In the border dispute between China and Japan last month, China looks like the winner. The captain of the Chinese fishing trawler was released by the Japanese and public support for the Japanese government fell off a cliff after that.
Compare to Japan, China had not suffered much in the spat. The Chinese government was relatively unhurt by the incident as most Chinese approved their government's handling of the territorial row. However it now seems that looks were deceiving.
In their bid to pressure Japan, China reportedly blocked commodities shipments, in particular rare earths shipments, to Japan. As China is the world leading exporter of such commodities, other countries have taken note of its action and are now looking for other sources of the commodity.
Rare earths are important as everything from iPods to solar panels used some form of rare earths. It’s a niche but important (and growing) market. And thanks to their actions against Japan, it’s a market China is going to lose.
Already Australia has stepped up to the plate, announcing itself as an alternate source of rare earths. Major consumers Japan, Europe and the United States have taken note and Japan is going one step further by stepping up link with Mongolia, another country with abundant resources of rare earth.
China has since come back to state that there never was any embargo of rare earths to Japan, but no one is taking any chances. Australian and Mongolian businessmen are expecting more orders and China only has itself to blame for that.
Japan may have lost the battle, but in the long-run, it seems that China will lose even more.