Beijing and Taipei are fast becoming losers in their separate struggles with Tokyo over the Diaoyu Islands. Both capitals have been flummoxed by the ascendancy of right-wing elements in Japanese politics. Unfortunately, there seems little China or Taiwan can do against Tokyo. And this apparent lack of resolve has alienated the two governments from their constituencies. After two years of propagating nationalism, Beijing has painfully come to grips with the fact that the creed can be a double-edged sword. The administration of President Jiang Zemin was correct in thinking that the nationalistic ideal - testing missiles off Taiwan and 'saying no' to the United States - could be a cohesive force in Chinese society. Yet Beijing's apparent failure to stand up to the Japanese has already invited criticism from the increasingly outspoken Chinese public. The Politburo's anxiety to stop Tong Zeng and other activists from holding anti-Japanese demonstrations in the capital today has also betrayed a lack of confidence. Beijing seems to fear that pro-democracy, 'bourgeois-liberal' dissidents would jump on the bandwagon and hijack the protect-Diaoyu movement for their own ends. The underlying reason, however, is more complicated. And it is not Beijing's concern that the yen loans will be withheld. Soon after the dispute over the potentially oil-rich archipelago boiled over last month, the Ministry of Foreign Trade and Economic Relations (Moftec) was asked to make an assessment of the possible loss of Japanese investment and trade should the crisis worsen. In internal papers, Moftec has asserted that Japan will be worse-off than China should a trade war erupt. The party leadership's nightmare is that an overly aggressive posture on the Diaoyu Islands would hurt China by upsetting the geopolitical balance in the Asia-Pacific region - mainly its longer-term relations with Japan and the US. Beijing is afraid that if it were to use tough tactics, such as having the People's Liberation Army hold war games in the region, Tokyo might retaliate in more nasty ways than one. For instance, the Japanese Government might allow Taiwan President Lee Teng-hui to attend the 100th anniversary of the founding of his alma mater, Kyoto University. Worse, the Jiang leadership fears a flexing of military muscle could further consolidate the Japan-US defence alliance even if it jeopardises the recent rapprochement in Sino-American ties. After all, since it was Washington that 'returned' the Diaoyu islets to Japan as part of the Okinawa chain in the early 1970s, a defence of Chinese sovereignty would inevitably develop into another Sino-US crisis. 'At this point, Jiang doesn't want some small islands to endanger his much-sought-after state visit to the US,' a source said. 'Particularly with the American presidential election coming up, he fears Washington might react irrationally to another PLA war game in the region.' Moreover, given the fact that China is about to overtake Japan as the nation enjoying the largest trade surplus with the US, Beijing does not want to give the US Congress more cause for a new round of 'China bashing'. Unlike what happened in the recent Taiwan Strait crisis, the brass has not put excessive pressure on Mr Jiang to rattle the sabre. This is despite a series of petitions by retired PLA officers that the army should 'teach the Japanese militarists a lesson'. This time, the serving generals have merely cited Tokyo's recently announced defence budget of US$46 billion (HK$358.8 billion) to lobby for a big increase in Chinese military spending. A Chinese diplomatic analyst said Beijing was content to let Taipei take the lead in 'negotiations' with Tokyo over the islets. 'Beijing knows full well that Taipei can only look bad in its wrangling with Tokyo,' he said. 'Having no diplomatic relations with Japan, Taipei's efforts will not amount to much. Taiwan's ineptness will dramatise its need to come back to the fold of the motherland. 'Moreover, if Taipei were to press too hard, this could serve to worsen Lee Teng-hui's carefully crafted ties with the Japanese.' There are, however, few indications that Taiwan officials will overly exert themselves. No less than Beijing, the Lee administration is caught between a rock and a hard place. While pro-Diaoyu sentiments in Taiwan are less prevalent than those in Hong Kong, the pro-unification New Party has had a field day slamming the Lee administration's 'softly, softly approach'. Other Lee foes have linked Mr Lee's inaction to his alleged 'pro-Japan inclinations'. The usually combative Kuomintang chief has yet to return fire. There is, of course, scant possibility that the Kuomintang Government would play hard ball by deploying naval vessels to protect Taiwan fishing boats. Apart from Japan's still very substantial influence on the Taiwan economy, the Lee cabinet needs Tokyo's support in its continual stand-off against the mainland. Moreover, Washington having sent subtle but unmistakable signals that it does not want the controversy to escalate, Taipei is not about to displease a major ally. There are reports in the Taipei media that US aviators are coaching Taiwanese pilots to fly the first consignments of made-for-Taiwan F-16 fighter jets at US bases in Okinawa. Equally important, Taipei sees no point in spending precious political capital on something it knows is beyond its reach - but which could serve to at least temporarily bog down its most formidable adversary. Given such a background, it will not be surprising if the increasingly assertive administration of Japanese Premier Ryutaro Hashimoto will continue to connive at the shenanigans of the Japan Youth Federation and other right-wing outfits. Tokyo knows that the pro-Diaoyu demonstrators in Hong Kong, China and Taiwan have to roar much, much louder before Beijing and Taipei will take up the cudgel.