Taiwan

Beyond culture and pride, China views Taiwan as a geographical key to controlling the "first island chain." 

Controlling Taiwan means controlling the sea lanes in Asia, meaning China has permanent leverage over their historical rival/enemy: Japan. With the additional plus of having control/leverage over the Philippines and Vietnam. It sounds to me like the strategy of controlling Australia in Risk. By holding that little single territory, you don't need much to defend it and it provides you a permanent structural advantage (in Risk, 2 extra armies per turn).

The discussion around Taiwan often centers on Taiwan-China and China-USA. But I wonder how Japan views the issue. Maybe they feel it isn't worth a war with China over, and they could simply sail longer or alternative trade routes. But I can't imagine they would just sit on their hands...after all, after Taiwan, they have the most to lose. And unlike Taiwan, they can compete with China with size, money, etc.