China and Japan have come a long way since they normalised diplomatic relations 40 years ago. Bilateral trade now exceeds US$300 billion annually. Every day, dozens of flights travel between multiple destinations in Japan and China, ferrying tourists and businesspeople across the East China Sea. China has opened six consulates general in different parts of Japan, highlighting the intensity of bilateral contacts.

This success was made possible because Japan and China decided to shelve their dispute over the Diaoyu/Senkaku islands back in the 1970s. Over the past 40 years, there have been all kinds of ‘incidents’ related to the island dispute, but the two countries have always handled them in a relatively cool-headed way. Their attitudes meant that no ‘incident’ developed into a major crisis.

But things seemed to change in September 2010, when a trawler incident in the East China Sea seriously affected Sino–Japanese relations. The issue has gone from bad to worse. In September 2012, the Japanese government went ahead with ‘nationalising’ the islands, as a response to Tokyo governor Shintaro Ishihara’s attempt to purchase them, and a serious crisis broke out.

‘Nationalisation’ means ‘becoming the nation’s’, and, in the case of Diaoyu/Senkaku islands, becoming the Japanese government’s. For China this was an unacceptable change to the status quo, and Beijing reacted fiercely to Japan’s move. In China, the feeling among the people was that between 1972 and 2012 Japan had taken advantage of China’s restraint and systematically strengthened its control of the islands. Japan’s change in position, from agreeing that a dispute existed to denying one entirely, was a fundamental shift. For people in China, this is a position that had to be rebuffed outright. It is a position even mainstream Japanese scholars have reservations about. And there is a strong belief that if China did not react to Japan’s ‘nationalisation’ decisively, Japan would probably claim sovereignty over the islands some time later. This Japanese action triggered the worst setback in relations since 1972.

At the time, then Vice-President Xi Jinping was put in charge of handling the Diaoyu/Senkaku crisis. Following the leadership change of March 2013, Xi assumed full charge of domestic and foreign policies. This means there will be strong continuity and little room for making concessions on the island dispute.

It is unfortunate that relations have become so problematic. For a long time, China has regarded the relationship with Japan as a vital part of its foreign policy. Between September 2006, when Shinzo Abe became Japan’s prime minister for the first time, and September 2010, when the fishing boat clash resulted in a crisis, Beijing made strenuous efforts to mend the bilateral relationship, which was damaged during the period of Japan’s Koizumi government.

Unfortunately, at the time of the trawler incident the inexperienced Democratic Party of Japan government was ill-equipped to maintain calm. Nonetheless, after the 3/11 great earthquake, China extended considerable disaster relief, which was in part aimed at bringing the relationship back on track. Meanwhile, the two countries began to prepare for the upcoming 40th anniversary of the normalisation of their relationship in 2012.

Both parties agreed to a long list of activities – high-level visits and cultural or educational exchanges, for example – which would create a positive atmosphere and improve relations. But later developments overwhelmed this effort. Japan’s move to nationalise the Diaoyu/Senkaku islands presented a bigger and more-difficult setback than the two countries had bargained for. There remains a wide and fundamental gap between the two governments as well as between their research communities.

This difficult situation is exacerbated by history. China was invaded by Japan and suffered atrocities at the hands of Japanese imperial forces. These acts live on in China’s collective memory, especially because Japanese politicians insist on touching this wound again and again. Relations with Japan have always been a complex and sensitive issue in China’s foreign policy. Every time Japan and the Diaoyu/Senkaku dispute comes up in the news, people in China become emotional and angry. Chinese leaders and officials cannot afford to be seen as soft towards Japan.

One of the steps China has taken is to send in Chinese ships to the disputed waters for regular patrol and ‘law enforcement’. The objective is to bring about de facto joint jurisdiction and joint patrolling in the relevant waters as a way to deny Japan’s unilateral ‘control’ of the islands. Beijing wants to force Japan to change its ‘no territorial dispute’ position.

Another step was to create a National Maritime Affairs Committee (Guojia haiyang weiyuanhui), an inter-agency coordinating body, and to reinforce the State Oceanic Administration (SOA) by merging several separate organisations.

This measure was especially important. These organisations were long criticised as being scattered and poorly coordinated. For years, China’s five largest civil maritime agencies were controlled by different parent organisations, earning them the moniker ‘five dragons governing the sea’ (Wu long zhi shui). Four of those dragons – China Marine Surveillance, the Border Control Department, the Fisheries Law Enforcement Command, and the Maritime Anti-Piracy Police – no longer exist. Instead, their functions have been combined under the SOA. Only the fifth dragon, the Maritime Safety Administration (MSA), remains a separate organisation.

The broad aim of this reform is to enable Chinese maritime law enforcement capabilities to be used in a more controlled manner while also retaining their effectiveness as an instrument of national power. In the meantime, both Japan and China are trying to beef up the capabilities of their coast guards by using retired military ships.

Japan’s ‘nationalisation’ of the islands was made worse by Abe when he returned to the prime ministership last December. He has made a number of provocative remarks and his stated intention to revise the Japanese Constitution has put China on alert. In this context, China decided to postpone the China-Japan-South Korea summit meeting originally scheduled for May 2013. Chinese leaders are wary of Abe’s words and deeds and are reluctant even to meet with high-level Japanese officials in such a negative atmosphere.

After its victory in the July upper house election, Japan’s Liberal Democratic Party now enjoys a stable majority in both houses of the Diet and will not face an election until 2016. But while this gives Prime Minister Abe an opportunity to recalibrate Japan’s foreign policy towards better relations with China, it seems he is unlikely to take it.

In this environment, concessions are becoming increasingly harder to make, if not getting worse. The two countries have to agree to talk about what they should do to avoid military conflict in the East China Sea, before they are able to sort out the sovereignty issue. Five years ago, while LDP was in office in Japan, the two governments agreed to build a ‘strategic and mutually beneficial relationship’ between them which, if implemented, would bring about a favourable environment for both of them. Now is the time for both Tokyo and Beijing to rethink this strategic objective or relationship.

Ren Xiao is Director of the Center for the Study of Chinese Foreign Policy at Fudan University, Shanghai, China.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Leading China where?’