The arbitration panel’s ruling against China on July 12 was a stinging blow to China’s international prestige. China advanced a narrative that it had historic rights to nearly all of the South China Sea (SCS) and that it could prevent states like the Philippines and Vietnam from fishing in their Exclusive Economic Zones (EEZs) and drilling for oil near their coasts. China also maintained the right to engage in island building and fishing practices which caused severe damage to the marine environment. Since these activities occurred inside of its nine dash line claim. China felt justified in these “internal matters” and told its neighbors in almost evangelical terms that the SCS is their patrimony and that no country or international body has a right to mess with their domestic affairs. On all these counts, the tribunal disagreed and issued a strong rebuke of China’s activities and has been lashing out against a variety of countries including the United States, Australia—and most importantly—Japan.

The positive signs that China was moving past the ruling have been overtaken by a number of very disturbing trends which, regardless which path China ultimately takes, puts it on a collision course with Japan, the United States or perhaps a much broader group of states. Unless something dramatic emerges as a result of the secret conclave in Beidaihe, China seems intent on settling scores with those states responsible for its legal embarrassment and loss of face in ASEAN. Japan now seems to be the likely candidate even though it is an East China Sea (ECS) power. Japan warned China’s ambassador twice in the past week that relations between the two countries were “deteriorating markedly .”

China’s Negative Reactions

Immediately after the July 12 ruling the Chinese Ministry of Foreign Affairs issued a detailed repudiation declaring that the ruling was “null and void,” “has no binding force” and “China neither accepts nor recognizes it.” The Chinese state media declared the permanent court of arbitration a “puppet” of external forces and that “China will take all necessary measures to protect its territorial sovereignty and maritime rights and interests.” In addition to that harsh criticism:

On July 13 , China sent civilian aircraft to two new airports on Mischief Reef and Subi Reef in apparent violation of the ruling.

On July 13 , China’s vice foreign minister said “If our security is being threatened, of course we have the right demarcate a [air defense identification] zone.”

On July 15 , China posts images of its recent overflight of the highly contested Scarborough Shoal by nuclear capable H-6K bombers (and escorts) and announced that such patrols would be a “Regular Practice.” This again is in violation of the Ruling.

On July 24 , ASEAN failed to achieve consensus to issue a statement on the Tribunal decision after China’s ally Cambodia broke away from a consensus document that was being proposed by the Philippines, Vietnam and others.

On July 25 , the United States, Australia, and Japan held a Trilateral Strategic Dialogue and issued a statement expressing “their strong support for the rule of law and called on China and the Philippines to abide by the Arbitral Tribunal’s Award of July 12 in the Philippines–China arbitration, which is final and legally binding on both parties.” The ministers also expressed opposition to any coercive or unilateral actions that could alter the status quo including future land reclamation activities.

On July 27 , Chinese Foreign Minister Wang Yi dismissed the trilateral statement and charged that the statement was not constructive and “fanning the flames.” Foreign Ministry spokesman Lu Kang also charged that the United States, Australia and Japan have been adopting double standards towards international law which they adopt when it “fits their needs.”

On July 28 , the Chinese Defense Ministry announced plans to held a joint military exercise with Russia in the SCS in September; the first such bilateral exercise in that body of water. Note that in 2014, China and Russia held joint naval exercises in the East China Sea.

On August 1 , China held a significant live fire drill in the East China Sea (ECS) that including the firing of “dozens” of missiles and torpedoes.There were also reports that six PRC coast guard vessels and over 200 fishing vessels swarmed in the vicinity of the Senkaku (or Diaoyu) Islands.

On August 2 , Japan’s Ministry of Defense published a white paper describing China’s position on the SCS an object of “deep concern.” China’s Ministry of Foreign Affairs called Japan’s paper “full of malice,” “lousy clichés,” “irresponsible” and a smokescreen to obscure Japan’s expansionist arms policies.

On August 3, North Korea launched two missiles; one of which impacted in the Sea of Japan about 150 miles from the Japanese coast. President Abe called the launch a “ reckless act that is difficult to forgive .” When the UN Security Council sought to condemn North Korea’s actions, China curtailed the Security Council’s actions.

On August 2 , China’s Supreme People’s Court clarified China’s 2014 Fishing Regulation to the effect that those that engage in illegal activities inside of the waters claimed by China will be arrested and tried as criminals. The practical import is that fishing within the nine dash line area will be met with vessel seizure and imprisonment.

On August 6 , China sent bombers and fighter jets on patrol in the vicinity of “Scarborough Shoals.” China announced that these flights will be a “regular practice” to “normalize South China Sea combat patrols” to safeguard its sovereignty interests.

On August 7 , Japan reported that it had issued multiple protests to China after it found that China had installed ocean surveillance radar “facilities” on a number of its offshore gas platforms.

It is hard to imagine what is likely to happen next in the high-stakes poker game being played out in Asian waters. It is somewhat curious that China is lashing out at Japan given that the Senkaku or Diaoyu issue has been rather quiet until recently and the SCS is China’s current problem. Regardless, taking into account what has happened to date and where China believes that it has leverage, there are two possible ways in which China might lash out against Japan: in a military capacity, economic capacity or both.

Possible Military Moves by China In The Senkaku

The statements by China’s Chief of the Naval Staff and their military activity near the Senkakus suggest that China is employing tactics of intimidation to get Japan to back away from its recent statements. It may also be the case that the presence of swarming vessels, in and around the Senkakus, and the North Korean missile shot (presumably with tacit PRC approval) suggests that China is trying to goad Japan to militarily respond or back off its claims.

The Senkakus has always been the powder keg of Asia because it features the two leading powers in Asia: one ascending and one arguably on decline competing on the world stage. Both are rivals for dominance over a tiny scrap of land and associated maritime space which, given the implications for access to fisheries and oil and gas, is not irrational. This is ironic because the Tribunal decision in China v. the Philippines takes away much of the incentive for the two states to fight over these rocks since they would be enclaved within the continental shelf of most likely Japan. (See: Fixing the Senkaku/Diaoyu Problem Once and For All .)

China would do well to revisit its strategic objectives especially because the United States declared, in April of 2014, that Japan is the lawful administrator of the islands and within the scope of Article 5 of the 1961 Mutual Defense Treaty. The reaffirmation of solidarity between United States, Australia and Japan in the July 25 trilateral declaration likely provides Tokyo the fortitude it needs to military respond if China continues to operate provocatively near the Senkakus.

Another important point this calculus is President Abe. Abe has stated in 2015 that Japan is a “maritime state” and can “only ensure its own peace and security by actively engaging in efforts to make the entire world a more peaceful and secure place.” Japan’s record 2016 military budget of roughly $42 billion is further evidence of that goal. Japan has a combatant fleet of 131 vessels including three aircraft carriers, forty-three destroyers and seventeen submarines using front line U.S. tactics and systems. China has substantially more hulls (and submarines) but most naval analysts interviewed by the author cite the excellent Japanese submarine force as likely game changers.

More important is the will to fight. Japan has been greatly increasing its military spending even though its economy has been in the doldrums. According to the OECD , “output growth has been slowed by a drop in demand from China and other Asian countries and by sluggish private consumption.”