The Senkaku Islands form a small archipelago consisting of five islands and three barren rocks about 105 miles northeast of Taiwan. Total area above water is about 2.45 square miles. The islands were reportedly discovered by Chinese sailors, who called them the Diaoyu Islands, in the late 14th Century and appeared on Chinese maps in the 18th Century. In 1895, the Japanese annexed them following the first Sino-Japanese War and five years later Koga Tatsushiro, a Japanese businessman, opened a fish-processing plant that closed in 1940, eight years after he bought four of the islands; the fifth remained under Japanese government control as part of the Prefecture of Okinawa. Since then the islands have been deserted except for some sheep and a few moles. They came under the authority of the United States following World War II. The U.S. lumped the Senkakus in with Okinawa and returned them Japan in 1972 under the Okinawa Reversion Treaty. Through various transactions, ownership of the Island passed to another family which leased them to the government of Japan, which bought three of them last month and announced it planned to nationalize its control over all the the Senkakus including, presumably, the rocks.
The Japanese actions upset the Chinese government, which says the Diaoyu Islands belong to Taiwan. This may be the only thing on which Taiwan and Mainland China agree, but, for decades, the various Chinas did nothing about, or with, the islands.
Then, in 1992, China claimed the islands were part of their “indigenous territory.” Still nothing much happened to cause problems until Japan bought the islands and announced it was nationalizing them.
It’s hard to imagine such seemingly worthless real estate could be such a bone of contention, even with the sheep and moles. It’s even harder to imagine they could be a big factor in the automobile industry, but the Senkakus are already putting a dent in sales of several Japanese brands, including Toyota and Honda. The dent could be big enough to keep Toyota out of the top spot among the world’s automakers.
The reason for warships patrolling, various sorts of diplomatic unpleasantness, and heartburn at Toyota, Nissan, Honda and others, is that there’s oil around those rocks. Not a lot of oil by Saudi Arabian standards, but a fair amount to the second and third largest oil importers in the world. There’s natural gas, as well, which is especially critical to Japan, which is having to use conventional power plants because its nuclear power plants were all shut down following the mess Tokyo Electric Power made of the Fukushima reactor disasters in March 2011.
As a result of the Japanese government’s actions over the past few months, there has been widespread anger among the Chinese people and they began taking out that anger on Japanese cars, then Japanese car dealerships, even those owned by Chinese businessmen. Chinese car buyers are avoiding Japanese brands, not only because of national pride, but also to avoid having their new cars trashed and possibly even being assaulted themselves.
Toyota, Honda and Nissan recently announced they are cutting Chinese production by 50% in the wake of plunging sales. Toyota’s sales were down 40% last month, to about 50,000 vehicles. Should the problems persist or worsen, Toyota alone could loose 150,000 to 200,000 sales by year’s end. That could be enough for Volkswagen to replace it as the world’s No. 2 automaker.
Escalation could also be a problem for the U.S. Since the Japanese government has officially annexed the islands, the U.S. is obliged by treaty to aid in protecting them. Should that become part of the issue, U.S. automakers with a presence in China could start seeing reprisals, as well.
Various proposals have been presented for joint Chinese-Japanese development of the resources but relations between China and Japan remain frosty.
Japan may want to rethink its stand; its ties to China are important, not just as a customer, but as a manufacturing base: the U.S. is not the only country that outsources production to China. China has a lot at stake, as well; the Japanese employ thousands of Chinese workers and contribute billions to the Chinese economy. It would be a trade war with no winners.
UPDATE: The Japan Times reported Sunday that Japan and the United States are planning to hold a joint drill in Okinawa next month in which troops would “retake” an uninhabited island from foreign forces. This would be the first time the two countries have ever conducted such a training exercise.
The drill is part of joint exercises running from November 5 to November 16 using forces from U.S. Marine Corps 31st Expeditionary Force and from the Japanese Ground Self-Defense Force’s (GSDF) Western Army. The GSDF Western Army is stationed in Sasebo, Nagasaki Prefecture, and its mission includes defending remote islands.
Though officials in Tokyo and Washington deny there is a specific application for the operation, sources say decisions have been “heavily influenced” by the rising tensions over the Senkaku Islands. The same sources say that the exercise most likely would likely be held on Irisuna Island, a tiny piece of real estate located 37 miles west of Okinawa Island and about 200 miles northeast of the Senkakus.
The operation is almost guaranteed to provoke an angry response from China, so the details may not be made public.
With the U.S. openly involved in the military operation, reprisals could hit sales of American brands. The U.S. is already at loggerheads with China over a variety of trade issues and the problems have been amped-up by pre-election sabre-rattling in the U.S.