BEIJING—The history of East Asia in modern times has been shaped by the wildly contrasting fortunes of China and Japan. Now both are on a roll.
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Both Xi Jinping, left, and Shinzo Abe are newly installed, and both are pressing ambitious economic reform agendas. Agence France-Presse/Getty Images
That should be good news for a region that's become the engine for global growth. In reality, though, it has set off a dangerous competition between the two giants, who together constitute more than two thirds of Asia's economy.
Now, as they face off at sea over a set of uninhabited islets, some historians are even drawing comparisons with the naval rivalries between Britain and Germany that set the stage for global conflict exactly a century ago.
Back then, many thought that countries whose economies were so connected would never go to war. They were wrong.
Asia is nowhere near the brink of war. But patrol ships and warplanes from China and Japan—as well as South Korea and Taiwan—are circling in risky proximity in and above the East China Sea. Beyond, territorial disputes in the South China Sea are fueling an arms race. North Korea, meanwhile, is threatening nuclear attack against the U.S.
What lies behind this turmoil? The regional order is being challenged as both Japan and China find themselves in periods of strength, an entirely new phenomenon that is likely to play out in unpredictable ways over many decades.
Until the second half of the 19th century, China dominated Asia. Then Japan successfully modernized, and China began a slow collapse.
The switch in relative strength culminated in tragic form when Japan invaded its much larger neighbor in the 1930s; eventually one million Japanese troops swept through China in a devastating occupation.
China is again on the rise, and now its top leader, Xi Jinping, is imbued with a mission to reclaim his country's pre-eminence and redeem its wartime humiliation.
A resurgent China, meanwhile, has goaded Japanese Prime Minister Shinzo Abe to shake his country out of a two-decade-long slump.
Both leaders are newly installed; yet they are each already more powerful domestically than any of their recent predecessors. And both are pressing ambitious economic reform agendas.
In theory, a simultaneous flowering of these two economies should be a benefit for each other—and, therefore, the whole region. They are, after all, immensely complementary: Japan has formidable industrial organization, technological mastery and financial depth; China is a fount of lower-end manufactures and agricultural produce.
The reality, though, is that politics are driving them apart. Spurring the economic ambitions of both Mr. Xi and Mr. Abe is a nationalism that's rooted in their brutally contested recent past.
In Tokyo, that dynamic was illustrated in two starkly contrasting ceremonies that took place at the end of last year. On Dec. 30, Mr. Abe was on the floor of the Tokyo Stock Exchange, beaming in a pinstriped business suit with a pink carnation as he celebrated a 57% surge in the index over the year. Days earlier, he was solemn-faced in black tails, trailing a Shinto priest on a visit to honor war dead at the Yasukuni Shrine, where 14 Class-A war criminals are enshrined.
The Yasukuni visit triggered fury in China, which took it as further evidence that Japan is unrepentant over the war.
What happens next? The future will be shaped in part by the success or otherwise of economic reform in both countries.
Mr. Abe's plan is filled with peril. In trying to lift growth, he has so far delivered mainly currency devaluation and fiscal spending. This has been aided by hyperaggressive monetary easing and the worry is that the push to lift inflation will add to the burden of financing Japan's already staggeringly high public debt.
Mr. Xi is moving in the opposite direction. His goal is to slow Chinese growth rates in an orderly way by tempering investment and drawing down debt, putting the economy on a more sustainable path driven by consumption. One risk is that the air will come out of debt and real-estate bubbles too quickly, stalling the country's advance.
It's also far from clear how heated competition between China and Japan can be contained in a region that has been so preoccupied with building prosperity it neglected the architecture of security. Asia has no institutional arrangements for mediating disputes among states. Japan and China have no hotline; bilateral summitry is dead, at least for now.
So far, the political and diplomatic tensions haven't done too much damage to business. During an earlier bout of tensions, China choked off exports to Japan of rare earths vital to high-technology products like magnets. That spread alarm through Japanese industry.
One difference now, says Ken Courtis, the Tokyo-based former vice chairman of Goldman Sachs Asia, is that Japanese company executives are growing increasingly exasperated with their politicians.
"In private they are saying: 'I wish we could sit down with the Chinese and see how we can do business,'" he says