Japanese investment into China in 2005 hit a record $6.5 billion (€5.35 billion), quelling fears that the deterioration in political relations during the year would corrode economic ties between Asia's two largest economies.

Anti-Japanese riots broke out across China in April last year, during which Japanese businesses were attacked and a virulent internet-based campaign to boycott Japanese goods undermined sales of Japanese-branded products.

The riots were triggered by a number of factors including Japan's bid to join the United Nations Security Council, continuing disputes over maritime territory and energy resources, and long-held antipathy over Japan's wartime history.

The Beijing office of the Japan External Trade Organisation (Jetro) said yesterday that Japanese foreign direct investment into China rose 19.8 per cent to $6.5 billion last year, driven by car manufacturers and electronics companies. Total foreign investment into China during the year was around $60 billion.

A survey of Japanese companies conducted soon after the riots revealed that three in 10 companies operating in China were reassessing expansion plans and 36.5 per cent said the riots would damage business prospects during the year.

But the latest Jetro figures indicate the economic relationship between Japan and China is now sufficiently compelling and mature to overcome occasional political flare-ups, according to Koji Sako, assistant director of the group's China and North Asia division.

The Jetro survey has been given added resonance by the latest war of words between the Chinese and Japanese governments. - (Financial Times service)