As nationalistic fervor rises in China following the purchase by Japan of a chain of contentious islands, the territorial spat threatens to have serious and wider implications for political and economic relations in Asia.

The protracted dispute over the Diaoyu islands as they are known in China, or Senkaku in Japan, which have been ongoing since a study in 1971 found the uninhabited islands located in the East China Sea may be rich in minerals, fish and gas resources, boiled over on September 12 following Japan’s purchase of three of the five islands.

Political rhetoric has sharpened noticeably, and a high profile meeting between outgoing Chinese President Hu Jintao and Japanese Prime Minister Yoshihiko Noda at the Asia-Pacific Economic Cooperation (APEC) meeting in Vladivostock, which was intended to defuse the tinder box of emotions sparked by nationalists in both countries, instead turned into an icy dressing down for Noda.

 Beijing insists the islands have been part of its territory since the end of the second world war, and slammed Tokyo’s  move as “an act of theft”.

The spike in political tensions comes at a sensitive time with Hu preparing to step down as part of China’s once-in-a-decade leadership change, and growth slowing in the world’s second largest economy.

 The Japanese government was forced to purchase the islands, which it has been leasing from a Japanese family, to thwart a much more contentious bid by nationalistic Tokyo governor Shintaro Ishihara, who had announced a plan of his own in July to purchase the islets and make them available for development.

 In order to prevent a wave of Japanese activists from flooding onto the islands, which would have antagonized China even more, Tokyo purchased them from the Kurahara family which had bought the islands in 1972 from another Japanese family who had owned them since the 1890s, for 2.05 billion yen (USD 26.15 million).

Japan has insisted that it only has peaceful intentions in making the purchase of the uninhabited islands. Faced with general elections in 2013, Noda seemingly had little choice but to act decisively in a bid to haul back the far-right nationalists.

Exacerbating the already contentious situation is the involvement in the dispute of another Asian economic power, South Korea While China and Japan contest the Diaoyu chain of islands, the Dokdo/Takeshima islands are contested between South Korea and Japan.

An unprecedented visit by South Korean President Lee Myung-bak to the disputed islands earlier this year resulted in strained ties between the testy neighbours. Tokyo’s immediate response to Lee’s visit was to promptly recall its ambassador from Seoul.

Taiwan, which also claims ownership of the Diaoyu Islands, has also entered the row by recalling its top envoy from Tokyo following the purchase.

The US, which has called for calm and resisted taking sides in the untimely territorial dispute between the Northeast Asian neighbours, threatens to be dragged unwillingly into the dispute as Japan and South Korea are its Treaty allies.

With the US tackling stagnant economic growth and embroiled in its own presidential elections which loom later this year, Washington is walking a diplomatic tightrope as it struggles to avoid worsening already strained relations with China, while also not wishing to appear as though it is not providing backing for its key strategic partners in the Asian region.

To compound the economic and political woes, hopes that China, South Korea and Japan, the world’s third largest economy, would reinvigorate growth in Asia and globally through a free trade agreement have for now at least been put on the back burner.

In May this year, the three governments signed an investment agreement, and agreed to initiate negotiations on a free trade agreement, which had in part been sparked by the plan by the 10 member countries of the Association of South East Nations (ASEAN) bloc to roll out its Asian Economic Community (AEC) in 2015.

However, judging from China’s furious reaction to Japan’s purchase of the islands which it perceives marks an unacceptable incursion on its sovereign rights, the current deterioration in relations is likely to have scuppered those plans for now.

Protests have already been held in major Chinese cities to condemn the purchase of the islands, while calls for a widespread boycott of Japanese goods have been mounting. While these actions may be short lived, the impact of such a boycott would nevertheless be felt by Tokyo.

China is the largest purchaser of Japanese goods, and accounted for approximately 20.6 per cent of Japan’s total exports in 2011, according to a report by the Japan External Trade Organisation.

China’s People’s Liberation Army (PLA) have also reportedly stepped up military exercises as a warning to Japan, while China’s Ministry of Defence has issued a statement which declares the government is determined to defend national territorial sovereignty.

While it is likely a full blown conflict will be avoided in spite of Beijing’s increased military posturing in the immediate aftermath of Japan’s purchase of the Diaoyu’s, nonetheless, increased efforts must be taken to ensure Tokyo’s actions do not further worsen regional political relations, or negatively impact already anemic Asian and global economic growth.

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