China: military spending up by 12% in 2014China is increasing its military spending to US$135bn in 2014. This is the biggest increase since 2011. China is stating that it needs its military forces capable to meet new challenges. The USA and Japan are worried about this development. The USA is already facing a confrontation with Russia over the Ukraine crisis. China can successfully re-instate its dominating position in South-East Asia as the USA is finding it more challenging to ‘fight on two fronts’. China has territorial claims in the South China Sea. The matter over the disputed islands in East China Sea is complicated and is due to historical factors. History of tension The history of claims by China and Japan are as follows: The Chinese named the islands Diaoyu Islands while Japan named them Senkaku Islands. China claims that the islands were part of Taiwan (former Formosa) whilst Japan claims that the Islands were uninhabited and came under Japanese sovereignty in 1885. Taiwan changed hands after China lost to Japan in the Sino-Japanese war which ended with the signing of the Treaty of Shimonoseki in 1895. Japan lost control over Taiwan to the USA after World War II. Japan formally got the Islands back from the USA after signing the Okinawa Reversion Agreement in 1971. China does not recognise this. Japan says that China never really challenged it until potential gas and oil reserves were discovered in the late 1970s insisting that transfer of sovereignty over the Islands by the San Francisco Treaty in 1951 was never objected to by China.