Diaoyu Islands
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China and Japan must not let Diaoyu issue derail trade ties

China and the US have long maintained a high-level economic dialogue that keeps trade and finance apart from other issues between them. Despite other disagreements, business can continue as usual. That arrangement serves global as well as mutual interests. It would be good if relations between China and Japan, who launched a similar dialogue more recently, reflected such common sense. They are, after all, the world's second and third-biggest economies, respectively, and Asia's most important trade partners.

History between the two, however, can get in the way of such pragmatism. The latest flare-up over claims to the Diaoyu Islands is a case in point. Nationalist sentiment has boiled over on the mainland, resulting in the biggest protests since the normalisation of Sino-Japanese relations 40 years ago.

Global Japanese brand manufacturers closed factories in China amid vandalism against the country's business interests and calls for boycotts of its goods. This raises concerns over the impact on the economic relationship between the two countries. Indeed, a Commerce Ministry spokesman in Beijing said Japan's efforts to nationalise the islands would damage the development of economic and trade relations between the two countries.

As Beijing reins in the protests and factories resume production, it is time for moderation and negotiation in place of confrontation and patriotic fervour that has at times got out of hand. It is also time to reflect on the consequences of a trade war between the two Asian giants. Japan would be the big loser, because it is more reliant on bilateral trade - China being its biggest customer while Japan is the mainland's fourth biggest. But the trade balance is running China's way, so it stands to be a big loser in the long run from any serious trade disruption.

Tit-for-tat trade sanctions, or a trade war, are the last thing the world - and for that matter China - needs while Europe is in recession and US growth is weak. Moreover, economic growth on the mainland moderated in the second quarter to the slowest pace in three years and hopes for a third-quarter turnaround may be disappointed. This is no time to derail a bilateral trade relationship that has continued to grow while those with the US and Europe have stalled. It is to be hoped common sense prevails over populist sentiment and that mutually beneficial economic dialogue can serve as an anchor when the bilateral relationship hits troubled waters.

This article appeared in the South China Morning Post print edition as: Let common sense prevail