The Sino-Japanese relationship has long been a hostage of historical acrimony. The recent protests in April 2005 by Chinese students over the approval by Japan's Ministry of Education to printing a school textbook that glosses over Japanese war atrocities led to flaring up of nationalist protests in China. These protests are considered the largest anti-Japanese demonstrations in China, surpassing the demonstrations after the 1999 Chinese embassy bombing in Belgrade. For the first time the protests caused damage to Japanese property. Sino-Japanese disagreements have always coincided with an upsurge of Chinese nationalism. Earlier disagreements in Sino-Japanese relations erupted over similar historical causes like these caused by the repeated visits of Prime Minister Junichiro Koizumi to Yasukuni Shrine (the memorial to Japan's war dead), the accidental but incendiary discovery of mustard gas in northeastern China left behind by the Japanese Imperial Army in World War II, intrusion of a Chinese submarine into Japanese territorial waters off the Okinawa islands, and the dispute over exploitation of gas fields in the East China Sea.
 

Interestingly, while China has relegated its historical animosities with most countries to the backburner and given preference to economics over politics, China regards history as the major issue impinging on political engagement with Japan. This growth of aggressive nationalism is rooted in China's clash of security interests with Japan. China is most concerned with the continuing US presence in the Asia-Pacific region. The US presence is detrimental to China's national interests with regard to the unresolved Taiwan problem. In February 2005, Japan recognized Taiwan for the first time as being of common security concern to both Japan and the US. More importantly, Japan is escalating its demand for a permanent seat in the UN Security Council. China's nationalist protest is largely aimed at blocking Japan's entry to the UNSC on the grounds of unsuitability of Japan to make this claim. All these issues have together engendered an aggressive nationalism in China. Unfortunately, this has coincided with the parallel rise of nationalism in Japan.
 

Chinese nationalism has become a potent tool in the hands of the Chinese authorities to boost popular support. The Chinese government however, denies any involvement in the protests. But the series of protests under the authoritarian Communist regime in Beijing, Shanghai, Tianjin and Hangzhou for three consecutive weeks indicates a rising tide of state supported nationalism centered on anti-Japanese sentiments. While the Chinese authorities are careful not to lose control over the mob, some reports of attacks on Japanese businesses are worrying. It is feared that if the differences between the two countries widen then China-Japan relations may transform from "chilly politics and hot economics" into "chilly politics and cool economics". The question arises whether China will allow nationalistic fervor to rise and affect normal economic relations with Japan. The Japanese Foreign Minister has regretted the continuing anti-Japanese rallies and said that the security seems insufficient to protect Japanese interests in China.
 

 The growth of trade between China and Japan has slowed down after 2003. According to statistics Japan had always been China's largest trading partner until 2003. However, statistics from the first three quarters of 2004 show that the bilateral trade volume between China and the EU tops Sino-US trade, which ranks second, while the China-Japan trade has dropped to third place. Again, judging by the bilateral trade figures, China's trade with Japan has been diminishing for several years in a row because the volume of China's trade with other regions is growing faster. The growth of Japanese investment in China has also slowed down considerably in 2004. According to statistics released by the Chinese Ministry of Commerce, South Korea, surpassed Japan to become China's third largest overseas investment source for the first time. The economic slow down is to a large extent due to historical animosities driving out good businesses.
 

The 17 April emergency meeting between the foreign ministers of the two countries has failed to ease tensions. The forthcoming meeting between Hu Jintao and Junichiro Koizumi on the sidelines of an international gathering in Indonesia this month has again raised hopes for a defusing of tensions between the two countries. In fact, both China and Japan should make joint efforts to scale down tensions. Given the characteristics of Chinese nationalism, which is rational and designed to serve China's pragmatic foreign policy, it is likely that China will tone down its aggressive nationalism centered on anti-Japan sentiments and create favourable conditions for a deeper economic engagement with Japan. The onus lies on Japan to respond to China's gestures and create conditions again for revival of "new thinking" in China's Japan policy, which urges burying historical acrimonies and normalizing ties between the two East Asian powers.