While domestic politics in Japan is tilting increasingly to the right, the country's policy towards China is starting to resemble the situation before 1972 when Sino-Japanese relations were normalized.

Sino-Japanese ties embarked on a constructive road in the early 1970s thanks to the Herculean efforts made by both Chinese and Japanese politicians of insight and perspective.

But now Prime Minister Junichiro Koizumi, in developing relations with China, seems to be getting stuck in the same old rut of "separating politics from economics" advocated by Japanese prime minister Nobusuke Kishi between 1957 and 1960.

The Kishi administration wanted to keep official relations with Taiwan but was eager to do business with the mainland. This policy ended in failure.

Koizumi, as prime minister, has visited the Yasukuni Shrine, where memorial tablets for some World War II war criminals are enshrined, time and again, turning a deaf ear and a blind eye to the uproar created among Japan's neighbours, China and the Republic of Korea (ROK) in particular. These countries were victims of Japan's aggression during World War II.

At the same time, Japan wants to develop economic and trade ties with China, hoping to reap economic benefits.

The Koizumi cabinet calculates that Japan would get the upper hand over China in the strategic game as long as the Japan-United States alliance is strengthened.

But the stark reality is that Japan is losing many of its advantages and is sliding fast into a predicament, owing largely to its miscalculation and errors with regard to its China policy.

In big-power diplomacy, the Koizumi cabinet counts on the United States to offset China's influence. Things have not turned out as they would have wished.

After the September 11 terrorist attacks, the United States came to realize the chief threat to its security is terrorism, not China, and that it needs Beijing's co-operation on many matters of international concern.

As a result, relations between China and the United States have been improving and are clearly better than Japan-China relations. In the mean time, Sino-Russian relations are getting increasingly better.

Japanese-Russian ties have seen little improvement. President Vladimir Putin's visit to Japan, which was scheduled for the spring of this year, was postponed again and again until last month. Russia is also playing the "oil card;" strengthening its bargaining position in dealing with Japan on a number of points including the so-called "northern territories."

Japan's relations with the ROK have also been soured by the Yasukuni visits, the revision of Japanese junior high school history textbooks and territorial disputes.

In Southeast Asia, negotiations between Japan and the Association of Southeast Asian Nations on free-trade zones are plodding along, owing to disagreements on farm produce and other trade matters.

Singapore and Malaysia harbour misgivings about Japan trying to whitewash its aggression and atrocities during World War II when Singapore and Malaysia were occupied by Japanese troops.

On the matter of Japan's bid for permanent membership of the United Nations Security Council, Tokyo needs the support of its neighbours more than ever, as many Japanese have come to realize.

Japan first counted on US support for its membership plan while spending a lot of money on some Latin American nations, hoping this would help seal the deal. But the United States backed away from its supportive stance when the time came.

Looking back, one sees clearly that the fast growing Chinese economy has provided important business opportunities for the Japanese economy as it drags itself out of the doldrums, especially over the last decade or so.

But now "cold political ties" are beginning to affect "hot economic relations."

Japan's exports to China have been rising by 20 per cent every year since 2001. But growth slowed to 3.2 per cent during the first eight months of this year, compared to the same period last year.

In the first half of the year, Japan's direct investment projects in China decreased by 8.2 per cent over the same period last year. This indicates "cold economic ties" are in the offing. Nobody would benefit from this. But "cold economic ties" would hit Japan the hardest.

Japan's overwhelming advantages over other countries in the region 20 years ago have dwindled significantly, despite its economic volume still being larger than that of China.

The total trade volume of Japan 20 years ago was five times larger than that of China. But things have changed dramatically since then.

China's total trade volume last year reached US$1,150 billion 1.35 times larger than that of Japan.

Last year, Japan's trade with China, including Hong Kong, exceeded its trade with the United States for the first time.

In the same year, the proportion of China's trade with Japan dropped from 30.4 per cent of its total trade volume to 13.5 per cent. As a result, Japan has fallen from its position as China's leading trade partner to rank as the third largest.

The degree of China's reliance on Japan in terms of trade has been reduced while Japan's reliance on China has increased.

Some Japanese enterprises, in support of Koizumi's policies, claim they will ignore China and focus instead on India in terms of investment.

By doing so, they are yielding to their European, American and ROK rivals while the 2008 Beijing Olympic Games offers fabulous business opportunities for China. As a matter of fact, most Japanese companies do not want to quit China. Choosing India over China is nothing but "forgoing what is close at hand and seeking what is far afield."

China's development offers Japan golden opportunities in every way. But the wrong policies on the part of the Japanese authorities will mean good business opportunities will slip through their fingers.

In this sense, the Japanese Government's retrogression-orientated China policy and misconduct on the part of Japanese leaders, such as visiting the Yusukuni Shrine, ultimately will harm Japan's interests.

The author is a professor at the Institute for International Affairs Studies of Tsinghua University