China Suspends Ministerial-Level Talks With Japan Over Boat Clash

Diplomatic ties between the world’s second- and third-biggest economies soured as China escalated a dispute over Japan’s extended detention of a fishing boat captain for a collision in disputed waters.

China yesterday severed senior-level government contacts with Japan, halting aviation talks and suspending a meeting on coal because of the incident. Foreign Ministry spokesman Ma Zhaoxu pledged “strong countermeasures” if Japan failed to release the captain. Japan’s government hasn’t been informed of the measures, a spokesman said today.

“Any so-called judicial proceedings the Japanese side takes against the Chinese captain are illegal and invalid,” Ma said in yesterday’s statement. “Japan will have to bear all of the consequences.”

The dispute, at a time when economic ties are deepening, has made relations their worst since 2005, when thousands of Chinese protested Japanese textbooks that downplayed wartime atrocities. Economic interdependence and a desire to solve the dispute peacefully will probably keep the issue from a dangerous escalation, said Zhu Feng, a professor of international relations at Peking University.

Economic Interdependence

China’s 90-fold economic expansion of the last three decades was underpinned by a peaceful international environment and booming trade ties with its Asian neighbors. Japan is China’s second-biggest trading partner after the U.S., with two- way commerce in the first seven months of the year rising 24.7 percent from the same period in 2009 to $65.2 billion, according to Chinese customs statistics.

Photographer: Philippe Lopez/AFP/Getty Images

A Chinese demonstrator shouts slogans near the Japanese consulate during a protest in Shanghai. Close

A Chinese demonstrator shouts slogans near the Japanese consulate during a protest in Shanghai.

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Photographer: Philippe Lopez/AFP/Getty Images

A Chinese demonstrator shouts slogans near the Japanese consulate during a protest in Shanghai.

China is Japan’s biggest trading partner, and Japanese companies are increasingly dependent on China’s market for future growth. Nissan Motor Co. Chief Executive Officer Carlos Ghosn, speaking at a plant opening in central China today, said that the country now accounts for 23 percent of sales for the Japanese automaker.

Zhu said that while the quarrel is “very serious,” both governments will keep it from escalating into a conflict involving military force or economic sanctions.

“Politically and diplomatically I see the standoff enduring for some time but it will calm down after a while,” Zhu said.

At the same time, domestic pressures may make it hard for either side to back down immediately out lest they be perceived as weak by the public. Japan has repeatedly expressed concern about China’s growing military budget and influence, while Chinese anger lingers over the Japanese occupation of large parts of the country between 1937 and 1945.

‘Some Posturing’

“They are just waiting for a while; they have to engage in some posturing,” Joseph Cheng, a political science professor at the City University of Hong Kong, told Bloomberg Television. “Both governments also understand that it is important not to allow the bilateral relationship to sharply deteriorate.”

Japanese Foreign Ministry spokesman Hidenobu Sobashima said the government “hasn’t confirmed the specific details that have been reported” regarding the breaking off of talks.

Japan “has been responding calmly and cautiously so as not to escalate the situation,” he said today in Tokyo. “We are calling on China to respond calmly as well.”

China’s warning yesterday came a day after 40 demonstrators were seen protesting outside Japan’s embassy in Beijing, and were kept away from the entrance by police. Other reports said as many as 100 protesters had gathered near the embassy.

Captain Detained

Japan has repeatedly refused to release the captain, Zhan Qixiong, saying he is being investigated for a Sept. 7 collision with two of its Coast Guard vessels near a group of disputed islands in the East China Sea. The government yesterday extended his detention until Sept. 29.

Markets in Japan were closed today for a holiday. The Shanghai Composite Index fell 9.98, or 0.4 percent, to 2,588.71, the lowest close since Aug. 12. The gauge declined 2.4 percent last week, the most in more than two months, amid concern government measures to curb lending and energy consumption will slow economic and earnings growth.

Foreign Minister Seiji Maehara yesterday said on NHK television that the dispute over the fishing boat captain was being handled according to Japanese law. He called on China to handle the issue calmly and expressed appreciation for the way the demonstrations were handled.

‘Making Efforts’

“China is making efforts for us,” Maehara said. He reiterated that the islands, known as Diaoyu in Chinese and Senkaku in Japanese, are “an integral part of Japanese territory.”

China has summoned Japan’s ambassador several times to lodge formal protests over the incident, most recently yesterday. Both countries claim the islands, which are administered by Japan. Sovereignty over the area would give the holder rights to undersea gas and oil reserves. China is moving drilling equipment to a disputed gas field in the area, Agence France-Presse said Sept. 17, citing Japan’s Foreign Ministry.

Cnooc Ltd., China’s biggest offshore energy producer, fell in Hong Kong trading, dropping 0.4 percent at HK$14.66. The benchmark Hang Seng index gained less than 0.1 percent. China Oilfield Services Ltd., which counts Cnooc as its largest customer, declined 0.7 percent to HK$11.18.

Natural Gas

Cnooc is already producing oil and gas to the west of the disputed area. China and Japan have failed to implement an agreement signed in June 2008 to develop a natural gas field together and Japan has objected to Chinese drilling near a contested border.

“This could dampen sentiment toward any prior rhetoric of joint oil and gas development in the region and trigger kneejerk profit-taking in Cnooc,” Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong, said in e- mailed comments.

China’s state-owned Xinhua News Agency reported earlier today that “an outraged Chinese public” is screaming for the release of the captain. One note on the Chinese-language Web site of the state-owned Global Times blamed the U.S. for stoking the issue, another pledged to use not “one hair” of goods from Japan, and instead use “ten-thousand German goods.”

Some Chinese companies are taking actions against Japan. Pro-Health, a Beijing-based health product manufacturing and sales company, canceled a trip to Japan involving about 10,000 employees, the company said in a Sept. 17 statement posted on its website. The trip was canceled to protest the boat captain’s arrest, it said.

Japan’s foreign ministry today said China had revoked an invitation for 1,000 youths to attend the Shanghai World Expo because of rising tensions.

“The youth exchange program contributes to establishing a base for a stable bilateral relationship, and it is very inappropriate and regrettable for the Chinese side to make this decision,” the ministry said in its statement.

--Michael Forsythe. With assistance from Sachiko Sakamaki and Toru Fujioka in Tokyo and John Duce in Hong Kong. Editors: John Brinsley, Ben Richardson.

To contact Bloomberg News staff on this story: Michael Forsythe in Beijing at +86-10-6649-7580 or mforsythe@bloomberg.net

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