As officials in Washington warily consider a Chinese offer to buy a big US oil and gas company, the reaction in Japan to the swelling economic muscle of China provides an early warning sign of the mixed emotions that China evokes as it rises on the global stage.
After a five-year boom, Japan's export growth to China stalled in May. Recent polls of Japanese investors show a growing reluctance to make further investments in China.
The immediate catalyst for the changed attitude was a wave of anti-Japanese protests in Chinese cities in April. But those protests, countenanced by China's leaders, sent out a broader message: China would not object if its people, or its business executives, demonstrated a sense of nationalism on the streets or in corporate boardrooms.
It was a stark reminder to investors and politicians around the world of China's willingness to play the nationalist card. And it amounted to a bucket of cold water for many Japanese investors who had assumed that they were secure in China because they were providing jobs and quality products.
The protests involving the two Asian powers had been fueled by deep disputes over World War II narratives in Japanese textbooks, territorial arguments and Prime Minister Junichiro Koizumi's visits to a shrine to Japanese war dead.
"People are scared -- they don't know where the Chinese are going with this," said Robert Feldman, managing director of Morgan Stanley Japan, echoing fears that executives of Japanese companies rarely express publicly.
The Japanese "don't see a way out of the political mess," he said. "They are looking for alternatives."
In two surveys, separated by six months, the percentage of Japanese companies planning to expand operations in China dropped sharply, to just under 55 percent in late May, from 86 percent last December, according to the Japan External Trade Organization, the country's trade and investment promotion agency. The agency polled 414 Japanese companies operating in China last month, and a similar number late last year.
Although only 10 percent of the companies said that business had suffered from the protests, largely in reduced sales and tarnished brands, 36 percent said they were worried about future effects, and 45 percent said the business risk of operating in China had increased.
"The psychological impact the anti-Japan movement had on Japanese firms was far from small," Osamu Watanabe, chairman of the agency, said at a recent China-Japan investment conference in Beijing.
Reassuring Japanese investors will be crucial for China to invigorate the economy and create jobs in less prosperous areas that are inland from the booming coastline.
As China grows, Japan, the world's second-largest economy, will need powerful friends. In 2050, according to a new Goldman Sachs forecast, the Japanese economy will not be much larger than it is today, but China's is expected to be 30 times as large as now, or six times the size of Japan's. The world ranking of economies in 2050 would start with China, followed by the US, then India.
For some Japanese investors, the anti-Japanese protests catalyzed sentiment to diversify away from China to Southeast Asia.
"It was a trigger," said Hiroyuki Maeda, executive vice president of the Uniden Corp, a leading maker of cordless phones.
In the US, the unsolicited bid last Wednesday by the China National Offshore Oil Corp (