However, Diaoyutai was not returned to China along with Taiwan. And in the aftermath of a civil war in China, and two treaties between the US/Allied and Japan--without the presence of China--the U.S. somehow ended up “administering” the Diaoyutai Islands from 1945 before transferring the “administration” to Japan in 1972, which is part of the basis of Japan’s claim and in essence the direct cause-and-effect of the current 3-way row.
Communist China did launch a protest at the time of the administrative transfer by the United States to Japan. So a logical question would be:
Why did the U.S. return the “administration” of Diaoyutai to Japan in 1972 with China protesting knowing full well there was an unresolved territorial dispute?
How “Neutral” Can The U.S. Be?
So far, the U.S. has tried hard not to get involved by simply asserting “a neutral position on the competing claims of Japan and China over the islands.” However, the U.S. also affirms that it will protect Diaoyutai as part of "the territories under the administration of Japan" according to the US-Japan Security Treaty. With that gold-plated safety blanket in the back pocket, it is not a surprise that Japan resorts to anything less than the so-called “diplomatic blunder” to force the claim over Diaoyutai via an outright purchase? It is also part of the reason China is calling the United States to “walk the talk” regarding being neutral on the China-Japan territorial dispute.
Global Multi-lateral Implications
Now, this regional diplomatic row has evolved into a global multi-lateral economic and geopolitical event when China’s Finance and Central Bank officials, along with several Chinese major bankers, boycott IMF and World Bank meetings in Tokyo this week.
Ratings agency Standard & Poor’s already warned that “if the political confrontation [between China and Japan] drags on and further worsens ties between both countries, it may hurt Japan’s macro economy and affect the credit quality of rated Japanese companies on a large scale.”
Alarmed by the recent development, Christine Lagarde of IMF also warned that China and Japan should not be distracted by territorial division as “the current status of the global economy needs both Japan and China fully engaged."
China & Taiwan - Not Nemesis on Diaoyutai
China and Taiwan have remained hostile to each other ever since the separation some 60 years ago. Both sides disagree on almost anything and everything for decades. However, the common bond of defending Chinese sovereignty from Japan seems to have pushed them closer.
China asked Taiwan to have a joint sovereignty claim (which was turned down by Taiwan), and said it will continue vessel patrols and will extend protection to Taiwan civilian fishing boats around Diaoyutai. Then interestingly, after China Daily taking out full-page ads in New York Times and Washington Post to broadcast and support its claim over Diaoyutai, Taiwan also took out ads in four major U.S. newspapers to assert its claim as well.
China’s First Aircraft Carrier Worries Many
What has raised quite a few heart beats from the Kremlin to the Pentagon was that as a show of force to Japan, China put its first aircraft carrier--Liaoning—into commission right in the middle the Taiwan-Japan vessel showdown.
Partly in response to the Chinese carrier launch as well as the increasing tension over Diaoyutai, two nuclear-powered aircraft carrier strike groups of the US Navy's 7th Fleet have been deployed since mid-September to the Western Pacific
Backing Down Is Politically Incorrect
Right now, the political environments in Taiwan, China and Japan would suggest it is highly unlikely any of them would back down from their current stance.
Many are keeping a watchful eye as China has been beefing up its military defense budget with quite a sizable naval fleet in the Pacific region to boot. Meanwhile, the U.S. has been preoccupied with the Middle East region, particularly since 9/11, leading to a much diminished presence in the Asia-Pacific.
However, with so much more than just oil reserves in the East China Sea at stake, it is now almost impossible to really have a third Sino-Japanese War. Nevertheless, when push comes to shove, China still has the bigger gun over Japan on many other levels, and the U.S. most likely has to at least sit in the bed it’s made so far. And also don’t discount the potential wild card role of China’s nemesis – Taiwan either.