EXECUTIVE SUMMARY

The world’s second and third largest economies are engaged in a standoff over the sovereignty of five islets and three rocks in the East China Sea, known as the Diaoyu in Chinese and the Senkaku in Japanese. Tensions erupted in September 2012 when Japan purchased three disputed islands from their private owner to keep them from the nationalist governor of Tokyo. In response, Beijing implemented a series of measures including the establishment of overlapping administration in the disputed waters. Both sides’ law enforcement agencies and militaries currently operate in close proximity in disputed naval and aerial space. Unlike foreign ministries, these actors have less institutional interest in containing crises and enjoy an information monopoly allowing them to shape domestic perceptions. The two countries lack the mutual trust and communication mechanisms to manage incidents, let alone to discuss intentions or operating protocols. In the event of a skirmish, heightened nationalism, especially in China, could constrict the room for diplomatic manoeuvres to de-escalate the situation.

China’s actions reflect a “reactive assertive” tactic used previously in the South China Sea, whereby it exploits perceived provocations in disputed areas by other countries to take strong countermeasures to change the status quo in its favour. Interpreting the Japanese government’s decision to purchase the islands as a unilateral change to the status quo, China implemented a series of pre-planned actions with the goal of changing the facts on the ground. The most important was when Beijing declared territorial baselines around the islands in September, thus increasing the number and length of its law enforcement patrols to directly challenge Japan’s de facto control of the area. Many Chinese strategists perceive Japan to be a former empire continuing on a downward slide while China’s star is rising. For them, the time is right to respond resolutely and stake its ground with its eastern neighbour.

Nationalism makes the sovereignty dispute in the East China Sea a highly explosive issue for China, more so than the South China Sea. Due to the brutal Japanese occupation of China in the 1930s, sentiments over the status of the Diaoyu/Senkaku Islands run deeper in the Chinese psyche than any other territorial dispute in modern Chinese history, with the exception of Taiwan. Beijing has for years exploited anti-Japan sentiment through patriotic education campaigns and has used nationalism to justify assertive actions. But while in the past it could more easily dial up or down nationalism through control of state-run media, the rapid rise of internet use has eroded that control and begun to shape the context of policymaking. The government must now satisfy increasingly outspoken and critical citizens.

Complementary economic ties – essential to both given China’s prioritised commitment to strong economic growth and Japan’s desire to rebuild its stagnated economy – have provided strong incentives to keep this dispute from escalating into armed conflict, a scenario neither side wants. But despite expressions by both governments that they wish to avoid a war, potential for escalation has increased and there is deepening pessimism on both sides over the prospects of a peaceful settlement. The strategic mistrust that characterises relations has been aggravated by their respective domestic situations. Without top leaders setting the tone for crisis mitigation, a tradition of back-channel diplomacy has disappeared. The relative weakness of China’s foreign ministry complicates bilateral relations and prevents effective crisis management, as it is the official – and often the only – channel open to Tokyo. Meanwhile, the “China hands” in Japan who traditionally helped manage the relationship have been sidelined. While there is little hope of a resolution of the sovereignty dispute in the near future, Tokyo and Beijing urgently need to work toward establishing communication mechanisms and strengthening crisis mitigation in order to avoid a larger conflict.