Tensions are relatively high between China and Japan, which are respectively the world’s second and third largest economies.
Just yesterday, Japan’s Prime Minister Shinzo Abe made a ritual offering to the controversial Yasukuni war shrine, an act that can only worsen relations between Japan and China.
Recent rows between the two nations have largely been tied to an ownership dispute regarding a string of islands in the East China Sea.
“The islands — called Senkaku in Japan but Diaoyu in China — are largely uninhabited but could yield significant oil and gas deposits for the rightful owner; hence the heated competition to lay claim to this part of the East China Sea,” noted U.S. Trust’s Joseph Quinlan. “In September 2012, Japan purchased three of the islands from a private Japanese businessman, a transaction vehemently opposed by China. Roughly a year later, China unilaterally declared an East Asian Air Defence Identification Zone over the islands, which effectively requires all aircraft flying over the region to follow the instructions issued by Chinese authorities. Japan, not surprisingly, condemned the move as an infringement on Japanese sovereignty, escalating tensions between the two parties.”
It’s a messy geopolitical situation that has already affected industries like automobiles.
And it’s not just a war of words.
Quinlan offered this chart showing the increasing number of instances that Japan scrambled aircraft in response to Chinese aircraft flying too close to the islands, which raises the odds of an accidental clash.
Still, most experts don’t see war as a base-case scenario.
“No one is predicting an armed conflict between China and Japan, but the rising ill will between the two parties hardly engenders investor confidence in a region built on peaceful regional relations and unfettered trade and investment flows,” said Quinlan, who has characterised all of this as “a dangerous game of military chicken.”