Japan has already folded a couple of times, China is probably looking to squeeze every bit of political leverage out of this that they can. It's also useful for them to have a common foe to rally the people against as the economic crisis begins to bite the Chinese economy.
In terms of actual warfare...not likely, Japan is a big trading partner with China IIRC and the PRC wouldn't want to risk their trade, nor would they want to push the delicate Asian markets into freefall whilst their economy is in the transition stage from a pure export into a balanced export/import economy.
Tak also has a good point, has anyone seen Xi Jinping? He seems to have vanished which is not good news, last thing we need is an internal power struggle in the PRC.
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