Diaoyus dispute affecting financial ties as Chinese banks pull out of Japan summits

The withdrawal of Chinese banks from upcoming global banking summits in Japan shows that the territorial row between the two Asian economic powers is already taking its toll on international financial relations.

Three of the Big Four - the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of China - have also pulled out of the Sibos conference on interbank communications, which is scheduled to be held in Osaka later this month.

The moves come amid escalating political tensions stemming from efforts by Japanese leaders to purchase three of the five disputed Diaoyu, or Senkaku, islands in the East China Sea.

Analysts said the banks' action couldn't have come at a worse time as global leaders struggle to rein in the European debt crisis and jump-start sluggish growth around the world.

Meetings such as the IMF and World Bank Group summits provide academics, central bankers, finance ministers and senior banking executives a rare opportunity to share ideas and draft plans to solve systemic problems.

"The European problems need to be solved through global co-operation," said Sun Lijian, an economic professor at Fudan University. "This may hurt the co-operation."

Moreover, Chinese banks could be passing up an opportunity to advance Asia's role as a global economic engine and push reforms to international financial organisations long sought by China, Sun said.

The Big Four, which also includes China Construction Bank, had registered months ago to attend the summits starting on Tuesday in Tokyo.

Privately, some bankers told their contacts that they should blame the Diaoyus dispute, according to sources familiar with the matter. Some smaller mainland banks also cancelled, the sources said.

The banks' decision to withdraw was first reported by The Wall Street Journal on Tuesday.

Meanwhile, an official with the Society for Worldwide Interbank Financial Telecommunication (Swift), which is organising the Sibos conference from October 29 in Osaka, confirmed the three big banks had pulled out.

Sibos - Swift International Banking Operations Seminar - is one of the most important annual gatherings in global finance.