Abstract
China and Japan have been deepening economic interdependence over the last two decades, while China has recently shown territorial ambitions and initiated disputes with Japan. This runs contrary to the commercial liberal literature that argues that trade promotes peace. On the other hand, the realist theory also does not fully explain Sino-Japanese relations because Sino-Japanese relations are not always in conflict. The rise of China and the relative decline of Japan might explain increasing tensions in the rivalry relationship, but what drives Chinese leaders to initiate disputes? I address the importance of domestic politics to examine Sino-Japanese disputes. I argue that the recent deterioration of the bilateral relationship could be explained by the power struggle in the Chinese leadership. To support the logic of this argument, I use a game-theoretic model, which accounts for how the type of Chinese leadership influences foreign policy outcomes in Sino-Japanese relations.