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China and Japan: A complex dance.

December of last year saw a sudden flare-up in the already tense relationship between China and Japan. As as often the case, the tiny chain of uninhabited islands that China calls “Diaoyu” and Japan refers to as “Senkaku” was the focus of diplomatic conflict. Japan’s control over the Diaoyu chain is passionately disputed by China. While China may have a valid historical argument to make in favour of its possession of the Diaoyu chain, Japan has controlled the islands since 1895, and was affirmed of its possession of the islands in 1971, when the United States “returned” them to Japan following a period of post-war American control.



Though strong nationalism is common to both nations, patriotic fervor has particularly grown in China, where anti-Japan protests occasionally spill over into violent riots and boycotts of Japanese products.


While it may be the primary factor, national pride is not the only driver of the dispute: the islands, like the Spratly chain to the south, are near large reserves of oil that were identified in 1968. Although it is unclear how much energy potential the oil fields contain, they have remained untapped until the present day. Both countries need the oil, having maximized production from other sources, and both are energy-import nations.


Furthermore, energy use is closely correlated with GDP growth. This has unique ramifications for China, which must continue growing, albeit at a slightly slower rate, in order to perpetuate the gains in individual material wealth that guarantee the political stability that the Communist Party relies on to stay in power. GDP growth rates that are well in excess of five per cent per year must be matched by significant growth in energy supplies: even moderate estimates project that China will account for more than half of the world’s growth in oil consumption over the next two years.


While Japan is less desperately concerned with its energy supplies, the Japanese government feels that its territorial sovereignty is at stake. The public agrees: Shinzo Abe, the current Prime Minister, was elected last September with a hawkish military platform, and a promise to stand up to China over the islands dispute. Faced with the growing clout of China’s military – and in particular by the modernization and growth of the PLA Navy – Japan feels that it must not give ground. While Japan remains locked in a military alliance with the United States, which quietly supports Japan’s claim, America refuses to become heavily involved in the dispute.


Meanwhile, the balance of power in East Asia is inexorably shifting towards Beijing. While Japan and China’s economies are mutually dependent, Beijing may have more economic leeway, and stands to risk less by damaging trade through symbolic military maneuvers and grandstanding to its public on the issue. Ultimately, while responsibility for military flare-ups is shared, Japan is playing a defensive position, while China is testing the limits of its newfound power.


These parameters explain how it is possible that two major world powers would, at least by the metric of military near-confrontations, seem to be teetering on the brink of war. The Western press has routinely expressed shock and fear that the two countries could be playing such a dangerous game, especially in a time of global economic uncertainty. But articles that raise the prospect of war between the two nations, while expressing a valid concern, overstate the risk involved.


In reality, the possibility of war is abhorrent to both governments. China is playing as hard as it can to try to force Japan to compromise, but the Abe government understands the nature of the two-way street. To ask how much is at stake is futile, because the possibility of war between China and Japan has no historical precedent in the nuclear era, let alone in the 21st century. Although China may still seethe with resentment over Japan’s abject barbarism during the Second World War, an assault on the islands now would be far too risky. Aside from confronting a country that is allied or friendly with most of the world’s nuclear-armed states, the economic fallout on a global and regional scale would be enormous.


Even an economic blockade is impossible. To put this reality in a simplistic equation, China’s social stability is predicated on a growing economy, and its economy is dependent upon foreign consumption. To end economic ties with Japan, as a start, would eliminate China’s third-largest export market after the European Union and the United States. Moreover, China still relies on imports from Japan, despite recent double-digit monthly declines in import value. While this may indeed speed the development of certain Chinese industries – cars, for example – declining trade with China’s closest big trading partner has a negative overall effect on the national economy.


In the near future, we may expect the dance of military provocation to continue. Meanwhile, the disruption in the nations’ trade relationship will continue to hurt both China and Japan, but Japan, currently experiencing worse economic circumstances, will feel it more. China’s leaders are probably hoping that the fear of actual confrontation, and the financial pressure of a decrease in imports, will force the Abe government to compromise. This seems unlikely, as nationalism runs high in Japan, and the emotional and strategic cost of giving up the islands is still much greater than the financial strain. Meanwhile, Xi and his colleagues will keep their eye on homegrown nationalism, a force that the Communist Party uses to whip up support for the regime, but which stands at odds to the ides of social harmony that the Party promotes. While happy to accept the dividend in popular support, the CPC is wary of the kind of destructive riots that shook mainland cities in September of 2012, and earlier in 2005. To the extent that public opinion is under the control of the Party, Xi will not want to risk too much lawlessness in the streets by excessively fanning the flames of conflict, especially so early on in his tenure.


Over the longer term, the islands dispute poses a multifaceted challenge to leaders in China and Japan. Both countries have benefited greatly from a healthy trade relationship that is now declining. This is because, while China and Japan’s trade volume has grown to a total of $350 billion USD over the past two decades, the gap in their foreign policy outlook has not shrunk proportionally. Maintaining sovereignty, saving face, and maximizing economic benefits cannot be achieved simultaneously without some compromise, and hardheadedness will prevail as long as both sides can afford it.




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