Can a Japan-Led Alliance Contain China?

Surrounded by rivals it seems intent on antagonizing, is China nonetheless too big to be "contained"?

Jul 19, 2014 at 11:35AM

It's official. Japan is a global military power again.

More importantly, it just might become a counterweight to an aggressive China.

China's famous "nine-dash line," which claims as China's exclusive province nearly all of the South China Sea. Boxed areas indicate areas of ongoing conflict with Vietnam and the Philippines. Illustration: Wikimedia Commons.

Spooked by recent Chinese moves to lay claim to sovereignty within its "nine-dash line" (pictured above), Japan's government has been debating a "reinterpretation" of its post-World War II constitution to permit its military to take a more active role in global affairs. On July 1, the Cabinet of Prime Minister Shinzo Abe approved this reinterpretation. Henceforth, it is Japan's official position that when a hostile military force threatens an allied nation, and said ally requests assistance, Article 9 of Japan's constitution will permit the Japanese military to exercise "collective self-defense."

Put more simply, Japan can go to war to defend its allies.

What Japan can do
Strictly read, Article 9 of Japan's Constitution still renounces "war as a sovereign right of the nation and the threat or use of force as means of settling international disputes." Article 9 even goes so far as to say that Japanese "land, sea, and air forces, as well as other war potential, will never be maintained."

Nevertheless, Japan does maintain a pretty robust military. Its "Self-Defense Force" boasts 230,000 active-duty personnel, hundreds of combat aircraft and helicopters, tanks, armored personnel carriers, surface warships, submarines, and even aircraft carriers -- in short, all the accoutrements of a modern military power. Yet the country's military still pales in comparison with that of China.

Japan Maritime Self-Defense Force helicopter destroyer JS Hyuga (DDH 181). Photo: Wikimedia Commons.

What can Japan really do?
From one perspective, Japan -- the world's third-biggest economy -- should be a viable counterweight to China, the world's second-biggest economy. Yet at an estimated $188.5 billion in annual spending, China's defense budget dwarfs the $48.6 billion that Japan spends on its military. So even if Japan now has the will, and the legal authority, to assist its allies, what can it really do to oppose a threat from China?

It's not an idle question. Over the past year, we've seen multiple acts of aggression by China vis-a-vis its neighbors. In October, 20,000 Chinese troops conducted a military exercise simulating the amphibious invasion of Taiwan. In December, China annexed 1 million square miles of airspace over the East China Sea, declaring a unilateral "air defense identification zone" and demanding that aircraft entering it file flight plans with Chinese authorities. That move prompted Japan to announce a $240 billion program of military investment, featuring purchases of maritime surveillance drones such as Northrop Grumman's (NYSE:NOC) Global Hawk, surveillance aircraft including Boeing's (NYSE:BA) P-8A Poseidon, and new V-22 Osprey tiltrotor aircraft from Textron (NYSE:TXT) for its fleet of helicopter destroyers.

Recent months have seen Chinese warships threatening civilian fishing boasts off the coast of the Philippines, and blockading a Filipino military outpost in the South China Sea. To the west, a Chinese flotilla escorting a CNOOC (NYSE:CEO) oil rig has skirmished repeatedly with Vietnamese fishermen, in one case ramming and sinking a Vietnamese boat.

Red China and the seven dwarfs (plus Japan)
It's not inconceivable that Japan's neighbors might one day forgive the country's past bad acts in World War II and consider allying with the island nation to form a new Anti-China "Asian NATO". But for such an alliance to counterbalance China, Japan will need to attract a lot of friends to its cause.

How many?

All data courtesy of SIPRI.

Lining up the top defense spenders in the Pacific and Southeast Asia, it seems Japan would need to enlist at least seven more nations -- India, South Korea, Australia, Taiwan, Singapore, Indonesia, and Pakistan -- to form a coalition big enough to top China's defense spending. Other countries that might be willing to pitch in, including their defense budgets:

  • Thailand: $5.9 billion, plus one aircraft carrier already built.
  • Malaysia: $4.8 billion.
  • The Philippines and Vietnam: $3.5 billion and $3.4 billion, respectively.
  • Possibly tagging along with Australia, New Zealand -- $1.8 billion.

Is this realistic?
Any student of international relations (or anyone who was paying attention during President Bush's attempt to assemble a "coalition of the willing" in 2002) knows that it's not easy to get large numbers of nations moving in the same direction -- which they must do if Japan is to form a true regional counterweight. That said, Vietnam's and the Philippines' disputes with China suggest they might be willing to team up for a common purpose. (A good first step: Vietnamese and Filipino naval forces are already playing volleyball together in the Spratleys, not far from where Chinese warships cruise.)

What it means for investors
As I argued last week, the creation of an "anti-China NATO" would encourage the purchase of standardized weaponry among the allies. Four of the biggest spenders in the region -- Japan, South Korea, Australia, and Taiwan -- are already big purchasers of U.S. weaponry. And even India has been pivoting away from its historical reliance on Russia for its weaponry and buying increasing amounts of American arms as well. Attracting more allies into a regional alliance would only increase U.S. arms sales.

But whether or not Japan succeeds in parlaying its constitutional change into a true alliance, it's unlikely that these other nations will be spending less on defense in the face of an aggressive China. Indeed, the naval markets specialists at AMI International say spending on warships alone is likely to surge by $200 billion in the region over the next two decades.

The only real question for investors in the defense industry now is how much bigger the opportunity will grow.

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Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Northrop Grumman and Textron. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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