This whole saga is easy to forget about, because it's not in the news everyday, but it has really negative potential. China is acting like a rogue state, which is incredibly dangerous, given their size and strength. It's as if they haven't figured out how to wield their newly found power yet, how to operate like a rational player in the international community. It's sad but true that in international politics big fish don't go after other big fish. When Russia invades Chechnya, or the US invades Iraq, there's always a big stink, but business as usual reigns, because no major players are going to come to the aid of those types of places. But Japan? No matter how important China is to us economically, there's a snowball's chance in hell that we will allow China to bully Japan. South Korea should join the cause, too, because if China is allowed to impose their will willy nilly, then the precedent is set, and SK is in for a hell of a bad time. I've read elsewhere that the Chinese government has been endorsing (tacitly, perhaps, but at least they aren't actively stopping) anti-Japanese demonstrations, including the destroying of Japanese businesses and violence against Japanese living in China. For anyone not familiar with the history, this is a page out of the Czar's handbook. Every time there was an economic or political calamity in late Czarist Russia, the government would put out anti-Jewish propaganda, and anti-Jewish pogroms would ensue in which people were beaten, murdered, and businesses were looted and destroyed, all with an unofficial nod from the Czar himself, although he maintained on paper that such acts were illegal. It strikes me that this is what this row is really about. China knows that they have a precarious situation economically. The signs are there that they have a bubble that is going to burst in a dramatic way at some point. They are still a politically repressive regime where rule of law is not really the way things are done. And they don't want to know what it will be like when a billion people are suddenly directing their anger at the government. Japan, a historically hated rival who has committed unspeakable atrocities against the Chinese during the living memory of a lot of the citizens, is a convenient misdirection. However, I think it will make things worse for China in the long run if they keep this up.
A war between China and Japan would be so calamitous, it seems outside the realm of believably. And yet, wars like that have happened. I agree that Japan is a convenient but dangerous political distraction for domestic Chinese politics. My wife related that when the US bombed the Chinese embassy in Kosovo, a protest began around the US embassy in Beijing, but it later expanded to one outside the Japanese embassy, "just because".