Island Dispute Strains China-Japan Economic Ties

The Wall Street Journal reports economic relations between China and Japan could be hurt due to the tension over the soverignty Diaoyu Islands in the East China Sea:

China said Japan must meet it halfway in a longstanding territorial spat in the East China Sea as concerns grow at a key Asia-Pacific Economic Cooperation summit here about whether the showdown could hurt economic ties between the two countries.

“The Japanese side should take concrete actions and meet the Chinese side halfway, and jointly manage the crisis so as to reduce tensions and promote China-Japan strategic and mutually beneficial relations,” said Qin Gang, the spokesman for China’s Foreign Ministry said at a news briefing Saturday.

The tough-worded remarks came as Japanese Prime Minister Yoshihiko Noda met with U.S. Secretary of State Hillary Clinton, also on the sidelines of the APEC summit. Their talks lasted for about an hour and covered a broad range of security and economic issues, including China.

Despite the territorial spat and frequent eruptions of anti-Japanese sentiment in China, Japan has tried to keep tensions under control, as the country depends on China for much of its economic growth. In November, China, South Korea and Japan will begin formal talks on a trilateral free-trade agreement, according to Chinese officials.

The Voice of America previously reported that Noda said he will not likely meet China’s president, Hu Jintao, at the APEC summit. Despite this statement, the two leaders met for 15 minutes on the sidelines of the summit. Reuters adds:

Chinese President Hu Jintao said on Sunday Japan should not make a “wrong decision” over a territorial dispute when he met Japanese Prime Minister Yoshihiko Noda after weeks of tension between the neighbors, media reported.

Noda said Japan hoped to develop a mutually beneficial, strategic relationship with China and that he planned to deal with current relations from a “comprehensive perspective”, Japan’s Jiji news agency reported.

China’s state television broadcaster, CCTV, reported that Hu told Noda a “severe situation” had developed over the islands which are controlled by Japan and owned by a Japanese family.

“It is illegal and invalid for Japan to buy the island via any means. China firmly opposes it,” CCTV quoted Hu as saying.

Amid the territorial dispute between the two countries, US Secretary of State, Hillary Clinton has softened the rhetoric on China. The Washington Post reports Clinton is urging neighboring Asian countries to ease tensions:

“Whether we’re talking about the South China Sea or the East China Sea, my message has been the same to everyone,” Clinton told reporters. “Now is the time for everyone to make efforts to reduce the tensions and strengthen diplomatic involvement toward resolving these tensions.”

Given the weakness of the global recovery, any confrontation that might raise doubts over stability and peace in the region would not be in anyone’s interest, said Clinton, who was attending the summit of the Asia Pacific Economic Cooperation forum on behalf of President Barack Obama.

Clinton said she would work closely with the various Asian countries to help ensure the disputes do not balloon into more serious problems.

“We can’t let anything happen. It’s not in the interests of any of the Asian countries and it’s certainly not in the interests of the United States or the rest of the world to raise doubts and uncertainties about the stability and peace in the region,” she said.

Following anti-Japanese protests, Japanese carmakers in China have been told to lie low. This report comes as more carmakers, such as Nissan, are trying to expand into China’s auto market. AsiaOne reports:

The economic fallout from territorial disputes involving Japan, China and South Korea continues to spread, with the latest manifestation being a request from the Chinese authorities for Japanese carmakers to slow sales campaigns in China in order to avoid becoming targets of anti-Japanese demonstrations.

The diplomatic row between Japan and China is having “some impact” on Japanese car sales in China, Reuters quoted a Nissan executive as saying in the south-western Chinese city of Chengdu.

Nissan chief operating officer Toshiyuki Shiga said Japanese car manufacturers were having difficulty in holding big, outdoor sales promotion campaigns, which may have hurt August sales.

Nissan and other Japanese manufacturers were advised by local government officials to tone down their sales campaigns and slow other sales activities to avoid becoming targets, Mr Shiga added. “I heard that local authorities requested (some stores) not to do big campaigns.”