While Chinese state media has warned Japan that it would suffer economically for nationalizing disputed islands, analysts say China has too much to lose to impose any serious sanctions.
The world’s second and third-largest economies have been involved in a steadily degenerating spat over who owns an unpopulated — but possibly resource rich — archipelago in the East China Sea.
Violent protests shook Chinese cities over several days until Tuesday, with Japanese shops and businesses the focus of angry mobs demonstrating over Tokyo’s purchase of three of the Senkakus from their private owners.
Japan controls the islands, but Beijing, as well as Taipei, claims them as the Diaoyutai Islands (釣魚台).
Commentators said the demonstrations appeared to have at least tacit blessing from the authorities, an impression backed up by comments made by the state media.
The People’s Daily newspaper, a Chinese Communist Party mouthpiece, warned Beijing would not back down.
“Amid a struggle that touches on territorial sovereignty, if Japan continues its provocations China will inevitably take on the fight,” the paper said. “Japan’s economy lacks immunity to Chinese economic measures.”
It did add that given the interdependency of the two countries, sanctions would be a “double-edged sword” for China.
However, in an apparent reference to Japan’s “lost decade” after the bursting of its stock and real estate bubbles, the paper asked: “Would Japan rather lose another 10 years and even be ready to fall back 20 years?”
As well as straight tariff barriers that any economy has at its disposal in a trade spat, China has form in just making life difficult for importers.
In May, when Manila and Beijing were involved in a stand-off over different disputed islands, Philippine fruit exporters complained their shipments were left rotting in Chinese ports, supposedly because pests had been discovered in some produce, prompting stricter and more cumbersome quarantine inspections.
On paper, China appears to have the upper hand — its economy has been on a rapid upward trajectory for years while Japan has been treading water since around 1990.
In 2010 the Middle Kingdom overtook its smaller neighbor to become the world’s second-largest economy; Japan is only its fourth-largest trading partner after the US, the EU and ASEAN.
With a vast population that is rapidly learning consumerism, China is Japan’s single biggest market.
However, economists agree that with two way-trade worth US$342.9 billion last year, according to Chinese figures, Beijing can ill afford the economic cost of a full-fledged scrap with Tokyo.
Jeremy Stevens, Beijing-based economist for South Africa’s Standard Bank Group, said given the high economic stakes, a rational outcome to the current face-off is likely as “both sides recognize that a rupture will hurt both.”
“Global supply chains are so interconnected, multifaceted and complex that it would be crazy not to appreciate that China and Japan are reliant on one another in bi-directional, and mutually beneficial ways,” he said.
“As such, we expect clear eyes and minds to prevail,” he said.
While the ‘Made in China’ tag abounds on consumer goods the world over, the components that go into making the finished product are not all home grown.
The mobile phones, televisions and video cameras that fill shipping containers leaving Chinese ports are frequently assembled from precision parts made by Japan’s finely-honed high-tech industries.