PUBLISHED : Wednesday, 10 July, 2013, 12:00am
UPDATED : Wednesday, 10 July, 2013, 4:38am

There's only one way to solve the Diaoyu/Senkaku dispute

This isn't about national feelings of injustice, it's about the oil and gas deposits that it is believed may lie beneath these once-obscure islets

Just when we all hoped the dispute over the Diaoyu/ Senkaku islets in the East China Sea had simmered down, the Japanese defence ministry had to go and stir things up again.

In its latest annual policy paper, published yesterday, the ministry insisted the uninhabited rocks "are an inherent territory of Japan", and dismissed China's own claim as "incompatible with the existing order of international law".

Tokyo accused Beijing of having "attempted to change the status quo by force". It complained that Chinese military ships and aircraft have repeatedly violated Japanese waters and airspace, and condemned Beijing for "dangerous acts that could give rise to a contingency situation".

Now, I know I am sailing into turbulent seas here. The last time I wrote a piece about this dispute, one reader wrote in to tell me I didn't have the faintest clue about how fiercely the injustice of Japan's claim over the islands burned in the heart of every Chinese.

He called for "the strongest actions that the Chinese government can take against the Japanese" and threatened extreme violence against certain sensitive parts of my anatomy for calling the whole spat "silly".

Well, if feelings of injustice over the Diaoyu/Senkaku islands burn in the heart of any man or woman, Chinese or Japanese, he or she is a dupe.

No one but a tiny handful of people in China or Japan or anywhere else had even heard of the islets, let alone thought to quarrel over their ownership, until 1970, when the United Nations Economic Commission for Asia and the Far East published a report suggesting the possible existence of oil and gas deposits under the waters around the islands.

At the time the islets were used only by the US navy as an occasional bombing range. But within months, both Japan and Taiwan - which then held the UN seat now occupied by China - had each proclaimed them to be an eternal and indivisible part of their own sovereign territory.

In other words, this is nothing but an economic dispute. Both Beijing and Tokyo are motivated by simple greed, with each eager to lay their hands on any oil and gas that might be there, and to deny their neighbour a share in the bounty.

But although the rewards of sovereignty over the islands remain notional, the economic costs of the dispute to both parties are very real.

When the quarrel blew up afresh last September, sales of Japanese-branded goods in China plunged, with the sales of Japanese-badged cars falling by between 20 and 30 per cent, even though almost all are manufactured in Chinese factories by Chinese joint-venture partners using Chinese-made parts. Only now are they beginning to recover.

Investment into China also suffered. As the first chart below shows, in the nine months before the dispute blew up, China and Southeast Asia received almost exactly the same share of Japanese outward investment. In the nine months since, however, Southeast Asia has received 50 per cent more.

And as the second chart shows, two-way tourist traffic between the two has slumped. Between 2006 and 2011, China was by far the favourite destination for Japanese tourists travelling abroad. Last year it was overtaken by Korea.

Neither China or Japan should look to international law to settle the quarrel. The historical treaties both like to cite are largely irrelevant, the principles involved - the doctrine of acquisitive prescription, for example - are too fuzzy, and the legal precedents too various.

If they want to sort things out, they should do what the Europeans did with the North Sea in the 1960s: draw a line equidistant between the nearest permanently inhabited land, and say "that side is yours, this side is mine".

Then they can get back to business - and get on with extracting any oil or gas they might find on their patch.


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