Never a dull political moment in China

Relations between China and Japan are getting worse, which is a nice way to take the heat off the United States while our government makes new attacks on yuan policy.

As outcry over Japan’s decision to detain a Chinese fishing boat captain grows in China, there are plenty of rumors and reports: Chinese travel agencies being asked to stop promoting trips to Japan, a possible interruption of rare earth trade, embassy protests.

The underlying issue appears to be sovereignty over the uninhabited islands where the Chinese captain was found — in waters that may contain oil.

In the meantime, with Washington back on the war path trying to get the yuan to rise, Beijing looks like it is digging in. Prime Minister Wen Jiabao is fighting back in the media with threats that if yuan exchange rates were reset at 20% above current levels, it could trigger “major social upheaval.”

Wen warns of mass bankruptcies, unemployment and an eventual exodus of Chinese workers back to the villages if the yuan is suddenly revalued.

This does not look like a sudden gain ahead for yuan ETFs like CYB (quote):