOC), China's third-largest oil company, announced on April 12 that it has acquired 16.7% of the Calgary-based MEG Energy of Canada. MEG Energy owns a 100% working interest in oil sand leases of 52 contiguous sections, or 32,900 acres of land in Alberta. It is estimated that the oil sand, composed of sand, bitumen, mineral-rich clays and water, has over 4 billion barrels of bitumen, half of which are recoverable.

Xinhuanet announced South Africa's Kumba Resources, the world's fourth-largest iron ore producer, is in talks with China's Wuhan Iron and Steel Company for investment in a South African iron-ore project. Kumba, controlled by mining giant Anglo American Plc, exported about 40% of the 20.9 million tons of iron it produced last year to China, with the rest going mainly to Europe.

In related development, Nigeria indicated that it wants China to be involved in oil and natural gas exploration. China's involvement could dent the dominance of major international companies in Nigeria's upstream oil sector. Mr. Kaukoru, Nigeria's presidential adviser on petroleum and energy arrived in Beijing on April 13.

Japan Snubs China on Gas

Japan began allocating rights for gas exploration in a disputed area of the East China Sea on April 13, a move likely to anger China at a time when China-Japan relations have hit rock-bottom. A Chinese diplomat told the April 13 India Daily that the energy dispute is one of the major problems plaguing Sino-Japanese relations. He also pointed out that Beijing had warned Tokyo a day earlier not to award the test-drilling rights, and said doing so would "fundamentally change the issue."

Simmering tensions over a number of issues between the two major Asian nations gave rise to a major anti-Japan demonstration in Beijing last week. Some observers in Japan are concerned about the potential for an anti-China backlash within Japan. In Tokyo, on April 13, members of a right-wing group shouted slogans at the Chinese Embassy, where security has been tightened.

Growth of Non-Performing Assets Threatens China

According to Chinese economist Wu Jinglian, the fast-developing non-performing assets within China will have a disastrous effect on China's economy if measures are not taken forthwith. Although China's four state-owned banks have been trying to clear bad debts and streamline their operations, the non-performing loan ratio stood at an average of 15.6% by the end of the last year, the China Banking Regulatory Commission (CBRC) pointed out. Xie Yehua, another economist, pointed out that if the interest rate fluctuates, the rising banking loans to the real estate and automobile sector could gravely worsen the financial situation.

One reason behind the rapid increase in bad debts, which total almost $182 billion now, is the decision made by the Chinese banks, facing tough competition from foreign banks, to provide easy loans to the profitable housing sector, pointed out Prof. Huang Yanfen. She also said that most Chinese development companies are heavily dependent on cheap bank loans, so if the real estate bubble explodes, these loans, which could amount to another $100 billion, could become bad debts.

Chinese Premier Invites India To Join the SCO

According to a source report April 15, Chinese Prime Minister Wen Jiabao, during his four-day (April 9-12) visit to India, told his Indian counterpart Manmohan Singh that China would like India to join the Shanghai Cooperation Organization (SCO) in 2006 as full member. India had long been lobbying to join the organization.

SCO consists of Russia, China, Uzbekistan, Kazakstan, Kyrgyzstan and Tajikistan. Reports indicate that China would also like to invite Iran, Pakistan, and Afghanistan to join the SCO and form a regional security bloc.

In return, China would like to get membership in the South Asian Association of Regional Countries (SAARC), which India has blocked so far. SAARC consists of India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, and the Maldives.

Asia Expert: Chance To Negotiate with North Korea 'Gone'

Selig Harrison, director of the Asia Program at the Center for International Policy and long-time negotiator with North Korea, is now saying "the chance to negotiate is gone," according to the Los Angeles Times) April 10. Harrison met with Kim Yong Nam, head of the legislature in North Korea; Vice Foreign Minister Kang Sok Ju; and Kim Gye Gwan, the envoy to the six-party talks. "They told me they are not prepared to discuss dismantling their nuclear weapons until their relations with the U.S., economic and diplomatic, have been normalized," he said. At best, his contacts told him, North Korea would freeze, not dismantle, its weapons program. He said that there has been a significant shift in the North over the past weeks, with "hard-line elements" asserting control over the nuclear program in response to the belief that the U.S. is pursuing regime change. He quoted Col. Gen. Ri Chan Bok, the commander on the frontier, that any U.S. embargo would be an act of war, "and we would have the right to attack the U.S."

U.S. Diplomat Provocatively Warns of 'New Mecca for Terrorism' in Mindanao

Training in Mindanao by the Philippines Moro Islamic Liberation Front constitutes the making of the "next Afghanistan," charged the second most senior U.S. diplomat in Manila, an allegation that President Gloria Macapagal Arroyo has dismissed. Joseph Mussomeli, number-two in the U.S. Embassy, urged Manila to do more to stem the flow of Islamic militant recruits into the southern island of Mindanao, which he alleged was becoming "the new 'Mecca' for terrorism."

Mussomeli told Australia's SBS TV: "Personally, I'm worried that we're not worried enough. I think the real danger here, and the danger that has been here since the mid-'90s, is that we're not focused enough on the threat here." The U.S. mission in Manila posted the transcript of Mussomeli's remarks on its website in Manila, which is an unwarranted provocation.

Small groups of U.S. military advisers are training Filipino military units on Mindanao. One such training session starts April 11 on the southern island of Basilan. Mussomeli said, "We do have advisers down there. We do have various military experts down there who are helping, when asked, for guidance on how to conduct operations, but not actually conducting them or joining in them."

He conceded that there have been some operational disagreements between the two forces. "I would say that there are, within the Philippine government, those who are more reticent to take action and those who feel that action against various targets should be done in a more definitive and quick way. This is, I guess, a problem in all militaries," he said.

G-7 Not Likely To Bully China Into Revaluing Yuan

China is more likely to unpeg its currency from the U.S. dollar because it sees the move to be in its own interest, than because of browbeating from abroad, the chief economist of the Asian Development Bank said April 13.

Ifzal Ali said in Toronto, "I don't think China can be bullied into doing this," even as news reports surfaced that, at a meeting in Washington to be held this weekend, G-7 finance ministers plan to renew their calls for China to allow more flexibility in the yuan's exchange rate. In the face of the escalating pressure, China downgraded its delegation to the IMF meeting, and is only sending unofficial observers.

Mr. Ali said that although China has a massive trade surplus with the U.S., it also has a massive trade deficit with much of the rest of Asia, making any appreciation in the yuan an issue for its neighbors.

Ali said, however, that he thinks that any portfolio rebalancing by the Asian central banks will be gradual and orderly. "It is not in the interests of Korea, China, and Japan to have a sharp, sudden, disorderly depreciation in the U.S. dollar, because they would take a hit."

Indonesian President Seeks Reconciliation with East Timor

President Susilo Bambang Yudhoyono has taken the unprecedented step of laying a wreath at an East Timor cemetery where Indonesian troops had killed dozens of pro-independence protesters in 1991.

Yudhoyono's visit to the Santa Cruz cemetery is seen as a further step by the President to reconcile with East Timor.

A planned protest during Yudhoyono's visit to the cemetery along with East Timor Foreign Minister Jose Ramos-Horta on April 9, did not materialize. Instead, Yudhoyono was warmly greeted by an estimated 100 East Timorese, some of whom shook hands with the President. Yudhoyono also met with Timorese parliamentarians, in a meeting where he described East Timor as a "true friend" of Indonesia, pointing out that, despite Timor's own financial difficulties, Timor had donated $75,000 for tsunami relief.

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