The ownership of the Diaoyu Islands (Senkaku Islands) has been a matter of contention between China (PRC), Taiwan (ROC), and Japan for more than a hundred years. Each side has convincing claims. It is difficult to sort out the facts due to the clouds created by time, history, conflicting documents, and political bluster on all sides.

Japan’s claim to the islands goes back to 1895 when China formally ceded them to Japan after losing the Sino-Japanese War. A private individual established a fishery on the island and imported some 200 workers. In 1940 the enterprise failed. The islands were subsequently sold to the Kurihara family, but remained unexploited. In September of 2012 the Japanese government formally purchased the islands from the Kurihara family, creating quite a stir in China.

Anti-Japanese riots and demonstrations broke out in at least 85 cities in China. Japanese owned businesses were attacked. Japanese cars were vandalized, even though most vehicles were owned by Chinese citizens. Since then the demonstrations have eased, but an informal boycott of Japanese goods remains in place. Japanese automobile plants have been forced to drastically curtail production. Tourism to Japan has slowed to almost nothing, causing airlines to cancel most flights between the countries. Trade between the two countries has slowed. A few Japanese people have been beaten by rioters.

The islands consist of three tiny islets and five rocks, all uninhabited. Both ROC and PRC recognize the islands as part of Taiwan, though the sovereignty of Taiwan is in dispute. One most Chinese maps Taiwan is shown as a province of PRC.

Until recently Diaoyu ownership was considered a relatively unimportant problem, but in 1968 seismic studies found the possibility of oil and gas deposits in their surrounding waters. Since the waters around the islands are relatively shallow these resources should prove easy to exploit.

Now the ROC, PRC and Japan are all patrolling the waters around the islands. Japan announced it will upgrade its coast guard fleet with $5.3 billion in new expenditures for new and better armed vessels. China has indicated it has similar plans, but has announced nothing concrete. Currently China has four coast guard ships in the area. There are reports of occasional confrontations between all three parties, but they have been verbal warnings and water cannons squirting each other. As of yet no shots have been fired.

Japan has a population of about 128 million and about 250,000 military forces. Because of constraints imposed after World War II, Japan’s military is officially a self-defense force. China has a population about 10 times larger than Japan, and a military of some 2,300,000. On paper it looks like no contest if armed conflict breaks out between the two nations. But China’s military is mainly inward focused. It exists to keep internal order and is ill prepared for a serious conflict with even a small but very well equipped and highly trained army like Japan’s.  Thus Japan doesn’t show fear of a military confrontation with its much larger neighbor.

There are reports of secret meetings between diplomats trying to resolve the dispute, but as of yet nothing has come from them. The undeclared trade war might force one side to blink since both economies are under preforming expectations.

China has said it will closely monitor Japan’s actions regarding the islands, and will react accordingly. This is not how a great power handles a crisis. A great power reacts first, forcing the competition to react. Tiny Japan has humiliated the great Panda by nationalizing the Diaoyu Islands.