China dependence growing issue for Japan

But while the interdependence raises the risks for the world's second and third-biggest economies if relations sour, it also boosts incentives to keep ties on track.

“It raises the stakes,” said Kingston, director of Asian studies at Temple University's Tokyo campus.

“But ... Japan has a clear interest in developing better political and diplomatic relations precisely because of the greater economic interdependence.”

News that China had surpassed Japan as the world's second-biggest economy in the second quarter grabbed global headlines, underscoring China's rise and deepening pessimism over whether Japan can even keep third place.

Even more telling is Japan's deepening dependence on China's dynamism for growth in a mature economy plagued with an ageing, shrinking population and a shortage of policy solutions.

Japan's exports to China topped those to the United States last year, accounting for nearly 20 percent of all its exports.

That figure will probably rise to 35 percent by 2026, when China will likely oust America from the top global spot, said Chi Hung Kwan at Nomura Institute of Capital Markets Research.

Japan's direct investment in China has also soared, exceeding 70 percent of its investment in North America last year, with more and more goods being made for local sale, not export.

“For Japanese companies, China is becoming more and more important, not just as the workshop of the world, but as the market of the world,” Kwan said at a luncheon with reporters.

Sino-Japanese relations, long plagued by China's memories of Tokyo's wartime aggression and present rivalry over resources and territory, have warmed since a deep chill in 2001-2006, when then-premier Junichiro Koizumi visited the Yasukuni Shrine, seen by Beijing as a symbol of Japanese militarism.

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