
By EconMatters
With Bin Laden and Gaddafi out of the picture, the geopolitical headline is now shifting to Asia/China. The most recent excitement came from a 3-way bitter territorial feud over eight small and uninhabited islands in the East China Sea.
Jim Chanos has a new short target in his sights. Earlier this week, the hedge fund manager disclosed that he is betting against "legacy" data centers that face growing competition from the trio of technology giants, which have previously been their biggest customers. The fund manager, who is best known for his winning bet against Read More
Historically, these uninhabited islands are rich fishing grounds with military strategic importance. It was also discovered in 1968 that there could be oil and gas reserves under the sea near the islands. It is estimated that the East China Sea region may hold as much as 160 billion barrels of oil. Today, these islands have different names depending on whom you talk to – Diaoyu in China, Diaoyutai in Taiwan, and Senkaku in Japan.
Chart Source: FT.com (h/t Mark Turok)
Duel in the East China Sea
Physically, Taiwan is the closest to Diaoyutai among the three; however, China and Japan have been portrayed as seemingly the only two players by the western media in this island row. Taiwan has always maintained a low profile in most international or diplomatic matters. But that changed about two weeks ago when Taiwan officially asserted its claim on Diaoyutai by dispatching 12 coast guard vessels along with some 50 civilian fishing boats to the islands. The resulted water cannon duel between the vessels of Taiwan and Japan has officially landed Taiwan squarely on the map of Diaoyutai, so to speak, before the eyes of world media.
Japan Purchase Angers Chinese

Based in historical documents, Diaoyutai Islands were formally part of China, but Taiwan (along with the associated islands including Diaoyutai Islands) was ceded to Japan by the Qing Dynasty in 1895 via Treaty of Shimonoseki (????) after losing the First Sino-Japanese War. Taiwan was returned to the Republic of China formed by the Nationalist Party (KMT) in 1945 after the end of WW II in accordance of Cairo Declaration, and Potsdam Proclamation.
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.
Further Reading: The Inconvenient Truth Behind the Diaoyu/Senkaku Islands (NYT, Sep. 19, 2012)
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?
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