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Despite potential gains of significant oil resources and the fact that China has compromised in the majority of its territorial disputes, China has been unwilling to compromise on its claimed sovereignty of the Senkaku/Diaoyu Islands in the East China Sea, against Japan. The purpose of this article is to explain China's reluctance to drop its territorial claim and compromise with Japan about sovereignty of the disputed islands. I argue that there have been strong incentives for China to maintain its territorial claim against Japan because the Chinese government has been able to use the territorial dispute to make bargaining gains on exogenous issues disputed with Japan. By provoking Japan through confrontational actions, China has used the dispute to gain bargaining leverage by achieving concessions on other disputed issues with Japan, or compelling or deterring certain Japanese policies or actions. Data analysis from 1978-2001 supports the theory. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]