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China, Japan go toe-to-toe over islets

Analysis: Minor spat over fishing rights reveals shifting power balance in Asia.

According to Goldstein, China is trying to reduce the fleet to some 200,000, because China's fisheries are "in a state of near collapse" due to overfishing. But in the meantime, the government is also subsidizing its "distant water fishing" fleet, to divert fishermen from depleted waters just off China's coast.

"The activities of fishing vessels and related enforcement authorities of the Western Pacific region represent one of the jagged edges of volatile maritime territorial disputes," Goldstein wrote. "Unfortunately, fishing tensions could aggravate these disputes to the point of military conflict."

"There is the unfortunate potential that a fishing dispute involving loss of life — which happen in East Asian waters with disturbing regularity — could serve as tinder for nationalists on one side or another, provoking actual hostilities between disputing, and well-armed claimants in the region."

Challenging Japan

Enter the Japanese coast guard and navy — or technically, its "Maritime Self-Defence Force," since Japan's constitution renounces the use or threat of force to settle disputes. In reality, its navy is viewed as the best-equipped and best-trained East Asian force on the water.

But it's facing an increasing challenge from the People's Liberation Army Navy or PLAN, the clunky name for China's sea forces. China has one of the world's most rapidly modernizing navies and also Asia's largest sea force, including more than 60 attack submarines and 75 destroyers and frigates, according to the Pentagon. And it's got an aircraft carrier in the works.

Japan has just 18 submarines — a number set to expand in response to the Chinese navy's rise — and about 50 destroyers and frigates.

Chinese subs have been popping up in unexpected places, and it has conducted naval exercises of unprecedented scale and sophistication in waters near Japan, bringing protests from Tokyo. Such exercises "send a very clear message to the region that it should be prepared to see a China unafraid to really test its reach and move into new areas," PLA expert Gary Li told the South China Morning Post in April.

Beijing's Fisheries Law Enforcement Command — its equivalent of a coast guard — has also been feistier. China's foreign ministry said today that ships from the command were steaming toward the Diaoyu, presumably to protect other Chinese fishing vessels in the area. According to Japanese media, one such fisheries command vessel had a showdown in June with the Indonesian navy, after it seized a Chinese fishing vessel.

Diplomatically, China has been taking a hard line with Tokyo, too. Since Junichiro Koizumi stepped down in 2006, the two sides have enjoyed warmer relations under more China-friendly Japanese prime ministers. In 2008, the two countries even signed a breakthrough deal on joint energy exploration in the East China Sea, where their "exclusive economic zones" overlap.

But China has since dragged its feet in upgrading that deal to treaty status, said Lam. "Negotiations have since been bogged down, according to the Japanese," he said. "The Chinese have since refused to follow this up."

Another wild card in the mix: a group of Chinese nationalists wants to sail to the Diaoyutai, and is planning a meet-up of like-minded groups from the mainland, Hong Kong and Taiwan in Taipei on Saturday, according to Taiwan's Want Daily.

In the past, China's government has stopped the agitators from making such trips; and Taiwanese have refused to rent them boats. If the Chinese nationalists do succeed in reaching the islets this time, it could further inflame the situation.

Politics cool, economics warm

But a serious military showdown is unlikely, for many reasons. Perhaps the most important is the unprecedented economic ties between East Asia's two big powers.

In 2007, China surpassed the U.S. as Japan's top economic partner. Since then, the two countries haven't looked back: Two-way trade hit a record of nearly $140 billion in the first half of this year, a 34.5 percent jump from the same period last year, according to Japanese government figures.

Japan's exports to China are rising even faster than its imports, due to rising Chinese consumption that shows China's increased importance as a market, not just the world's factory. China's massive 4 trillion yuan ($590 billion) stimulus package during the global recession also helped boost spending on Japanese goods, with Beijing directing huge subsidies toward the countryside for purchasing white goods and TVs.

All of which suggests that Japan has a strong interest in resolving the current spat quickly, and, to the extent possible, to Beijing's satisfaction.

"Powerful voices in Japan are urging the government not to take a hard line toward China, and be more accommodating," said Lam, who said he was talking mostly about businessmen. "Some people argue that Japan needs China more than the other way around."

After all, there's only so far one's likely to push a minor dispute with one's best customer.