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Stakes are high for Wen's Japan trip

SINO-JAPANESE RELATIONS Business leaders will be keeping a close watch on Chinese Premier Wen Jiabao's visit to Tokyo this week, hoping for a boost in trade ties

AFP , BEIJING

Much will be at stake when Chinese Premier Wen Jiabao (溫家寶) embarks on a three-day visit to Japan on Wednesday -- not least the future of economic ties between East Asia's two giants.

Wen's trip is part of what increasingly looks like a thaw, coming after a nearly decade-long freeze, but much can still go wrong, and the business community is not uncorking the champagne just yet.

"If the political atmosphere stays cold for some time, the economy can also cool," said Mitsuyuki Kagami, a professor of Chinese political thinking at Japan's Aichi University. "That poses big concerns for both China and Japan."

Wen's visit is the first such trip in seven years by a Chinese premier, after a groundbreaking visit to China by Japanese Prime Minister Shinzo Abe last year. It is happening none too soon, according to analysts.

Japan was China's largest trading partner for 11 consecutive years until 2003, but was then overtaken by the US and EU, and politics may have been factor, they argued.

"It's hard to avoid bad political relations having an impact on the economic side," said Liu Jiangyong, a Japan expert at Beijing's Tsinghua University. "Just look at 2005."

That was the year when latent anti-Japanese sentiment in the Chinese public burst out into the open over Tokyo's desire for a permanent UN Security Council seat.

Further enraged by a Japanese history textbook glossing over World War II crimes, angry crowds marched through China's major cities, smashing Japanese property. In Beijing, they pelted the Japanese ambassador's residence with bricks.

A month after the protests, the worst riots in at least six years, a survey showed the portion of Japanese firms planning to expand existing business or start new business in China slumped to 54.8 percent from 86.2 percent in late 2004.

The figure later rebounded, but even at 76.8 percent late last year, it remains almost 10 percentage points below the pre-riot figure.

Trade is growing, but not as much as one would expect, when an export-dependent economy such as the Chinese expands at double-digit rates.

Bilateral trade rose about 12 percent in both 2005 and last year, only around half of the growth rate between China and its other two major trading partners, EU and the US.

But Liu noted that Japan's exports to China, mainly high-grade electronics and automobiles, have been expanding faster since Abe visited China last October just after taking office, and the tendency will continue.

Bilateral trade rose by 22.4 percent year-on-year to US$33.49 billion in the first two months of the year, with the growth pace 10.7 percentage points higher than a year earlier, according to figures from Chinese customs.

The sluggish political relations will not deter Beijing from buying capital equipment and technologies from Japanese firms, analysts said.

"[The Japanese enterprises]have very good opportunities here. I think the government should basically make their decision based on technologies," Hong Kong-based economist with Lehman Brothers Sun Mingchun (孫明春) said. "It's more important to focus on the economic side, less on the political side."

According to Akihiko Tanaka, a professor of international politics at the University of Tokyo, China will not allow economic ties to deteriorate too much, as they serve its own interests too.

"A good international environment is a prerequisite for China's development," he said.

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