In its latest confrontation with Japan over disputed islands in the East China Sea, China might seem to have all the leverage. China is a rising power, having passed Japan as the world’s second-largest economy, while Japan is stuck in the doldrums. With few growth prospects at home, Japanese companies likeToyota (TM)andSony (SNE)need to sell to Chinese consumers. China is also the world’s biggest supplier of rare earth metals, crucial ingredients for high-tech products like Japanese-made hybrid cars.
Don’t be fooled, though. China’s ability to punish Japan for detaining and then expelling Chinese activists over the weekend is limited, argues Ting Wei, a professor in the department of government and international studies at Hong Kong Baptist University. “The Chinese government will be cautious,” he says.