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China and Japan continue to partly live in the shadow of World War II (WWII) with recurrent expressions of anti-Japanese nationalism in China periodically ebbing bilateral relations. How does the Chinese government manage anti-Japan public manifestations of nationalism and what factors explain it? The government has to walk a fine line by managing the nationalism it has bred without undermining its own rule and considering elite divisions, heightened public nationalism, and the developments in its external environment. Six case studies from the Hu-Wen era provide a comprehensive understanding of what pertains to Chinese nationalism, the means used to express it, and more importantly the way the government chose to tackle them. While nationalism can be a mean of garnering legitimacy and exercising pressure on Japan to bend to its wishes, the Chinese government is embarked on the sinuous task of preventing an escalation beyond its control at both the domestic and international levels. [ABSTRACT FROM AUTHOR]

We study the impact of nationalism and interstate frictions on international economic relations by analyzing market reaction to adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure suffer relative declines during each event window; a symmetric effect is observed for Chinese companies with high Japanese exposure. The effect on Japanese companies is more pronounced for those operating in industries dominated by Chinese state-owned enterprises, whereas firms with high Chinese employment experience lower declines. These results emphasize the role of countries' economic and political institutions in mediating the impact of interstate frictions on firm-level outcomes. [ABSTRACT FROM PUBLISHER]