(Reuters) - China has suspended high-level exchanges with Japan and promised more retaliation after a Japanese court extended the detention of a Chinese captain whose trawler collided with two Japanese coastguard ships.
Such territorial disputes may recur, but strong economic interests are likely to contain the damage. Here is an explanation of the dispute and how it could unfold:
WHAT IS THE QUARREL ABOUT?
The dispute is about a Chinese fishing boat that earlier this month collided with two Japanese coast guard ships near islets in the East China Sea claimed by both countries.
The fishing boat was intercepted by Japanese authorities, who have accused the captain, Zhan Qixiong, of deliberately hitting a patrol ship and obstructing officers. A Japanese court on Sunday authorised a 10-day extension in Zhan's detention, but his crew have already returned to China.
Because both countries claim the seas around the islets -- called Senkaku in Japan and Diaoyu in China -- the case has become embroiled in their broader dispute over the area, which has plentiful fish and may be near valuable oil and gas reserves.
WHAT ARE CHINA AND JAPAN LIKELY TO DO?
China has ratcheted up pressure by cancelling official meetings and threatening more retaliation.
There is likely to be more diplomatic pushing from China, at least while the Chinese boat captain stays in detention.
But both governments will try to calibrate their steps to avoid turning the quarrel into an outright rift.
An escalation could occur if, for example, either side sends navy ships near the disputed area or if China allows a repeat of the anti-Japan protests in 2005 which sometimes turned violent and when leaders from the two were barely on speaking terms.
There have been some small-scale anti-Japan protests in China, but they have been heavily policed and quickly dispersed.
The countries now have even more at stake. Together, they account for about 17 percent of the world's total gross domestic product. China has been Japan's biggest trading partner since 2009.
A serious falling-out could unnerve some investors, especially Japanese companies' seeking access to Chinese markets and infrastructure spending.
China has suspended talks with Japan on increasing flights between the two sides, and state media has said the number of Chinese tourists visiting Japan has declined. There have been no other signs of trade and investment being damaged.
WHAT COULD GO WRONG?
There is room for this dispute to expand, and for miscalculation that unsettles broader relations.
Public opinion weighs especially heavy on the relationship, and that constrains the ability of both governments to back down.
China has a three-day Mid-Autumn public holiday this week that could open the way for bigger public protests.
Japan invaded and occupied much of China from 1931 to 1945. Bitterness over Japan's wartime atrocities still underlies widespread Chinese public distrust of Japan.
China's ruling Chinese Communist Party also draws on wartime memories to bolster its claims to power. While China can contain nationalist anger against Japan, as it did after 2005, it treads gingerly in doing so.
There is also widespread wariness of China in Japan, where many see China's growing military strength and regional power as a latent threat to Japanese security and influence.
WHAT WILL BE THE CONSEQUENCES OF THIS ROW?
This case has laid bare tension over territory and influence that will persist after the dispute is settled. Negotiations over disputed undersea gas beds, slow to begin with, are likely to be even more halting. Shifting perceptions of influence may even magnify tension, creating more room for such incidents.
Preliminary statistics show China has edged past Japan to become the world's second biggest economy. China's rise in the economic rankings has been accompanied by military modernisation, especially growing naval reach that worries Japan.
But tension is likely to be held in check by deeper economic inter-dependence.
Japan's exports to China topped those to the United States last year, accounting for nearly 20 percent of its exports. That figure will probably rise to 35 percent by 2026, according to Chi Hung Kwan at Nomura Institute of Capital Markets Research.
(Writing by Chris Buckley and Ben Blanchard, editing by Jonathan Thatcher)
