Japan to Buy Islands at Center of China Sovereignty Dispute

Japan said it will nationalize islands in the East China Sea at the heart of a territorial dispute with China that has damaged ties between Asia’s two biggest economies.

Prime Minister Yoshihiko Noda’s government will buy three islands, known as Senkaku in Japanese and Diaoyu in Chinese, from a private Japanese owner for an undisclosed sum, Chief Cabinet Secretary Osamu Fujimura told reporters today in Tokyo. The deal, which the Chinese government called “invalid,” quashes an attempt from Tokyo Governor and China critic Shintaro Ishihara to purchase the islands.

The move defies Chinese warnings that nationalizing the islands would violate China’s sovereignty over an area with oil and gas reserves. Noda met Chinese President Hu Jintao at a summit in Russia yesterday with in a bid to address the situation as both sides seek to bolster domestic support ahead of leadership contests this year.

Buying the islands “stabilizes things in the legal sense for the national government, although China won’t see it that way,” said Jun Okumura, a senior adviser for the Eurasia Group in Tokyo. “The two sides are probably talking furiously to do their best to make sure there will be a minimum of fallout.”

Any unilateral action by Japan is invalid, Chinese Foreign Ministry spokesman Hong Lei said today.

Unshakable Determination

“China’s determination to maintain its sovereignty and territorial integrity is unshakable,” he said at a regular press briefing in Beijing. “China is closely monitoring the incident and will take necessary measures to safeguard the nation’s sovereignty.”

Ishihara’s announcement in April that he would try to buy the islands set off tit-for-tat visits by activists on both sides to the area and prompting anti-Japanese protests in China and Hong Kong. Assailants in Beijing blocked a car carrying Japan’s ambassador and snatched a Japanese flag, and the demonstrations have hurt Japanese companies doing business in China such as Nissan Motor Co. (7201)

Noda’s government has tried to downplay the impact of the purchase. Deputy Prime Minister Katsuya Okada saying last week the deal could lead to “peaceful and stable” relations with China, as nationalization would eliminate any other plans for the islands. The Coast Guard will have administrative control over them, Fujimura said.

Joint Development

The islands have been an irritant to China-Japan relations, highlighted by a 2010 collision between a Chinese fishing vessel and Japanese Coast Guard ships that hurt ties for months. Sovereignty over the area gives the holder control of undersea natural gas and oil fields and the two countries signed a joint development agreement in 2008 that has yet to be implemented.

Hu and Noda held an informal meeting at last weekend’s Asia-Pacific Economic Cooperation Summit in Vladivostok, Russia. Noda tried to dial back tensions, saying he told his Chinese counterpart that it was important to “build ties based on the big picture.” Japan is also embroiled in territorial disputes with South Korea and Russia.

Noda kicked off his campaign today to be re-elected head of the ruling Democratic Party of Japan ahead of parliamentary elections he has pledged to call “soon.” China’s Communist Party is preparing for a once-in-a-decade leadership transition later this year.

To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net