Ken Silverstein EnergyBiz Insider Editor-in-Chief

Certainly, the potential resources in the sea would be salivating for both nations that are desperate for oil and gas. But analysts who know a lot about China and Japan say that this current dispute must be seen in light of a long-troubled relationship -- one that has resulted in a number of wars throughout the centuries. The fear, of course, is that the harsh rhetoric would intensify and that lines would be drawn -- bringing the rest of the world into the fray.

China has already begun drilling, in areas that are clearly on its side of the disputed border. But, Japan says that those wells straddle its territory and want such operations to be developed jointly. Undisputed fields on one side or the other would be individually harnessed by each country. The two countries don't seem to have an issue with joint development. They do have a bone to pick with where to draw the boundary.

The problem is getting more intense. Japanese lawmakers are writing legislation that would "protect" Teikoku Oil, which has plans to look for oil and gas. At the same time, China has sent warships into the disputed areas as a show of force. The United Nations will issue a decision on global off-shore territorial claims by 2009.

China and Japan have agreed to talk about it. In fact, both have had diplomatic relations since 1972. But, that's as far as any progress has gotten. In late October, China pulled out of pending discussions. It said Japan's Prime Minister Junichiro Koizumi visited a war memorial where 2.5 million Japanese are buried and including those said to have committed mayhem against the Chinese.

Indeed, China's strong feelings over what it considers a lack of remorse by Japan for war atrocities committed during World War II have dominated the discussion in recent weeks. Some Chinese are even calling for an economic embargo of all Japanese-made goods and services. And, according to China's state-owned media, more than 30 million citizens there have signed forms demanding that Japan be excluded as a permanent member of the U.N. Security Council.

At the same time, both countries seek closer ties to Russia. Specifically, both want a trans-Siberian pipeline to be routed through the Pacific to work to the advantage of their countries. Meanwhile, both are trying to get a one-up on the other in terms of the other Asian nations.

Fight Continues

Japan wants China to stop drilling, for now. Any disputed territories could be jointly developed. China agrees, but says that any properties clearly on its side are its own. But China wants the dividing line to be much further east of what Japan has proposed. It also says that it has spent millions over 10 years, calling Japan's boundary a "territorial trap."

For its part, Japan says it won't be ready to drill until the summer of 2006. Others say that Japan won't actually be able to consume any of the oil or gas it produces, noting that the lack of pipelines there mean it would have to sell all of its findings to China. Japan says it is ready to find a diplomatic solution but fires this shot:

"We need to remind China that we are ready and willing to defend our territory and interests," says Katsuei Hirasawa, a Japanese legislator who was quoted in the Washington Post.

So far, the spat continues. But, relations between the two have endured such disagreements before. In reality, each side depends on the other. Japan's economy is second only to the United States and provides a plethora of markets for Chinese goods. At the same time, China's gross domestic product has risen by 9 percent over the last generation and provides a fountainhead of opportunity for Japanese businesses.

In fact, the trade volume between China and Japan amounted to nearly $207 billion, up from $115 billion in 2000, says Japan's Ministry of Finance. Japan's economy has rebounded in part because of increased exports to China that consist mainly of electronic components and machinery. Meantime, China exports finished electronic products and clothing to Japan. At the same time, the two have mutual concerns about North Korea and its involvement with nuclear weapons.

China is the second biggest oil consumer in the world. If the country is to feed its rapidly growing gross domestic product, it must gain access to new energy sources. And energy shortfalls there -- already responsible for rolling blackouts across certain provinces -- are not expected to abate for a few years when new electricity sources come on line. To help it get there, it has reached out to foreign investment.

As China has evolved from a strict totalitarian state to a freer economic system that has become a hotbed of economic opportunity, the world has opened to it. The 1989 Tiananmen Square tragedy did isolate the country. But, China's continued economic strength has meant that it cannot be ignored. And while Japan's economy has suffered the pangs of recession, it is still one to be reconciled with and provides a host of prospects for not just China but other nations as well.

The tensions in that part of the world are therefore felt all around the globe. It's in the interest of not just the world community but also the region if China and Japan cooperate with each other and perhaps form an alliance to negotiate prices with the Middle Eastern nations that supply them with oil. In any event, a resolution for how the gas reserves that lie under the East China Sea are to be split might serve as a springboard to larger discussions over how to remedy more intransigent issues.

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