March 10, 2009 / 3:43 AM / 10 years ago

SNAP ANALYSIS-Possible fallout from China-U.S. naval standoff

By Chris Buckley

BEIJING, March 10 (Reuters) - A confrontation between a U.S. navy ship and Chinese naval vessels off the Chinese island of Hainan has raised tensions between the two sides at a time of global economic crisis. Here are some of the potential consequences.

* ECONOMIC TIES INSULATED - The United States and China are deeply interdependent in trade and financial flows. The U.S. buys more Chinese exports than any other nation, and Beijing is a major holder of U.S. government bonds. The naval flare-up appears unlikely to escalate into a confrontation that could seriously impede their negotiations over tackling the global economic slump ahead of a G20 summit in April.

"Overall, this won’t have a major impact, because financially the United States needs China too much, and China also needs the United States," said Shi Yinhong of Renmin University in Beijing.

* CHINESE MILITARY MORE PRICKLY - China has long been sensitive about actions it sees as slighting or violating its sovereignty, and that wariness is likely to grow as Beijing seeks to modernise and extend its naval forces.

Chinese People’s Liberation Army commanders have said they are looking to build the country’s first aircraft carrier, and Hainan island is also the site of a naval base that houses ballistic missile submarines, according to independent analysts.

"For some years now we’ve seen China sending a signal to the United States that they expect to be accorded a certain amount of respect," said Denny Roy, an expert on Asia-Pacific security at the East-West Center in Honolulu, Hawaii.

Roy said the confrontation may spur the two countries’ to move faster to agreements on averting dangerous clashes at sea.

Washington and Beijing have resumed military contacts after months of icy anger from China over U.S. military sales to Taiwan, and a Pentagon official, David Sedney, has said recent defence talks between the two sides were candid and helpful.

"But if this (incident) is indicative of a longer-term trend towards China wanting to assume the usual attributes of a great power, then we may be in for more Cold War-style incidents sooner than we might expect," Roy said.

* OIL MARKETS JUMP BUT LIKELY TO CALM DOWN - In a knee-jerk reaction to heightened geopolitical risks after the confrontation, oil prices rose Monday. But analysts said it was hard to see how tension between the world’s two biggest oil consumers could threaten supplies or inflate prices.

"I can see the geopolitical risk between two producing countries. But the U.S. and China are two major consumers. I don’t know why oil prices would rise on that," said Tony Nunan, risk management manager at Tokyo-based Mitsubishi Corp.

* COMPLICATING COMPROMISE - China’s Communist Party leaders worry about maintaining authority in their government, with their military forces and with the wider public, which is often ardently nationalist.

In past years, clashes between China and the United States have then made it more difficult for Beijing’s leaders to openly compromise with Washington in trade, security and other issues for fear of riling these domestic constituencies.

After U.S. bombs destroyed the Chinese Embassy in Belgrade during the NATO campaign of 1999, Beijing rejected U.S. claims the deadly attack was an accident. Tensions took many months to ease. Likewise, after a U.S. military plane was forced down on Hainan in 2001, tensions persisted until the September 11 attacks drew the two sides together.

The confrontation on Sunday lacks the severity and length of those two incidents, and its impact is likely to be less. But for now, it could cool friendly talk from Beijing. (Editing by Dean Yates)

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