We all must acknowledge that the relationship between Japan and China has become one of the most important in bilateral relations for both countries. The Japanese and the Chinese economies are the two largest in Asia, and the shape of their relations has strong repercussions on the prosperity and stability of the region as a whole.

The growing bilateral trade volume has also led to changing trade pattern between China and Japan, as mechanical and electrical products with higher technology content have gradually taken the place of products with low value added such as raw materials and textiles.

According to statistics by both countries, mechanical and electrical products accounted for more than half of their trade volume in 2007, an indication that the two countries have become more interdependent in their economic growth.

Moreover, along with China's economic growth and technical advance, Japan has increased its total investment in China and broadened the spheres for its investment in the country.

Figures published by China's Ministry of Commerce show that Japan's investment in China had reached US$ 60.7 billion by 2007. Its direct investment in the country has also undergone a shift from processing industries such as raw material and foodstuff to manufacturing such as mechanical and electrical industry.

Japanese government extended a total of 14.5 billion dollars to China from fiscal 1979 through the end of fiscal 1999. The amount consists of 10.7 billion dollars in Yen Loans, 800 million dollars in grants, and 2.9 billion dollars in technical cooperation. Japan is now the largest aid donor country to China, far ahead of any other country, while China is the second largest recipient of Japanese ODA after Indonesia in terms of the accumulated amount of aid.

The number of visitors between the two countries has increased year by year. According to figures released by the Ministry of Justice, the number of Japanese visitors to China topped the 1 million mark in 1996, and the level was sustained through 1999. The number of Chinese visitors to Japan (including those from Taiwan and Hong Kong but excluding those who traveled to Japan on reentry permits) reached 150,000 in 1998. From September 2000, Japan started issuing tourist visas to Chinese group tours from Beijing, Shanghai and Guangdong Province. Although there are still certain restrictions, it is now possible for the Chinese people to visit Japan as tourists, and their number is expected to increase in the years ahead. Also, there are approximately 32,000 Chinese studying in Japan, accounting for 54% of the total number of foreign students. More than 250 Japanese cities have established formal friendship ties with their counterparts in China, while academic exchanges between the two countries have expanded every year.

I think the trend of growing trade between China and Japan will continue. This reflects the gradual shift of production by Japanese firms to China. Japanese firms are also shifting more of their production to China to better gain a foothold in the fast-growing domestic Chinese economy. For Japan, a very large market has emerged next door.

 In the relationship between Japan and China, from time to time, partly because of historical circumstances, there is a tendency to regard it as a special relationship. However, in today's globalized economy, there is increasing pressure for international cooperation in a multilateral setting. In terms of the regional economy, cooperation between Japan and China, both major economies in Asia, will promote stability and prosperity in the region. In this sense, cooperation between Japan and China in APEC, the ASEAN-plus-three forum and the ASEAN Regional Forum will be good for the stability and prosperity in East Asia. Over the long run, Japan and China could perhaps explore the possibility of setting up an East Asia free trade area and broaden the sphere of economic cooperation in the region. One possibility is to form a cooperative framework among countries adjoining the Sea of Japan, which, one day, could even encompass a unified Korea and Russia's Far Eastern Region.

As President Hu told a joint press conference with Prime Minister Yasuo Fukuda: "China and Japan have no other way but to take the path of peace, friendship and cooperation as neighbours and countries with significant influence to Asia and the world". In a joint statement, Hu and Fukuda said they "confirmed that the two nations are cooperative partners, not threats, to each other" and share responsibilities "for the world's peace and development in the 21st century."

When commerce relation developed very fast, the political relation also developed at the same time. In May 2008, Chinese President Hu Jintao and Japanese Prime Minister Yasuo Fukuda signed the China-Japan Joint Statement on Advancing the Strategic Relationship of Mutual Benefit. This latest document clearly indicates the China-Japan relations have entered a new phase of development. The guiding principles contained in it have pointed out the direction for the bilateral ties to proceed in the new era and expanded the horizon for cooperation.

Japan is the second largest economy in the world, while China is developing fast. Both countries are growing into world-class powers in their own right. It is a simple fact there is a certain amount of competition between the two neighbors. If handled well, such competitions can enhance their bilateral ties. Otherwise they might come between the two countries with negative effects. The new joint statement has made it clear China and Japan are strongly inclined to keep their bilateral relations in the right direction and realize mutual benefit and win-win results.

The joint document emphasizes the two countries need to step up cooperation in the areas of energy resources and environment, which is an obligation we are expected to fulfill for the sake of our posterities and the international community. Japan is a country short on natural, and especially energy, resources. For this reason Japan has found a way out by building up its technological strength. Japan is now a frontrunner in energy-saving and environmental protection technology in the world with its energy consumption per unit of GDP among the lowest among all nations of the world.

China, meanwhile, is changing its economic growth pattern, which has to be energy-efficient sooner or later, but still has many hurdles to overcome. Cooperation between the two countries in energy conservation and environmental protection is bound to become another highlight of bilateral economic and trade ties and will no doubt leave a lasting legacy for the future not just of the two nations but of the regional and the world economy as well.

Japan and China, therefore, should avoid binding themselves to the narrow confines of a bilateral relationship. The two countries should map out a broad-based strategy of cooperation and build a bilateral relationship in a multilateral setting encompassing Asia and the world as a whole.