Diaoyu/Senkaku dispute

It’s not about the oil

China’s claim to the disputed Diaoyu/Senkaku islands is compelling, according to our latest poll, but what’s so important about them?
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Diaoyu/Senkaku Islands: The disputed rocks in question
<div style="text-align: left;"> Diaoyu/Senkaku Islands: The disputed rocks in question </div>

China’s dispute with Japan over a bunch of rocks in the East China Sea is a perplexing one.

The tiny islands at the centre of the furore are neighboured by Taiwan to the southwest, China to the north and Okinawa to the east. The biggest island (by far) is three kilometres long and barely a kilometre wide. It is often reported that the islands and their surrounding waters provide access to vast reserves of oil and gas, but without much substantiation.

All three neighbouring countries have claims on the islands, so we polled our readers last week to find out whose was the most compelling. They opted for China ahead of Japan, but not by a huge margin — 39% versus 30%. Close to 20% reckoned none of them deserved it.

But what exactly is it they’re getting so antsy over anyway?

To be sure, both countries have a growing appetite for fossil fuels — China needs them to sustain its economic development and Japan needs them to replace nuclear power, which it switched off after the Tohoku earthquake in 2011.

This may seem to provide a compelling reason for the two countries to lock horns, but the evidence that the Diaoyu/Senkaku islands are sitting atop a vast reserve of precious energy is scant.

State-owned oil companies have been exploring China’s offshore waters since 1982 and Cnooc already operates six fields along the edge of territory claimed by Japan in the contested waters of the Xihu trough — a 1,000-kilometre basin that stretches from the tip of Taiwan to Kyushu, at the southern tip of mainland Japan.

China reckons the whole of the East China Sea contains as much as 160 billion barrels of oil, and perhaps 210 trillion cubic feet of natural gas — worth around $20 trillion. But the major international oil companies have all been and gone, and the results of Cnooc’s existing operations in the area are hardly compelling.

During the first six months of 2012, it produced about $70 million of oil and gas from its fields in the East China Sea, according to an interim report, which represented a measly 0.5% of its domestic production for the first half of the year.

Trade between Japan and China, on the other hand, totalled $345 billion during 2011, according to the Japan External Trade Organisation, which suggests that the cost of the dispute could already be far higher than the bounty.

It is perhaps more likely that China is worried that concessions in the East China Sea will weaken its claims in the far more strategic South China Sea, where six different countries (Brunei, China, Malaysia, the Philippines, Taiwan and Vietnam) claim rights over parts of the Spratly and Paracel islands, which span one of the world’s busiest shipping routes and are home to proven deposits — during the first half of 2012, almost a third of Cnooc’s domestic oil production and 86% of its natural gas came from the South China Sea.

Absurdly, China claims three-quarters of the entire sea, including all of the deep water, extending in a giant U all the way to the Philippines and Borneo, which is 1,500km from Hainan on China's southern coast.

However, it has a much stronger argument for its ownership of the Diaoyu islands. As such, the Chinese might have concluded that backing down on such a strong claim would undermine their weaker claim to a much more desirable stretch of water in the South China Sea.

Most neutral observers seem to agree that the islands were legally part of Chinese territory in 1895, before Japan stole them during the Sino-Japanese war. China then seems to have forgotten about the islands until the first reports of oil in 1970, when it started to argue that they should have been returned after the second world war.

Assuming that could be agreed, the only issue then would be to figure out whether they should return to the People’s Republic or the Republic (which was, technically, the last owner before Japan). Out of the frying pan, into the fire.

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