Economic and trade cooperation between China and Japan will get back on track if there is no further deterioration of the countries' already strained ties, leading Chinese think tanks said in an annual report released on Tuesday.

The row over China's Diaoyu Islands prompted a "sharp drop" in Japanese exports to China and derailed part of Japan's efforts to boost its sluggish economy, according to the Blue Book of the Japanese Economy (2013) by the National Japanese Economy Society and the Institute of Japan Studies of the Chinese Academy of Social Sciences.

China is Japan's largest trade partner and export market, and the Japanese economy's dependence on China "remains huge", the report said.

Japan's relationship with China was strained after it "nationalized" part of China's Diaoyu Islands in September last year, affecting both diplomacy and trade.

Bilateral trade ended at $329 billion in 2012, down 3.9 percent year-on-year.

Japanese economy is expected to pick up under its economic stimulus plan, which includes massive quantitative easing measures, but the country is "still facing a series of variables", such as uncertain ties with China and its fluctuating currency, the report said.

Japanese Prime Minister Shinzo Abe may not take major steps to repair the shaky relationship with China until his party secures a majority in the country's upper house elections in July, said Zhang Jifeng, a research fellow on Japanese economy studies at the CASS.

"A major posture by Abe, to either repair or further worsen ties with China before July, may cost his ruling Liberal Democratic Party a lot in votes for more seats in the upper house," he said.

The territorial row about the islands in the East China Sea will see Sino-Japanese relationship running low for a while longer, Zhang Jifeng said.

Zhang Yulai, an associate professor of Japanese studies at Nankai University in Tianjin, said the dispute "does not necessarily represent the entire relationship between China and Japan", but the diplomatic standoff has rattled most relevant sectors.

"Some investment programs from Japan, regarding leading technologies and advanced paradigms, have been canceled, which means a heavy loss for China," he said.

The two countries are expected to share their wisdom in dealing with environmental problems, such as cutting edge technologies for fighting sandstorms and air pollution, Zhang Yulai added.

Analysts also warn about changing or unexpected factors that may undermine a revival of bilateral trade.

Although Japan's quantitative easing measures are conducive to recovery of its domestic market, the depreciation of Japanese yen has greatly affected China's exports to the country, China's Ministry of Commerce said on Thursday.

zhangyunbi@chinadaily.com.cn

(China Daily 05/22/2013 page11)