By John Richardson
THE collapse in Japanese auto sales in China, a result of the East China Island dispute, is just the first phase in what could be a very damaging economic war, the blog understands.
Phase two could be the imposition of trade barriers against Japan by an increasingly hard line Chinese leadership eager to divert attention from economic problems at home.
"China may make Japan an economic victim by keeping the Yen high. It has warned in the press that it might inflict another 20 years of economic hardship on Japan," said a chemicals industry source.
China has always sought primacy in the region, the blog understands. Its refusal to devalue the Yuan from 1994 onwards, when everyone was pressing for a devaluation, was meant to dethrone Japan.
And as long as the dispute continues, the risk of military conflict remains.
There is a further very worrying consequence: Hardliners in China are thought to be using the dispute to cement their position ahead of the upcoming Politburo leadership transition.
Hardliners are more than likely to be conservatives, anxious to prevent economic reform.
If economic reforms fail, the prospects for long-term growth do not look good.