Introduction

The islands are strategically important in terms of maritime navigation and shipping; natural resources, including fisheries and hydrocarbons; and military defence purposes.

Domestic drivers and constraints play an important part in the recent flare up of the Senkaku/Diaoyu dispute and the various parties diplomatic and foreign policy positioning. Japan, China, Taiwan and the United States all have some measure of diplomatic flexibility to proactively shape regional peace and security and avoid miscalculation, at least for the short term.

Summary of claims to the Senkaku/Diaoyu Islands

China asserts that the Diaoyu Islands have been an integralpart of its territory since ancient times, having been important fishing grounds that were administered by the province of Taiwan. The Chinesecontention is buttressed by Ministry of Foreign Affairs claims of historical occupation and legal ownership. China claims discovery of the islands in the Ming Dynasty(1368-1644). The islands were China’s frontier offshore defence against wokou(Japanese pirates) during the Ming and Qing dynasties (1368-1911). China claimsthat Taiwan was ceded to Japan in the 1895 Treaty of Shimonoseki, following the First Sino-Japanese war (1894-95). An 1885 letter from the Japanese Minister of Foreign Affairs,warning against annexing the islands due to anxiety about China’s response, is held up by China as demonstrating that Japan knew the islands were not terra nullius. The Chinese Communist Party (CCP) contends that whenTaiwan was returned in the Treaty of San Francisco, the DiaoyuIslands,which were a part of Taiwan,should also have been returnedto China.

Taiwan’s core contention is that the islands are part of its territory and have been inherently part of Taiwan since its inception. Taiwan claims this is supported by the discovery and early recording in maps and travelogues. Furthermore, they claim that the waters around the contested islands have been fishing grounds for Taiwan’s fishermen for more than 100 years. However, both the Chinese and Taiwanese governments claim that during negotiations with China over the Ryukyu Islands, after the First Sino-Japanese War, the islands were not mentioned at all in a partition plan suggested by the then US President Grant.

Domestic drivers and constraints

I. Japan

Summary: There are important national interests that drive Japanese concerns over the Senkaku/Diaoyu Islands. These include freedom of maritime navigation and the security of sea lanes. The Senkaku/Diaoyu Islands are also embedded in the national discourse about Japan’s constitutional pacifism and security capability, an issue Japanese political parties are now poised to start seriously talking about.  

  
(a) Energy security: Japan’s LNG demand

In the aftermath of the March 2011 earthquake, tsunami and Fukushima Daiichi disaster, Japan faces a new energy security landscape. The average utilisation rate of nuclear power plants fell from 68% in 2010 to 38% in 2011.The Fukushima disaster has radically changed public opinion on nuclear energy with short-term demand for liquefied natural gas (LNG) very strong. Some analysts suggest that the shift in Japan’s energy demand profile has put increasing pressure on the government to assert territorial control and sovereignty over areas in the East China Sea containing hydrocarbon reserves.

This is not to discount the prevalence of energysecurity pressures in the Japanese government calculus. Japan is the world’s largest importer of LNG, second largestimporter of coal and the third largest net importer of oil. Procurement ofhydrocarbon resources and actual delivery of resource – in terms of freepassage through the South and East China Seas – are equally critical to Japan’score interests and economic growth.

The importance here is the distinctionbetween securing new domestic supply sources to reduce import dependence andkeeping sea lines of communication open for Middle Eastern, Australian and Southeast Asian LNG resources to be delivered. Considering that the prospective fields in the East China Sea and their estimated reserves would not be significant in Japan’s energy balance sheet, it is unlikely that this is a dominant driver of conflict. The central concern is more likely freedom of sea lanes for import delivery.     

However, as Japan works through numerous economicand political transitions, at a juncture point of its regional and globalpower, the idea that nationalism will dictate a “sovereignty of Senkaku at allcosts” mentality is debatable. Unless assertion of sovereignty overSenkaku/Diaoyu Islands is directly linked to longer-term economic stagnation,energy security or disaster preparedness/resilience – the core domesticpolitical concerns – it does not seem plausible that the confrontation couldescalate on nationalistic sentiment alone.

The uncertainty lies in the rise of both independent voters and independent local governmentpoliticians who exhibit Junichiro Koizumi style political flamboyance, as well as coalition formations (potentially including the JRP) that the LDP may be required to make in order to form government if they outpoll the DPJ.

Considering that China is Japan’s largest export market (18% of all Japanese exports) there could be some suggestion that anti-Japanese protests might further damage the Japanese economy. However, Sino-Japanese trade is domestically significant for both parties. In 2011, total bilateral trade reached $349 billion, and Japanese investment in China reached $6.3 billion. Japan is China’s third-largest foreign direct investor and fourth-largest importer. Mutually assured economic damage is an important domestic constraint for both Japan and China.   

New Liberal Democratic Party PresidentShinzo Abe and other LDP candidates have already signaled reform of Japan’s constitutionallimitations on military engagement as a key election platform. The more recent defence white papers outline a dynamic defence force concept thatenvisages flexible deployment of the Self Defence Forces (SDF) in the event of maritime territorialdisputes.

The impetus of “occupy and defend now;negotiate and arbitrate latter” in relation to contested territory (as opposed to offensively confrontinghypothetical Chinese or Taiwanese occupation of Senkaku/Diaoyu Islands) doeshave some limited roots in Japan’s constitutional pacifist restrictions. There is an emerging pattern in both the East and South China Seas of contested territory occupiers refusing international adjudication. The desire of Japan for ICJ adjudication over Dokdo/Takeshima Islands but not Senkaku/Diaoyu Islands highlights this point. The same can be said of China’s referral of the Diaoyu Islands to UNCLOS but resistance to such moves in relation to the Paracel Islands.

II. China

The Japanese purchase and nationalisation of three of the islands has triggeredboth authentic and orchestrated anti-Japanese protests in China. The protests led to damage to Japanese business properties, consulates and other interests in anumber of provinces. Protesters have articulated strong anti-Japanese rhetoriccombined with more general Sino-nationalist sentiment.

Victimisation at the hands of imperial Japan throughout the 19th and 20th century frames Sino grievances and attempts to justify some form of push back. The root of nationalist sentiment is not an artifact of historical maps stretching back to the 13th century, but two Sino-Japanese wars that are very much part of Chinese modern history.

Whilethe Diaoyu/Senkaku Islands may have limited offensive capacity for a US-JapanAir-Sea Battle concept, their potential value as a defensivecomponent of China’s Anti-access/Area Denial (A2AD) strategy should not be so easilydiscounted. 

In 2010 testimony to the House of Representatives US-China Economic & Security Review Commission on China’s active defense strategy and its regional impact, Captain Stacy Pedrozo argued that China’s current military strategy accords with a 1982 navalmaritime plan outlined by then-Vice Chairman of the Military Commission LiuHuaqing:

“In the first stage, from2000 to 2010, China was to establish control of waters within the first islandchain that links Okinawa Prefecture, Taiwan and the Philippines. In the secondstage, from 2010 to 2020, China would seek to establish control of waterswithin the second island chain that links the Ogasawara island chain, Guam andIndonesia. The final stage, from 2020 until 2040, China would put an end toU.S. military dominance in the Pacific and Indian Oceans, using aircraftcarriers as a key component of their military force.”

Contrary to the idea that bilateraleconomic interdependence leaves China and Japan equally exposed to economicretaliation and sanctions, some commentators argue that China holds the Japanesepurse strings and is in a superior position vis-à-vis trade and investmentexposure. The export restrictions placed on rare earth minerals after the 2010dispute showed the CCP was not afraid to apply trade sanctions. In fact, Jin Baisong from the Chinese Academy ofInternational Trade has suggested China should use its power as Japan’s biggestcreditor, with $230 billion of bonds, to “impose sanctions on Japan in the most effective manner” and bring Tokyo’s festering fiscal crisis to a head.

III. Taiwan

Summary: In a bid to demonstrate to a domestic audience political leverage and support for historical Taiwanese fishing in the disputed waters,  the administration of President Ma Ying-jeou has taken a strident approach to negotiating fishing rights around the Tiaoyutai. Within their strategic calculus is an awareness that Japan may be willing to make concessions on fishing rights to avoid Sino-Taiwan collaboration on contesting Japanese claims.   
(a) The desire for resource development

Though often overlooked by Western media, Taiwan also lays claim to thedisputed island chain and has been involved in many on-seaskirmishes with the People’s Republic of China and Japan. Many Taiwanese believe the islands belong to Taiwan and this belief is sharedby both pro-China elements in President Ma Ying-jeou’s Kuomintang (KMT) and members of thepro-independence Democratic Progressive Party, who like to annoy China byasserting Taiwan’s sovereignty over the islands.

The 17th round of bilateral Taiwan-Japan talks on Taiwanese fishing rights in the disputed waters are set to resume in November 2012 according to recent reports. Suggestion has been made that elements of the Japanese bureaucracy are eager to discourage Sino-Taiwan collaboration on the disputed waters by engaging Taiwan on fishing rights. However, the Taiwanese Ministry of Foreign Affairs has indicated that Taiwan will not be cooperating with China to resolve the sovereignty disputes, even in the face of some polls which show over 50% of respondents support cross Taiwan Strait cooperation on this issue.

Factoring in the “new” US Asian pivot

This US posture should not be interpreted as reducing the significance of US interests in freedom of maritime navigation. The United States has important export markets in Malaysia (which receives 1.8% of all US exports), Singapore (1.3%), Thailand (1.2%) and India (1.1%) but they are not as significant as exports to China (10.5%) and Japan (9.7%). US interests in freedom of sea lanes will inevitably be guided by key exporting interests and substantial US exports to China may temper its position on maritime territorial disputes.

Escalation in the confrontation, real or orchestrated, might prevent the Unite States from simply hedging its bets and potential force Washington to show its hand. Reneging on key regional security obligations in the South or East China Seas would undermine US balance of power strategies, a core component of their Asian pivot. However, these obligations and international relations strategies are constrained by tight fiscal conditions and domestic public opinion.
 

Military budget austerity, a conflict-fatiguedpopulation and a large question mark over the efficacy of US militaryinterventions over the last decade are important constraints on the observanceof defence treaty obligations the United States owes to a number of countries making up the “new”Asian pivot.
 

To date, the US Secretary of Defense hasreiterated America’s intention to fulfill its treaty defence obligations to both the Philippines and Japan. The USadministration would be aware that anything short of absolute commitment onmutual defence obligations would have adverse consequences for existing USalliances in the Asia-Pacific and render the courting of new partners such as Vietnam and, potentially, Myanmar impotent. However, the likelihood of automatic US military involvement in any escalated conflict over the Senkaku/Diaoyu Islands is seriously reduced by the ongoing need to hedge their bets with China and the other limiting factors discussed above; something US allies in the region are only too well aware of.