China Must Move Past Japan’s War-Inflicted Wounds, Panetta Says

China must move beyond the “deep wounds” caused by Japan during World War II in addressing present-day issues such as the dispute over contested islands in the East China Sea, U.S. Defense Secretary Leon Panetta said.

Panetta, speaking to military cadets in Beijing today after meeting with Vice President Xi Jinping, also said that the U.S. had urged its Japanese allies to resolve territorial issues with China peacefully.

“I understand the deep wounds that China suffered during World War II and nobody understands those wounds better than the U.S., because the U.S. also suffered deep wounds” during the conflict, Panetta said. “At the same time we can’t live in the past, we must live in the future.”

The standoff over control of the islands, known as Diaoyu in Chinese and Senkaku in Japanese, has sparked the worst bilateral crisis since 2005, endangering a trade relationship that has tripled in the past decade to more than $340 billion. It also comes ahead of a once-a-decade leadership change this year in China that has already been clouded by a recent two-week absence by Xi Jinping, who is in line to be president, and the ouster of Politburo member Bo Xilai.

More than a hundred police stood watch today over streets free of protesters outside the Japanese embassy in Beijing. Thousands of people yesterday waved flags and brandished portraits of Mao Zedong in demonstrations at the embassy as well as at the Japanese consulate in Shanghai.

‘Keep Walking’

The road in front of the Japanese embassy in the capital was reopened to traffic today after having been shut since at least Sept. 15 because of protests. Military police wearing helmets stood guarding the embassy gates and policemen standing on the sidewalk instructed those passing by to “keep walking along.”

“They do not want things to get out of control,” Joseph Cheng, a political science professor at the City University of Hong Kong, said yesterday. “There will be more attempts to contain the protests.”

Panetta said the Japan-U.S. alliance shouldn’t be viewed by China as American support for the Japanese point of view on the island dispute, likening the U.S. stance to its alliance with Israel.

“We’ve made clear to Israel that it’s not the right time to strike Iran,” he said. “We have made it clear to Japan’s leaders that they’ve a responsibility to resolve this dispute peacefully.”

Chinese Foreign Ministry Spokesman Hong Lei said at a regular briefing in Beijing today that the U.S. should “maintain its neutrality” in the island dispute.

Ambassador’s Car

Demonstrators in the capital yesterday caused minor damage to the official vehicle of U.S. Ambassador Gary Locke as it was about to enter the embassy grounds, spokesman Nolan Barkhouse said today. Some of the people had Chinese flags and looked to be leaving protests taking place at the nearby Japanese embassy, said a U.S. official who wasn’t authorized to speak publicly on the matter. Locke was in the car at the time, the official said.

Japanese retailers in China have closed their doors and covered up their logos as protests spread to dozens of cities. The tensions complicate efforts to fortify growth in each country as Europe’s debt crisis saps demand for exports.

At the Japanese embassy in Beijing yesterday, protesters threw bottles and branches at the building’s walls, which were spattered with eggs and paint. In Shanghai, protesters marched through the streets waving Chinese flags and shouting slogans saying “Down With the Japanese.”

The recent demonstrations escalated after Japan last week purchased the islands from a private Japanese owner. The islands have been under Japanese administrative control since 1895.

Keep Cool

“Sino-Japan relations are often described as hot in trade but cold in politics, but now even the trade relationship is getting cold,” said Zhang Jifeng, a researcher with the Institute of Japanese Studies at the Chinese Academy of Social Sciences in Beijing. “It’s hard to tell which side would suffer more from the cooling trade, but it’s sure that the pain will be deep for both.”

Toyota Motor Corp. (7203), Sony Corp. (6758) and Fast Retailing Co. (9983) were among companies that halted operations in China after protesters attacked Japanese cars and shops.

“If our relationship remains strained for a long period, it will be harmful not only to our two countries but to the region and the world economy,” Japanese Prime Minister Yoshihiko Noda said on TBS Television. “We should keep a cool head, but take a firm line. It is important to at least talk, exchange information and communicate.”

Boats Sail

Japan “totally caused” the current crisis and should “take responsibility,” Chinese Defense Minister Liang Guanglie told reporters in Beijing yesterday in a joint appearance with Panetta. “We will very closely watch the evolution with regards to this dispute and we reserve the right for further actions.”

A Chinese fishing ban in waters surrounding the islands ended Sept. 16, and Chinese and Japanese media aired footage of fishing vessels heading out to sea. The state-run China News Service reported on Sept. 17 that 1,000 fishing boats typically go to the region and the government would send more vessels than in recent years. Hong Kong-based activists may go to the region as early as today, the Apple Daily newspaper reported.

Xi met with Panetta at the Great Hall of the People in Beijing today, his first announced appearance with a foreign visitor after being absent in public for about two weeks.

Panetta and Xi met in a ceremonial room at the Great Hall, which overlooks Tiananmen Square and is used for hosting state visits and for sessions of China’s legislature. Wearing a dark blue suit and a light blue tie, Xi appeared healthy and shook hands with Panetta before greeting other U.S. officials.

To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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