I don't see that this generation of politicians on either side is ready to compromise on an issue that transcends the disputed real estate, with its apparently rich fishing areas and oil and gas reserves. Arguably, the contested South China Sea boundaries are the world's most sensitive strategic sea lanes whose navigation will require a modus vivendi with China – which has yet to be found.
China is forcing that search by putting down the markers with ADIZ and the new fishing rules. Further events will be driven by China's growing economic and military clout. That will determine how Beijing will exercise its presence in the sea it claims as part of its own ancient territory.
Japan is more interesting than Fed "tapering"
Investors would do well to think of this instead of being consumed by the impact the unfolding monetary tightening in the United States may, or may not, have on East Asian economies.
(Read more: Emerging markets may become new force in euro rally: Goldman Sachs)
Japan might be a good place to start that reflection. In addition to its military standoff with China, Japan's quantitative easing is facing a moment of truth. There is no exit strategy – the Bank of Japan says it is "too early" for that – and the extent of an incipient financial crisis is illustrated by the fact that the Japanese bond yields are unresponsive to rising inflation.
Here is that interesting detail. Inflation in Japan went from minus 0.9 percent at the time the quantitative easing started to 1.6 percent in November 2013. In spite of that, the 0.66 percent yield on Japan's government ten-year bond last Friday was still a few basis points below its year-earlier level.
That glaring anomaly cannot continue, even allowing for the fact that the Japanese bond market is controlled by domestic investors and by the proverbial "iron fist" of its financial regulator.
What will happen on the way out of the labyrinthine quantitative easing? Who and what will provide the Ariadne's thread to lead the country out of this uncharted territory?
(Read more: Global economy at a turning point: World Bank)
And what would happen if the escalation of military tensions with China were to shut off one-fifth of Japanese exports?
Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.
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