Who will blink first?

Thucydides wrote that the “great sources of war” are money, fear and honour.

At the time he was seeking to explain the rivalry between Athens and Sparta and the origins of the mutually destructive Peleponnesian War. The ancient Greek concluded, “The growth in the power of Athens, and the alarm this inspired in Sparta, made war inevitable.”

The dispute between China and Japan over a group of islands is a situation that Thucydides would understand equally well. There’s money at stake: that is to say, natural resources such as oil reckoned to be part of the islands’ patrimony. There’s fear too: a rising power (China) as a destabilising force, with the situation made worse by a history of animosity between China and the Japanese. And, of course, there’s honour. Conceding sovereignty to the other is out of the question. Neither government could accept the loss of face.

WiC has been following the dispute for months, although it seems to have deteriorated sharply in recent days after Japan’s purchase of the islands (known in Tokyo as the Senkakus and in China as the Diaoyus). Could this festering row lead to fuller conflict of a trade or even military variety between Asia’s two biggest economies? That is the frightening (some would say unthinkable) question now being asked.

So what’s happened?

As we reported last week, Beijing responded immediately to Japan’s purchase of the islands, condemning the act as theft. Over the weekend popular fury erupted across many Chinese cities. In Beijing demonstrators gathered outside the Japanese Embassy on Saturday hurling rocks and eggs. “If Japan does not back down we must go to war,” said 19 year-old-student Shao Jingru. “We are already boycotting Japanese goods,” he told state media. “The government should adopt sanctions on Japan, increase duties on their goods to show them that we are serious.”

In Shanghai 1,500 protesters marched to the Japanese consulate, while an incident in a local restaurant saw a Chinese man pour hot noodle soup over a Japanese diner. In Chengdu mobs tore and burned Japanese flags, and smashed up a 7-Eleven shop.

In Qingdao a Panasonic plant and a Nissan car dealership were attacked and torched. Toyota told the Nikkei newspaper that many of its own dealerships also came under attack across China. In Shenzhen the Uniqlo clothing chain was also forced to shutter its shops.

Employees at another car dealership (selling Audis, but still determinedly patriotic) hung a banner outside that read: “We must exterminate the Japanese; even if we have to destroy our own country, we must take back the Diaoyu Islands.”

Rumours of impending war even led to a run on salt in the city of Wenzhou, reports the Shanghai Daily. “Tweeters said salt has been sold out in Mayu Town in Wenzhou as local people believed that the war is drawing close,” reported the newspaper.

And there was at least one death amid the tension, although Japan’s government was quick to say it was not directly connected to the protests. In an unfortunate development, Japan’s new ambassador to China died in a Tokyo hospital at the weekend. He had only been appointed the previous Tuesday, giving him one of the shortest tenures in diplomatic history.

Justifiable bad feeling?

The government initially seemed to support the wave of popular outrage, with Xinhua news agency saying in a commentary that the protests were a “reasonable move and natural reaction” to Japanese provocation.

People’s Daily then produced a huge frontpage editorial outlining China’s case in excruciating detail.

Headlined “History backs China” the editorial noted that China had discovered and named the islands, and insisted that they are first mentioned as part of Chinese territory in the book Voyage with a Tail Wind, published in 1403. The newspaper claimed the islands were used by the Ming emperors as a coastal defence against Japanese pirates. “Thus it can be seen that China, by the early 1400s at the latest had discovered the Diaoyu Islands and placed them under its jurisdiction.”

The article suggested that the Japanese stole the Diaoyus during the First Sino-Japanese War in 1894. But People’s Daily maintains that they were then returned to China in 1945 as part of the Potsdam Proclamation. It added that any subsequent “backroom deals” between the Japanese and the United States on the Diaoyus were “illegal and invalid” (the US bestowed administration of the islands on Tokyo in 1971).

Later an appearance by Tung Chee-hwa on CNN sought to further explain to international audiences why Beijing is so furious with Tokyo. The former leader of Hong Kong said that when the the 1978 Sino-Japanese peace treaty was signed, the one thing that was left out of the document was the islands, on which both “agreed to disagree” and retain the status quo. Tung says Japan’s purchase of the islands last week had destroyed that status quo. Ergo, he argued, Japan is at fault for the current escalation and must be persuaded to back down.

Anger management

However, as the scale of the unrest grew, the Chinese government modified its confronational tone, concerned perhaps that events could spin beyond its control.

The new line was filtered, once again, through the state-run media. The Global Times called for an end to the violence, although it couldn’t quite bring itself to condemn the perpetrators outright. “China is large and complex, resulting in the uneven ability of the public across the country to express emotions in accordance with the law,” it explained.

The China Daily published an editorial insisting that “Japan’s antics are despicable and we are justified in expressing our ire at such outright violations of our sovereignty”. Yet there was reflection too: “When people’s anger is directed at the wrong targets and displayed in ways that result in vandalism, physical attacks and damage to private property, it is criminal and must be stopped… patriotism is no excuse for criminal offences.”

This seemed to echo some of calmer voices that took to Sina Weibo, also condemning the violence. Many of these were celebrities with millions of followers. Han Han wrote in a widely-forwarded tweet that destroying another person’s car because it was Japanese was not an act of patriotism but a “violation of another person’s rights”.

Nor did Han Han think it was wrong to buy a Japanese car in the first place: “No one who has bought a Japanese car thought they were supporting Japan’s violation of China’s territory; they just wanted an economical, fuel efficient car with easy upkeep.”

(Many netizens were particularly shocked by footage of an attack on a Japanese car in Xi’an which had a seven year-old passenger.)

Li Chengpeng, another popular blogger with six million weibo followers, was similarly critical: “All those who have called for a boycott on Japanese goods should apologise.”

Still, tensions rose again on Tuesday when rallies were held across China to mark the anniversary of Japan’s 1931 invasion of the country – after the so-called Mukden Incident in which Japanese troops blew up a railway as a pretext for the invasion of Manchuria.

Fearful that the anniversary would raise tempers further, Canon announced the closure of three of its Chinese factories.

The economic dimension

What is clear is that the disputed islands are starting to have an economic impact. The tensions over the territory aren’t new, of course. Back in WiC78 we described the first flare-up when a Chinese fisherman was detained by Japanese authorities for entering waters around them. On that occasion a furious Chinese government stopped exporting rare earth metals to Japan. The economic blackmail worked. Tokyo released the captain, who returned to China.

Another ban on rare earths sales to the Japanese now looks like a possibility, as well as wider-reaching measures. In an op-ed in the China Daily, Jin Baisong advocated sanctions, saying they would not contravene WTO rules due to clauses that permit such moves on grounds of “security exceptions”. Jin is deputy director of the department of Chinese Trade Studies, which is affiliated to the Ministry of Commerce.

The Wall Street Journal pointed out that an “economic war between China and Japan could have serious consequences”. It calculates that total trade between the two is around $345 billion. Trade between the two has tripled in the past decade and served as a vital source of growth for Japan.

Anger about the disputed islands is already hurting Japanese sales in China. According to the 21CN Business Herald, sales of Toshiba’s televisions fell 40.3% in August in the key markets of Beijing, Shanghai and Guangzhou. In other product categories the newspaper suggests that Japanese brands “have been showing a declining trend.”

Patriotic shopping may be one outcome of the stand off. But 21CN also reckons that the unrest will see more Japanese firms moving their manufacturing facilities to Southeast Asia instead. It quotes an academic from the Institute of Japanese Studies as saying that worries about the safety of factory facilities, combined with rising Chinese labour costs, could lead to a wave of firms departing. That would create job losses at a time when the Chinese economy is already slowing.

Nor does it just impact Japanese firms. Japan remains a vital part of China’s supply chain. As Tom Holland points out in the South China Morning Post, Foxconn can’t assemble an iPhone for Apple without importing memory chips, a screen, a camera and a battery from Japan. The columnist says sanctions against Japan would backfire and do “untold harm to perceptions of China’s role as reliable link in the global supply chain”.

So further disruption will hurt both economies, although in the very short term the Japanese will probably come off worse. The loss of Chinese tourists is a clearcut example. All Nippon Airways announced this week that 18,800 seat reservations had been cancelled on its routes between Japan and China for the period from September to November.

There are some odder consequences too. Runners in Shanghai have been told the city’s marathon has been cancelled. The reason? The sponsor was Japanese. Likewise the fate of top director Feng Xiaogang’s latest film has become a source of speculation. The movie is called 1942 and is about a famine brought about in China during the Second World War at the hands of Japanese troops. The film’s trailer had said 1942 was “coming soon” only last week. But will the government want it shown at such a delicate time? The movie’s commercial backers might be keener: if it is screened, the island dispute ought to ensure it breaks box office records.

One potential viewer is former soldier Wang Guomen from Shanxi province. At a rally on Tuesday he told Shanghai Daily he had travelled 600 kilometres to join the protest. “We believe we need to declare war on them because the Japanese devils are too evil. Down with little Japan,” Wang told the newspaper.

Will it get worse?

The next flashpoint in the crisis is the imminent arrival of 2,000 Chinese fishing boats in waters around the islands. In the meantime the Chinese authorities have submitted a document to the United Nations asserting the extent of the country’s territorial waters in the area. They also want the international body to affirm China’s claim to the islands.

Leon Panetta, the US defence secretary, visited both countries this week and called for “calm and restraint on all sides”, urging that “diplomatic means” be used to resolve the issue. “It’s in everybody’s interest for Japan and China to maintain good relations and find a way to avoid further escalation,” he advised.

But his overtures were greeted indifferently, with the Chinese defence chief saying the row was “none of Washington’s business”. General Liang Guanglie further warned that China reserved the right to take further action. “Of course, that being said, we still hope for a peaceful and negotiated solution,” Liang assured.

But what is the endgame? Imagining a ‘negotiated’ solution is difficult, especially when neither side will want to see its claims to sovereignty eroded. Few media or diplomatic sources seem to have many suggestions as to how the dispute can be resolved. At best, the hope seems to be that it can be sidelined for a while, with some of the current tension given time to dissipate.

Indeed, in one glimmer of hope, Japan’s Prime Minister Noda Yoshihiko admitted on Wednesday he had “miscalculated” the impact of purchasing the islands and pledged to “expand communications”.

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