south china sea

We've been telling you for months about the ongoing territory disputes in the South China Sea - and warning that it wouldn't take much to spark a major confrontation.

Now you see why.

Today, the anniversary of Japan's 1931 occupation of parts of mainland China, an already smoldering territorial dispute between China and Japan is threatening to boil over.

Major Japanese firms have ordered shutdowns of their Mainland China operations, and Japanese expatriates living in that country have been ordered to stay indoors as angry protests sparked by the territory disputes have kicked the anti-Japanese sentiment to its highest level in decades.

We've been telling you for months that this was inevitable.

Last week, Beijing dispatched patrol boats to the five East China Sea islands that are escalating the disagreement between the two Asian heavyweights. Beijing sent the boats to the Senkaku island region as an angry response to Tokyo's plan to buy the mostly barren islands from their private owners.

Over the weekend, well-known Japanese firms such as Honda and Toyota were the focus of demonstrations and violent attacks. And yesterday, a flotilla of around 1,000 Chinese fishing boats was sailing for the islands.

All of this was prompted by Japan's announced plan to purchase the five afore-mentioned islands from their private owners.

Chinese Foreign Ministry spokesman Hong Lei said the government would protect Japanese firms and citizens and called for protesters to obey the law.

"The gravely destructive consequences of Japan's illegal purchase of the ... islands are steadily emerging, and the responsibility for this should be born by Japan," Chinese Foreign Ministry spokesman Hong Lei told reporters at a daily news briefing.

This follows last week's warning by China's Foreign Ministry that "if Japan insists on going its own way, it will bear all the serious consequences that follow."

Although the hottest part of this dispute currently centers upon China and Japan - which generated two-way trade of $345 billion last year - many more Pacific-Region nations are involved.

And, as we'll show you in a minute, there will also be consequences for this country, and for U.S. investors who take the time to understand what's at stake.