Japan's importance as one of China's main trade partners has slipped. On the Japanese side, China is its biggest trade partner, which means the bilateral trade ties need to be upgraded. The reasons for the differing situations are: First, Japan is a much smaller market than the United States and the European Union (EU) and has less room for growth; Second, China's exports to Japan are no longer the biggest part of China's total exports, and the Japanese market is of less importance to China. At the same time, the Chinese market is becoming more important to Japan.

The second field affected is investment. In 2006, Japanese investment in China saw growth, but the growth rate of direct investment slowed. First, the Japanese Government thought there was a risk in China's economic development-such problems as the economic structure, the widening gap between urban and rural areas, the increase in the number of laid-off workers in cities, a shortage of power and water resources and environmental pollution. Attitude from the Japanese Government exerted some influence on the decision-making in investment by some Japanese enterprises. Second, Japanese enterprises began to invest in other countries with new markets and abundant resources, such as Brazil, Russia, India and South Africa. This trend diversified Japan's investment destinations. Third, as Japan's domestic economic situation improved, some enterprises moved their foreign investment projects with high added-value back to their own country. These three factors jointly affected the growth rate of Japan's investment in China in 2006.

The third affected field is capital cooperation between the governments, which obviously declined in recent years. The Japanese Government set stricter examination standards for projects in China while the amount provided declined sharply. On the other hand, the Japanese Government is providing more and more economic aid to Viet Nam and India.

Former Japanese Prime Minister Junichiro Koizumi once said that China's economic development in recent years was so outstanding that it should be removed from Japan's governmental capital cooperation list. This remark directly caused the decline in Sino-Japanese governmental capital cooperation in 2005. Now, the Japanese Government has basically decided that it will stop providing government loans and free technical cooperation to China in 2008. Therefore, governmental capital cooperation will inevitably cool down.

The fourth field is energy cooperation. China's rapid economic development in recent years has led to a real and potential need for energy; thus, energy conservation and environmental protection have become the hot topics for China, Asia and the world. Meanwhile, Japan owns fairly advanced technologies in these areas. If these technologies are introduced to China, they can contribute greatly to the sustainable development of the Chinese economy, as well as the balance of world energy demand and supply. So far, bilateral cooperation in this area is quite limited.

Compared with other trade partners such as the EU, China's economic ties with Japan have indeed slowed down. However, past evidence has shown that Sino-Japanese economic cooperation benefits both sides. If the two countries can jointly overcome their political problems and develop their complementary economies, the prospects for trade and economic cooperation will be very bright.

This year marks the 35th anniversary of the normalization of Sino-Japanese diplomatic relations. The two neighbors' relations are crucial to peace, security and economic development in the Asia-Pacific region. In 2006, Japanese Prime Minister Shinzo Abe's visit to China was considered an "ice-breaking tour" that marked the first step toward the "re-normalization" of the two countries' diplomatic relationship. Later, Chinese President Hu Jintao and Prime Minister Abe reached a common understanding at the APEC Summit in Hanoi on setting up a strategic and mutually beneficial relationship and promoting communication and cooperation in different fields. This month, Chinese Premier Wen Jiabao pays an official visit to Japan, which is regarded as an "ice-melting tour" that will create a wider space and beneficial environment for the development of bilateral trade and economic relations.

China puts a high priority on Sino-Japanese relations and actively promotes the rapid development of bilateral trade and economic relations. The two countries should expand and strengthen their cooperation in direct investment, mutually beneficial cooperation on energy conservation and environmental protection and the service industry, so as to promote the healthy and stable development of their trade and economic ties. 

The author is with the Chinese Academy of International Trade and Economic Cooperation, the Ministry of Commerce