Tomorrow is the 100th anniversary of the start of World War I. Perhaps just as importantly, this weekend is also the 120th anniversary of the first Sino-Japanese war: a war between China's Qing dynasty and Meiji Japan. A war which China lost, and which has been a chip on China's shoulder ever since.

As Hong Kong's SCMP reports "China's loss of the first Sino-Japanese war has been attributed to a disorganised navy. Although the northern fleet equalled, some say exceeded, the Meiji navy in terms of firepower, it was annihilated because it lacked coordination among its military units."

In the context of constant recent flare ups over various contested East China Sea islands, one can see why the anniversary of the war coupled with a sudden spike in nationalistic ambitions of Japan's PM Abe, would be a sensitive issue to China. However, as we can see below, China no longer has an inferiority complex when it comes to its navy compared to that of Japan.

While Japan's navy may still have a qualitative advantage over China's, the People's Liberation Army is catching up, analysts say. In sheer manpower, China has the upper hand, with Beijing putting the PLA Navy's strength at 235,000, or more than five times the number in the Japan Maritime Self-Defence Force.

According to SCMP:

"PLA units are still exploring new ways to operate jointly, which could lead to merging their different weapon systems together," Wong said. Toshi Yoshihara, an associate professor at the US Naval War College, said that although the Japanese navy was still superior in technological sophistication and experience, China was catching up quickly. "China is out-building Japan virtually across the board," Yoshihara said. He said the PLA Navy was deploying modern destroyers, frigates, fast-attack craft and submarines. "Japan is already having trouble keeping pace with this level of Chinese output."

Sounds kinda, sorta like the US, Russia nuclear arms race. However, unlike the use of nuclear ICBMs, launching a naval war has far less dire consequences if it goes wrong, and thus a lower hurdle to enactment. One which both China and Japan seem eager to jump over based on their behavior in recent months. The key variable remains US involvement.

As so many Chinese warships had entered production, adding mass and balance on the fleet, Japan could no longer rely on its qualitative advantage, Yoshihara said. But a deciding factor would be the support of the US Navy. "The US-Japanese alliance is essential to weighing the overall naval balance," he said. China might even have the edge now, according to Dr Lyle Goldstein, an associate professor at the China Maritime Studies Institute under the US Naval War College. "In my opinion, the forces are quite evenly matched now, but China may even have pulled ahead in recent years," Goldstein said. He added that this was not the official assessment of the US Navy.

Which is the worst possible situation as neither side has a massive advantage and thus serves a powerful deterrent.

So where are the two navies currently:

Japan last year formally unveiled the biggest warship in its fleet since the second world war - the Izumo-class helicopter destroyer. The 248-metre ship, due to enter service next year, is designed to carry 14 helicopters, and complements Japan's two serving Hyuga-class helicopter destroyers, which are 197 metres long and can accommodate 11 helicopters. Shanghai-based military expert Ni Lexiong said the helicopter destroyers could function as aircraft carriers for US planes, while China had only one aircraft carrier, the Liaoning, although observers say more are in the works. China required nearly 10 years to convert the 67,500-ton Soviet-built Varyag into the Liaoning. It was formally delivered to the PLA in September 2012, and so far has been used for training. "But Japan's helicopter carriers have been battle-ready for more than three decades with the help of the United States," Ni said. "Every one of its carriers is able to operate independently in combat." Japan also enjoys an advantage in submarines, according to Wong. The PLA's existing submarines, many of which are old models, have been criticised by Western forces as "too noisy and too easily detected", while Japan has some of the most technologically advanced diesel-electric submarines in the world

And visually, just in case one of these days the infamous Gulf of Tonkin incident takes place again, only this time it happens to involve a Chinese and Japanese warship.

So what happens next? For the answer we go to SCMP again:

On Friday, the North Sea Fleet held a commemoration off Weihai in Shandong , where the Beiyang Fleet was based. The Beiyang was the pride of the Chinese navy at the time, but suffered heavy losses against Japanese forces. When the war ended on April 17, 1895, little of the fleet remained and Taiwan was ceded to Japan. Xinhua quoted a naval political commissar as saying the ceremony should stir soldiers' patriotism by reminding them of past humiliations. Chinese media have also pointed to remarks President Xi Jinping previously made about the anniversary. Xi said in February China should remember the painful lesson of losing Taiwan to Japan, and then in June noted the special meaning the anniversary carried in the traditional Chinese calendar. Under its 60-year cycle, 1894 was a jiawu (wood horse) year, as is 2014. The occurrence has led some hawks to argue that the humiliation of a weak China then should be avenged by a strong China now. Beijing has increasingly been referring to a string of historical events to highlight old grievances. The central government held an unusually high-profile commemoration on July 7 marking the 77th anniversary of the start of China's second war with Japan. Giving prominence to such anniversaries is part of a broader domestic agenda, analysts say. "An important aspect and end goal of achieving the Chinese dream is to rid China of past humiliations inflicted by foreign powers, and Japan perhaps did more than its share," said Yuan Jingdong, a professor at the University of Sydney Centre for International Security Studies.

That sounds like warmongering, and incidentally, a war may just be the thing Princeton's Keynesianomics (not to be confused with Clownianomics) department ordered to send the Nikkei225 to fresh cycle highs now that it appears to have stalled and is still down YTD. Because how else will the wealth effect trickle down to the 0.01%, which is really all the New Normal has been about.