China's strategy on the Diaoyu Islands, or Senkakus as Japan calls them, appears to reflect careful calculation of risk and reward by the Beijing leadership, rather than the spasm of counterproductive nationalism sometimes described in the Western press. As a matter of equity, China has a pretty strong claim on the Senkakus. As a matter of geopolitics, the People's Republic of China (PRC) is not holding as weak a hand as one might think.
This is something that the administration of US President Barack Obama, to its chagrin, knows well.
Careful readers of The Japan Times (presumably including strategists in Beijing) may remember this passage from August 17, 2010:
The Obama administration has decided not to state explicitly that the Senkaku Islands, which are under Japan's control but claimed by China, are subject to the Japan-US security treaty, in a shift from the position of George W Bush, sources said Monday. The administration of Barack Obama has already notified Japan of the change in policy, but Tokyo may have to take countermeasures in light of China's increasing activities in the East China Sea, according to the sources. The Japanese "countermeasure" occurred less than three weeks later, on September 8, 2010, when Japan's ambitious minister of the interior, Seiji Maehara, instructed the coast guard to turn over the captain of a Chinese fishing boat to prosecutors for trial under Japanese law for ramming a pair of coast-guard vessels while trying to evade them near the Senkakus.
The rest is "contain China" history, as the spat escalated to a crisis in Sino-Japanese relations and lip service in favor of Japan's rights to the Senkakus became an important element of US East Asian policy and justification for the Obama administration's pivot into Asia.
Discreet silence also played a role, when the United States declined to contradict Maehara (by this time foreign minister) when he claimed, perhaps untruthfully, that he had obtained assurances that the Senkakus were covered by the US-Japan Security Treaty.  
However, US enthusiasm for using the Senkaku dispute as a useful diplomatic lever appears to be reaching its limit.
Two major US dailies, The New York Times and the Los Angeles Times, recently weighed in with reviews of the history of the islands that may cause the Japanese government some heartburn. Nicholas Kristof turned his NYT column over to a Taiwanese scholar, Han Yishaw, to lay out China's historical claims to the islands. 
The LA Times' Barbara Demick also looked skeptically at the Japanese provenance of the Senkakus with a piece describing the research of scholar Unryu Suganuma, who found several references in Japanese government documents describing the Chinese character of the islands. 
A glance at a map confirms the impression that the Senkaku/Diaoyu Islands are in Taiwan's backyard, and Japanese efforts to claim them are almost as risible as China's infamous South China Sea-swallowing nine-dash line.
Japan's claim to incontestable sovereignty over the islands goes back no further than their seizure, together with Taiwan and the Ryukyu Islands, from the Qing empire in the 1895 Sino-Japanese War, and not being forced to give them back in the post-World War II muddle.
The "spoils of war" argument, aka we got 'em and by golly we're gonna keep 'em approach, is an awkward one for Japan. It would dearly like to get back four islands on the southern end of an archipelago stretching between the Kamchatka Peninsula and Hokkaido, which are now occupied by Russia as heir to the Soviet Union's spoils of war.
The short form of this imbroglio is the "Kurile Islands dispute", but the two southernmost islands are more Hokkaido-esque, and Russia has signaled a willingness to give them up. The two more northerly islands are bona fide members of the Kurile chain. Russia wants to keep them. Japan wants them. Awkwardly for Japan, in 1956 it promised to surrender its claims to these two islands if a formal peace treaty were concluded.
Given this unfavorable position, Japan must contest the "spoils of war" argument and rely on emotive, historical claims to the islands - the exact opposite of its position on the Senkaku/Diaoyu Islands.
The "exercised sovereignty" argument also provides no comfort to Japan in its dispute with South Korea over the Dokdo Islands (Takeshima to the Japanese). After the conclusion of World War II, the United States supported the historical Japanese claims to the islands but declined to put their defense within the scope of the US-Japan Joint Security Treaty.
Since 1991, the main island has been home to a family of South Korean octopus fishermen and about three dozen Republic of Korea Coast Guard, fishery, and lighthouse personnel. President Lee Myung-bak has visited, as well as thousands of South Korean tourists who take a US$250 ferry trip to the island.
In July 2008, the administration of then-US president George W Bush acknowledged South Korean control over the islands by designating them as ROK territory.
Therefore, Japan's attempts to hold on to the Senkakus on the principle that their effective de facto control, by itself, constitutes de jure sovereignty undermines its arguments on Dokdo and the Kuriles. This inconsistency, one might assume, does not make an ironclad case to the United States to encourage a regional confrontation over Japanese dismay over Chinese pretensions to the rocks.
This year, the Japanese government is also facing a cannier and better-prepared PRC government than the flustered and panicky regime it confronted in 2010.
At that time, Beijing overreacted verbally and administratively and made the mistake of intervening as a government to disrupt trade with Japan to retaliate for the threat to put the skipper of the offending Chinese fishing vessel, Captain Zhan Qixiong, on trial in a Japanese court.
It tried to package its moves to pressure Japan as enforcement of trade regulations, particularly in the wild and wooly rare-earths business, but this was seen as a distinction without a difference, and the PRC was widely condemned by foreign governments and media. As a public relations bonus, China also stood accused of threatening the free world's full enjoyment of iPads and green energy and, indeed, attempting to bring America's high-tech defense industries to heel by exploiting its dominance over precious rare-earth oxides.
The ruckus over export and import restrictions - and the possibility of retaliation - also threatened China's access to the global free-trade regime, a critical matter given the its reliance on exports for growth and social stability. Beyond the threat of bilateral retaliation, there was the possibility that the issue would internationalize, with some sort of coordinated sanction against China.
This year, things are different.
When the Japanese right wing (which feels it got shortchanged by government appeasers who released Captain Zhan in 2010) served up its latest provocation - the campaign by Tokyo Governor Shintaro Ishihara to purchase the Senkakus - the central government tried to defuse the situation by purchasing the islands itself.
Nevertheless, the Chinese government decided to make an issue of it, apparently to demonstrate to Japan's elite the high cost of pursuing an agenda of confrontation with the PRC over the pretext of the Senkakus.
As usual, Beijing is staying away from anything that might be construed as a direct military threat to the Japanese forces arrayed near the Senkakus.
Indeed, its first aircraft carrier, the Liaoning (originally Ukraine's Varyag, then repurposed as a floating casino and now destined to become an instantaneous and expensive artificial reef if it ever attempts naval operations against the United States or Japan), entered service on September 25. However, it is not going anywhere near the Senkakus and will need years and billions of yuan before it is a viable military air-operations platform.
Out of consideration for its key North Asia ally, the United States has declined to follow through on its previous intention to treat the Senkakus as it did the Dokdo and place them outside the scope of Article 5 of the US-Japan Security Treaty. Recently, Defense Secretary Leon Panetta affirmed that an attack on the Senkakus would evoke a US military response on behalf of Japan.
However, the fact that Beijing apparently has no intention of attacking the Senkakus has understandably given more weight to Panetta's statement that the United States has no position on the conflicting sovereignty claims and hopes that the Chinese and Japanese governments will work out the issue peaceably.
This time around, the Chinese government is not only avoiding inflammatory moves that would internationalize the dispute; in important ways, it is even de-bilateralizing it. In contrast to 2010, China is not directly interfering in foreign trade with Japan. Instead, Japanese interests inside China have been threatened directly by Chinese citizens, albeit egged on by their government.
This is a distinction that has been carefully drawn in Sino-Japanese confrontations over the past century and is probably well understood by current strategists.
Before World War II, "boycott" was an all-purpose descriptor for two different activities: what we would now call a popular boycott of people declining to buy certain goods, and also what is now called official government economic sanctions instituted by fiat.
It was a matter of some anxiety for the Chinese government to draw a line between the two, particularly during the "Great Boycott" in 1931 protesting the Japanese incursion into Manchuria (whose anniversary by coincidence occurred on September 19, at the height of this year's anti-Japanese rumpus), since the Japanese government at the time was inclined to engage in real warfare to retaliate for what it deemed economic warfare by China.
Today, with the anti-Japanese measures framed as a popular boycott, as long as the Chinese demonstrations stay away from red lines as defined in the Vienna Convention on Diplomatic Relations - which obligates the PRC to uphold the inviolability of the premises, personnel and property, both official and personal, of the Japanese diplomatic mission - then offenses against Japanese persons and property fall into the black hole of Chinese domestic civil and criminal law.
Ministry of Commerce spokesman Shen Danyang carefully made the distinction in a statement to reporters on September 19 (in a rather garbled translation):
Shen Danyang released three-point statement, the Ministry of Commerce strongly supports legitimate, rational, patriotic action, firmly opposed to all illegal thwarted grab [of the Diaoyutai Islands]; the legitimate rights and interests of foreign-invested enterprises in China are protected by law. China is a country ruled by law, the legitimate rights and interests of foreign-invested enterprises are protected by Chinese laws. Third, I believe that the vast majority of people can be calm, rational, legal and orderly express their demands. Foreign-invested enterprises, such as suffered violations should seek help in a timely manner to the relevant departments of the public security departments, including the business sector. For the historically minded, this allows the Chinese government to present the demonstrations as the spiritual heir to the series of protests against Japanese aggression that occurred between 1908 and 1931.
And if the Japanese government itself wants to reawaken memories of its detested extraterritorial privileges in China under the Qing and Kuomintang regimes, it is welcome to call on the PRC government to moderate the behavior of the demonstrators, and implore the Chinese courts to improve their efforts to protect the persons and property of Japanese citizens inside the PRC.
The Japanese newspaper Asahi Shinbum did its best to rekindle the spirit of 2010, if not 1931, mischaracterizing the Ministry of Commerce's statement of support for private boycotts as "economic sanctions", as in "China suggests economic sanctions over Senkakus". 
In the same article, Asahi also tried to get some geopolitical mileage by playing the rare-earths card with an anxious description of an announcement of restructuring in the Chinese rare-earths industry, while admitting the changes had long been expected, but then tried to have it both ways:
China Central Television said September 19 that the Ministry of Land and Resources will slash the number of companies licensed to mine rare-earth elements by 40%, from 113 to 67.Actually, the Chinese government has done a pretty good job of erecting a defense against the accusation of rare-earth economic warfare this time, as the lead from an article by David Stanway for Reuters in July demonstrates:
That policy was published six days earlier and the companies to be affected were informed in August. In addition, cutting the number of mining companies is not expected to directly affect rare-earth exports to Japan.
However, the state-run broadcaster's report could be taken as a warning of stronger measures against the Japanese government for its purchase of three of the Senkaku Islands in the East China Sea from a private owner on September 11.
China, the world's biggest producer of rare-earth metals, is likely to turn an importer of the vital industrial ingredients by as early as 2014 as it boosts consumption in domestic high-tech industries rather than just shipping raw material overseas. The "economic warfare" dog doesn't appear to be hunting internationally, since boycotts against Japanese companies inside China will be just as harmful to the Chinese economy as they are to Japan's.
Perhaps the most remarkable canine element of the current Senkaku/Diaoyu dustup, however, is the dog that didn't bark. Or, to be more accurate, the two dogs that didn't bark and the one that did ... but on China's behalf.
One would have thought that the PRC's tussle with Japan would have been the perfect opportunity for Beijing's two major South China Sea adversaries, the Philippines and Vietnam, to put the boot in, to draw attention to China's habitual high-handedness in island matters and strengthen the argument for the US-led pivot. That hasn't happened, perhaps because the United States has taken itself out of the game by limiting its involvement to exclusively military scenarios against the Senkakus.
The Philippine and Vietnamese governments have been relatively silent on the issue, perhaps because of some special Chinese attention.
To smooth over the disagreements with the Philippines, some high-profile emollient was personally applied by Vice-President Xi Jinping to the Philippine interior secretary in Beijing on September 21. In a practical and obliging vein - and in contrast to the huffing and puffing over the Scarborough Shoal - the Chinese government agreed to reschedule repayment of a US$500 million loan for a canceled rail project and discuss selling its stake in the Philippine national power grid, and promised to go easy on inspection of banana imports. 
Xi was also present at the China-ASEAN trade expo in Guangxi. Vietnamese Prime Minister Nguyen Tan Dung attended and for whatever economic or geopolitical reason, China-bashing apparently was not on the menu there either, as Voice of Vietnam reported:
Mr Dung's participation in CAEXPO and CABIS [China-ASEAN Business and Investment Summit] showed Vietnam's keen interest in promoting friendly neighborliness and comprehensive cooperation with China and encouraging its businesses to seek investment opportunities in China and expand economic, trade and investment cooperation with Chinese border provinces. As for Taiwan, it sowed confusion in the ranks of China-bashers and, one expects, a certain dismay in the hearts of Japan's diplomats by sending 40 fishing vessels and 12 patrol boats into Senkaku waters to engage in a water-cannon fight with the Japan Coast Guard, thus muddying the heretofore pristine narrative of Japanese maritime professionals vs mainland Chinese aggressors. The Telegraph posted video of the thrilling display. 
Taiwanese President Ma Ying-jeou, for whom the Senkakus has been a signature issue throughout his career, was clearly behind the provocation. In fact, it was alleged that the confrontation had been carefully scripted among Taiwan, the PRC and Japan to make sure things didn't get out of hand. 
One can speculate as to whether President Ma's main motivation was to provide aid and comfort to his political supporters in Beijing or he felt compelled to make a protest against Japan for nationalizing the Senkakus and, in the process, ignoring his political interests and sensibilities.
In any case, at the end of the day Japan found itself with a less-than-slam-dunk case for the Senkakus in the court of (non-Japanese) opinion, backed with limited and conditional US support, receiving little if any enthusiastic backing from its neighbors, and taking it on the chin financially from the anti-Japanese demonstrations inside China.
With this context, it looks as if the PRC regime decided after the 2010 debacle that, next time the Senkaku issue surfaced, it was going to be ready with an integrated strategy of mass mobilization, economic harassment, avoidance of direct government-to-government economic and military confrontation, a regional charm offensive, and an expectation of US forbearance.
This appears to be a more plausible scenario for the current Senkaku dynamic than the dissident and China-bashing-fueled claim that the PRC ginned up the dispute to distract attention from domestic political unrest in the run-up to the 18th Communist Party Congress and leadership succession.
Allowing large crowds of disgruntled Chinese citizens to flood on to the streets - quite a few of them waving pictures of Mao Zedong in an implied expression of solidarity with purged "Red Mayor" Bo Xilai and a rebuke to his current persecutors in the power structure, and others willing to engage in criminal behavior and mix it up with security forces in order to make a spectacle of their atavistic nationalist fervor - is not a recipe for political calm.
It is more likely that the regime decided to roll the dice and enable widespread demonstrations in pursuit of its geostrategic strategy against Japan, and breathed a sigh of relief when things didn't get completely out of hand.
In other words, the viability of the Chinese-mass-opinion weapon - which such outlets as Global Times have been touting for the past few years - albeit applied in carefully controlled anti-Japanese doses, has been demonstrated to the Japanese government and business community.
Therefore, it isn't too surprising that Japanese Deputy Foreign Minister Chikai Kawai has gone to Beijing to try to ease the dispute. The Chinese Foreign Ministry position is that Japan has to "make strong efforts to improve Sino-Japanese relations", though one has to wonder what those efforts are supposed to involve.
Those "efforts" probably include a Japanese undertaking to coordinate and consult with China on regional affairs instead of maintaining a united front with Washington on matters related to the US pivot and trade blocs. Whether a geopolitical and economic reset can be negotiated, let alone survive the expected change of national administration in Japan - and the Senkakus can fade into deserved insignificance - remains to be seen.
Endnote: After carefully discriminating between "popular" boycotts and official economic sanctions in my discussion of the Chinese approach, I gormlessly and incorrectly used the term "economic sanctions" in my summary of China's current strategy in the 7th paragraph from the end. I've corrected it to "economic harassment" here, and asked ATOl to make a correction in the article posted on their website.
1. U.S. fudges Senkaku security pact status, Japan Times, Aug 17, 2010.
2. Clinton says disputed islands part of Japan-US pact: Maehara, Energy Daily, Sep 24, 2010.
3. Japan poured oil on troubled waters, Asia Times Online, Oct 2, 2010.
4. The Inconvenient Truth Behind the Diaoyu/Senkaku Islands, The New York Times, Sep 19, 2012.
5. The specks of land at the center of Japan-China islands dispute, Los Angeles Times, Sep 24, 2012.
6. Ministry of Commerce: "Share island" farce damage to Sino-Japanese economic and trade, Stock Market Today, Sep 24, 2012.
7. China suggests economic sanctions over Senkakus, Asahi Shimbun, Sep 20, 2012.
8. China reshapes role in rare earths, could be importer by 2014, Reuters, Jul 10, 2012.
9. Phl, China drop North Rail, PhilStar, Sep 26, 2012.
10. PM Dung attends China-ASEAN Expo, Voice of Vietnam, Sep 21, 2012.
11. Japanese and Taiwanese ships in water cannon battle over Senkaku Islands dispute, The Telegraph, Sep 25, 2012.
12. Ma lauds fishermen in islands protest, Taipei Times, Sep 27, 2012.