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Will China’s Air Defense Zone Chill Trade?

Interviewee: Thomas Bollyky, Senior Fellow for Global Health, Economics, and Development
Interviewer: Beina Xu, Online Writer/Editor
December 26, 2013

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The diplomatic reverberations continue from China's declaration of an Air Defense Identification Zone (ADIZ), but what of the trade fallout in this economically vibrant part of the world? CFR Senior Fellow Thomas Bollyky says so far, China's extensive economic ties with many states in the region appear likely to outweigh the new concerns about its territorial assertiveness. Yet China's ADIZ is likely to complicate the timely completion of talks over the Trans-Pacific Partnership (TPP), Bollyky says.

A Chinese government plane Y-12 flies about seventy-five miles north of the disputed Diaoyu/Senkaku Islands. (Photo: Courtesy Reuters)

China's announced ADIZ has rattled nerves, and much of the analysis has revolved around diplomatic and military concerns. What are the implications for trade?

Over the long-term, China's announcement of an Air Defense Identification Zone over the long-disputed Senkaku/Diaoyu islands is unlikely to fundamentally alter the strategic considerations that underpin economic ties in Southeast Asia.

For those governments engaged in trade initiatives as a part of a larger reaction to China's growing influence in the region, the ADIZ controversy reinforces the need for that strategy. This will be true, to varying degrees, for many of the governments engaged in the Trans-Pacific Partnership (TPP) talks and Japan's economic engagement with ASEAN member states. On the other hand, most governments engaged in trade negotiations with China, such as Australia and South Korea, have deep and extensive economic ties at stake, which concerns over the ADIZ will not outweigh.

Japan is the possible exception. China's ADIZ was widely perceived as targeting Japan and stoked mutual enmity. It is difficult to foresee much progress occurring in the trade talks among Japan, South Korea, China, and others, called the Regional Comprehensive Economic Partnership.

China has made clear that the ADIZ only applies to military aircraft. Does the zone impede existing trade routes?

The ADIZ does not currently impede trade routes. China is requiring commercial airlines traveling through its air defense zone to give flight plans and other information to Chinese authorities, but is not otherwise interfering with these flights. Japan Airlines and ANA Holdings have stopped providing these flight plans following a request from the Japanese government, but have not been prevented from traveling through China's ADIZ. The ADIZ does not apply to commercial shipping.

InfoGuide: China's Maritime Disputes

The ADIZ is, however, close to important shipping lanes. China's assertion of this air defense zone may be motivated, in part, by a long-term interest in securing these lanes, which include the route by which oil shipments from the Middle East travel to China.

The ongoing TPP negotiations look like they'll drag on into 2014, despite the push for a year-end deal. With China and South Korea murmuring about joining, do you see the ADIZ having any bearing on the talks?

The ADIZ controversy comes at a critical time for the TPP talks. The closer we get to U.S. midterm elections in November 2014, the less appetite there will be in Congress for a difficult vote on a trade deal. The record of trade deals passing late in the second term of a U.S. president is not good. Accordingly, high-level diplomatic efforts are needed now to resolve the difficult issues that remain in the TPP talks. Government leaders need to build public support for the necessary compromises.

The ADIZ controversy has been a distraction from these efforts. Vice President Joe Bidenʼs recent visit to Japan and South Korea was originally intended to advance the TPP talks, but the ADIZ issue overshadowed that agenda. Japan is likely to need to make significant agricultural reforms as part of the TPP talks, for which Prime Minister Shinzo Abe cannot build public support if distracted by the ADIZ controversy.

China is Australia's biggest trading partner, and while Canberra has voiced repeated concerns about the zone, it reiterated nonetheless that negotiations on a free trade deal—which Prime Minister Tony Abbott has been pushing—had been productive. Do you think the ADIZ threatens this progress?

I don't think it does. There is no question that the ADIZ issue has been an irritant in Sino-Australia relations. Australian foreign minister Julie Bishop has repeatedly raised concerns about the defense zone, which led her Chinese counterpart, Wang Yi, to publicly accuse Bishop at a joint press conference of "jeopardizing bilateral mutual trust" and to express the deep dissatisfaction of "the entire Chinese society."

At the end of the day, however, trade with China is worth nearly 9 percent of the Australian economy. Abbott pledged to secure passage of its free trade agreement with China within his first twelve months of office. The Australian government has already indicated that the ADIZ controversy will not outweigh trade relations with China.

U.S. secretary of state John Kerry has warned Beijing against issuing an ADIZ in the South China Sea, one of the world's busiest trade hubs. If Beijing does extend it, how would it affect trade relations there?

If China does assert a new ADIZ, it will again reinforce the trade ties of those governments that have strategic interests in containing China in Southeast Asia and make life more difficult for those governments that would otherwise seek deeper economic relations with China. With China already concerned about being locked out of the TPP, this dynamic would not seem to be in its long-term interest.

That said, it is difficult to predict whether China would risk creating a new ADIZ in the South China Sea. China's leaders have seemed taken aback by the degree of opposition to its ADIZ and have been flexible on enforcing it. On the other hand, national sentiment in China is running high. The Chinese government was predictably defiant in the face of Kerry's warnings and has expressed little interest in concluding negotiations with ASEAN member states over a code of conduct for dispute resolution in the South China Sea.

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