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University students hold banners as they demonstrate during an anti-Japan protest at Chunxi Road business area in Chengdu October 16, 2010.
Look at the banner in the middle saying 回收琉球。PRCs do know their history. Diaoyutai (Senkaku) was part of Ryuku (Okinawa). Ryukyu was a protectorate under Ming Dynasty China. However, sometime after Admiral Zheng He's voyages ended and Duke Zheng Chenggong kicked Holland out of Taiwan, Ming somehow decided a sea-ban (cut off all sea trades and naval seafaring).
Japanese Shogunate Daimyo Tokugawa Ieyasu took advantage and started to rule the waves of the eastern seas, half forcing and half coercing Ryukyu to defect from Ming loyalty and pledge loyalty to Japan. Ryukyu finally relented and Ming couldn't be bothered too since they weren't interested at sea anymore. By the time Japanese Meiji Restoration, Japan officially annexed Ryukyu as a province of Japan, renaming it Okinawa but Diaoyutai (becoming Senkaku) wasn't part of the province, it was under the Japanese colonial administration in Taiwan.
After WW2 Japan surrendered, US and allies recognised Okinawa as part of Japan (as US saw their interests there too). Taiwan was surrendered back to ROC. However, KMT was busy at civil war with PLA, and the mineral reserves under Diaoyutai wasn't discovered yet, so they also couldn't be bothered about the ownership question of some small islands.