China vs. Japan: Rising Tensions Over the East China Sea

In Beijing on Tuesday there were two unusual occurrences. First, the city saw the largest protest in years take place outside of the Japanese Embassy. Thousands of Chinese took to the streets, angry over Japan's claim to disputed islands in the East China Sea.

Second, there were clear blue skies from morning until night. The air pollution index was a staggeringly low 23, making it a beautiful day to call for war with an old enemy.

Protestors told ABC News they were there to claim territory that has been an inherent part of China since ancient times. One woman said, "We are here to declare our sovereignty over Japan!" Another man said, "If the nation needs us, we can all carry a gun to go to war."

The islands, which were purchased from private owners by the Japanese government last week, are in a strategically located area and are believed to be rich in oil deposits.

Outside the Japanese Embassy, the crowd stretched for more than a mile in either direction. Young and old marched in orderly groups, ushered along by police at every pause in an effort to prevent larger numbers from congregating. They carried posters of Chairman Mao, a figure many still revere as an icon of Chinese pride. In unison they called for war against Japan, for the death of "little Japanese" and a variety of more profane actions.

There has been concern that Tuesday, Sept. 18, a national day of remembrance marking Japan's wartime occupation of Chinese territories, would light a fuse of something more. Tuesday's demonstration in Beijing was the largest protest the city has seen in years. There were reports of protests in more than 100 cities across China. Footage from Hong Kong showed a crowd burning the rising sun symbol of Japan. In Chengdu, riot police arrived to disperse the crowds. Reports are the Chinese government dispatched 300,000 armed forces to maintain calm.

By and large they were successful. Aside from the odd car tipped over or the windows of a Japanese business smashed, the violence was kept to a minimum. The government took pains to make it so. A public announcement played over and over on a loudspeaker advised demonstrators to remain rational and not harm anyone. A generic text was sent to local cell phones that called on Beijing residents to show patriotism but not to 'over do it.'

Behind the scenes, camouflaged officers sat patiently on petite, plastic army green chairs three rows deep. Behind them, more officers placed their helmets precisely on their plastic shields as they took a lunch break. Dozens upon dozens of officers, bused in from Beijing's nearby military base, remained at the ready should things get out of control.

In Japan, the government set up an information gathering operation to track activity around the disputed islands. The Japanese Coast Guard said 11 Chinese fishing boats came near territorial waters early Tuesday morning, far fewer than the 1,000 reported on Chinese TV Monday, broadcasting a radio message that declared the area "Chinese territory." Two Japanese nationals anchored their fishing boat off the islands and swam ashore.

There have been no reports of large counterdemonstrations in Japan up to now, but the escalating tensions threaten to put at risk $340 billion in trade between Asia's two largest economies.

Toyota has temporarily shut down production at some of its factories, after demonstrators destroyed cars and set fire to at least one dealership, spokesman Dion Corbett said. Nissan stopped work at two of its factories. Honda announced it would temporarily close five of its assembly plants as a precaution, following reports that dealerships had been vandalized.

Panasonic shuttered its factories indefinitely and asked workers to stay home, after demonstrators torched an electronics components factory in the coastal city of Qingtao and smashed windows and broke into offices at locations in Suzhou and Zhuhai. Spokeswoman Cathy Liu said a small number of workers "sabotaged" equipment. Japanese employees of Panasonic have been asked to refrain from business trips to China, out of concern for safety, Liu said.

Japanese supermarket operator Aeon announced it had closed 30 of its 35 stores in China after demonstrators smashed windows and ransacked stores. Manager Fumiaki Origuchi said it would take three months to recover.

"This is not a demonstration, this is terrorism," he said in an interview with Japanese media.

Airlines and travel companies have also started to feel the effects.

All Nippon Airways spokesman Ryosei Nomura said more than 18,000 seats to and from China have been cancelled this month. The last time tensions flared up over the disputed islands, two years ago, the company took a $38 million financial hit, he said.

Meanwhile, tour company JTB said it had received several calls from concerned travelers looking to postpone their trips to China, after demonstrations escalated over the weekend.

The economic fallout comes amid fears of a larger economic slowdown in China, Japan's largest trading partner. In July alone, Japanese exports to China plummeted nearly 12 percent. Dan Slater, Japan Director of the Economist Corporate Network, said he expected the protests to have little impact on the overall economy for now.

"If you look at the broader economic picture of the China slowdown, on the economic impact in trade relations between the two countries, it's far more serious than the closure of a few factories in China," he said.

For the government in China, an overriding priority has been maintaining calm ahead of the once-in-a-decade transition of power. The government must strike a balance between defending national interests and avoiding an escalation of violence in order to smoothly hand control to the next generation of leaders. As of yet been no official word on when that will happen.