Following the Money: Greenback at Stake in China Showdown?

Dollar Survival Behind US-China Tensions

by Finian Cunningham - PressTV

The escalation of military tensions between Washington and Beijing in the East China Sea is superficially over China’s unilateral declaration of an air defense zone. But the real reason for Washington’s ire is the recent Chinese announcement that it is planning to reduce its holdings of the US dollar.

That move to offload some of its 3.5 trillion in US dollar reserves combined with China’s increasing global trade in oil based on national currencies presents a mortal threat to the American petrodollar and the entire American economy.

This threat to US viability - already teetering on bankruptcy, record debt and social meltdown - would explain why Washington has responded with such belligerence to China setting up an Air Defense Identification Zone (ADIZ) last week extending some 400 miles from its coast into the East China Sea.

Beijing said the zone was aimed at halting intrusive military maneuvers by US spy planes over its territory. The US has been conducting military flights over Chinese territory for decades without giving Beijing the slightest notification.

Back in April 2001, a Chinese fighter pilot was killed when his aircraft collided with a US spy plane. The American crew survived, but the incident sparked a diplomatic furor, with Beijing saying that it illustrated Washington’s unlawful and systematic violation of Chinese sovereignty.

Within days of China’s announcement of its new ADIZ last week, the US sent two B52 bombers into the air space without giving the notification of flight paths required by Beijing.

American allies Japan and South Korea also sent military aircraft in defiance of China. Washington dismissed the Chinese declared zone and asserted that the area was international air space.

A second intrusion of China’s claimed air territory involved US surveillance planes and up to 10 Japanese American-made F-15 fighter jets. On that occasion, Beijing has responded more forcefully by scrambling SU-30 and J-10 warplanes, which tailed the offending foreign aircraft.

Many analysts see the latest tensions as part of the ongoing dispute between China and Japan over the islands known, respectively, as the Diaoyu and Senkaku, located in the East China Sea. Both countries claim ownership. The islands are uninhabited but the surrounding sea is a rich fishing ground and the seabed is believed to contain huge reserves of oil and gas.

By claiming the skies over the islands, China appears to be adding to its territorial rights to the contested islands.

In a provocative warning to Beijing, American defense secretary Chuck Hagel this week reiterated that the decades-old US-Japan military pact covers any infringement by China of Japan’s claim on the Diaoyu/ Senkaku Islands.

It is hard to justify Washington and Tokyo’s stance on the issue. The islands are much nearer to China’s mainland (250 miles) compared with Japan’s (600 miles). China claims that the islands were part of its territory for centuries until Japan annexed them in 1895 during its imperialist expansion, which eventually led to an all-out invasion and war of aggression on China.

Also, as Beijing points out, the US and its postwar Japanese ally both have declared their own air defense zones. It is indeed inconceivable that Chinese spy planes and bombers could encroach unannounced on the US West Coast without the Pentagon ordering fierce retaliation.

Furthermore, maps show that the American-backed air defense zone extending from Japan’s southern territory is way beyond any reasonable halfway limit between China and Japan. This American-backed arbitrary imposition on Chinese territorial sovereignty is thus seen as an arrogant convention, set up and maintained by Washington for decades.

The US and its controlled news media are absurdly presenting Beijing’s newly declared air defense zone as China “flexing its muscles and stoking tensions.” And Washington is claiming that it is nobly defending its Japanese and South Korea allies from Chinese expansionism.

However, it is the background move by China to ditch the US dollar that is most likely the real cause for Washington’s militarism towards Beijing. The apparent row over the air and sea territory, which China has sound rights to, is but the pretext for the US to mobilize its military and in effect threaten China with aggression.

In recent years, China has been incrementally moving away from US financial hegemony. This hegemony is predicated on the US dollar being the world reserve currency and, by convention, the standard means of payment for international trade and in particular trade in oil. That arrangement is obsolete given the bankrupt state of the US economy. But it allows the US to continue bingeing on credit.

China - the second biggest economy in the world and a top importer of oil - has or is seeking oil trading arrangements with its major suppliers, including Russia, Saudi Arabia, Iran and Venezuela, which will involve the exchange of national currencies. That development presents a grave threat to the petrodollar and its global reserve status.

The latest move by Beijing on November 20 giving notice that it intends to shift its risky foreign exchange holdings of US Treasury notes for a mixture of other currencies is a harbinger that the American economy’s days are numbered, as Paul Craig Roberts noted last week.

This is of course China’s lawful right to do so, as are its territorial claims. But, in the imperialist, megalomaniac mindset of Washington, the “threat” to the US economy and indebted way of life is perceived as a tacit act of war. That is why Washington is reacting so furiously and desperately to China’s newly declared air corridor. It is a pretext for the US to clench an iron fist.

Finian Cunningham (born 1963) has written extensively on international affairs, with articles published in several languages. He is a Master’s graduate in Agricultural Chemistry and worked as a scientific editor for the Royal Society of Chemistry, Cambridge, England, before pursuing a career in journalism. He is also a musician and songwriter. For nearly 20 years, he worked as an editor and writer in major news media organisations, including The Mirror, Irish Times and Independent. Originally from Belfast, Ireland, he is now located in East Africa as a freelance journalist, where he is writing a book on Bahrain and the Arab Spring, based on eyewitness experience working in the Persian Gulf as an editor of a business magazine and subsequently as a freelance news correspondent. The author was deported from Bahrain in June 2011 because of his critical journalism in which he highlighted systematic human rights violations by regime forces. He is now a columnist on international politics for Press TV and the Strategic Culture Foundation. More articles by Finian Cunningham