Clashing regional ambitions and even bitter war-time memories seem to have been forgotten in the flurry of diplomatic exchanges between China and Japan, which are busy preparing to mark the 30th anniversary of the establishment of bilateral ties.

But while the stage for celebrations is set, the potential for conflicts still lurks beneath this fresh rapprochement and animosities could easily subdue the new amicable atmosphere between Beijing and Tokyo.

China's second most powerful leader, Li Peng, has just concluded a fence-mending trip to Japan, trying to appease fears that China's fast-growing economy would outpace Japan, the world's second largest economy.

His conciliatory efforts were reciprocated by Japanese Prime Minister Junichiro Koizumi's public statement that China's emerging economic powerhouse was not a threat but a motor of growth for the entire world.

Koizumi visited China on Thursday to attend the Boao Economic Forum for Asia on southern Hainan island, designed as the Asian version of the World Economic Forum. He is also expected to make an official visit to Beijing later this year.

Koizumi's visit is only one of a series in diplomatic overtures between Tokyo and Beijing. The visit to Japan by Li Peng, chairman of the Chinese Parliament, will be followed by trips this spring by two other leading Chinese political figures  Zeng Qinghong, a top aide to President Jiang Zemin, and Vice-Premier Wen Jiabao.

It is somewhat symbolic that in a year of sensitive political transition for China, its powerful Asian neighbour is going to welcome statesmen belonging to the outgoing generation of communist leaders, as well as politicians who might lead China in the next five years.

The move reflects not only the continuity of efforts to keep Japan-China relations on track, but speaks for the greater importance Tokyo places on economic cooperation with Beijing now that the country has joined the World Trade Organisation.

Sweeping change

A sweeping change in the Chinese Communist Party's leadership at its five-year congress this fall is expected to promote both Zeng and Wen asmembers of the all-powerful Politburo  the highest decision-making body in the party hierarchy. Wen Jiabao is also tipped to succeed Premier Zhu Rongji.

Li Peng, for his part, is expected to step down as head of the highest Chinese legislative body next year when the Parliament convenes its next annual session. In paying his last courtesy visit to Japan, Li Peng went on a charm offensive, dismissing fears that China is well on the way to replacing Japan as the economic engine of the region, it not beyond that.

He told Japanese business leaders that the scale of the Chinese economy was still small and it ''will not be a threat''. He was quoted as saying last week, China maintains (annual) growth of seven percent but still is in the middle of industrialisation.

While the string of high-level exchanges indicates readiness by both sides to stoke warming relations and keep them stable, not all is well between the two Asian neighbours. Security issues continue to weigh heavily on fragile attempts to keep oft-frayed ties calm.

Even as Li Peng was sightseeing in Japan last week, a leading Japanese politician fuelled controversy by saying Japan would arm itself with nuclear weapons overnight if China continued its massive military build-up.

''If China gets too inflated, the Japanese people will get hysterical,'' Ichiro Ozawa, the outspoken leader of the opposition Liberal Party, said over the weekend. ''It would be so easy for us to produce nuclear warheads  we have plutonium at nuclear plants in Japan, enough to make several thousand such warheads.''

While these remarks coming from a politician known to be a confrontationalist in his own country, they display the potential for conflict there exists between the two countries.

Military budget

Last month, Tokyo urged Beijing to disclose more information on its bulging military budget and voiced concern over China's nuclear and missile programmes. China is budgeting a 17.6 percent increase in military spending this year to modernise the world's largest army after an 18 percent rise last year.

Defence analysts contend that China's real military budget might be up to four times the US$20 billion that Beijing has made public.

This type of spending has given Japan reasons for slashing its yen loans to China. In late March, Tokyo announced it was cutting its official development aid to China by 25 percent this year, the biggest cut in financial aid to Beijing since such loans began in 1979.

As of the end of last month, Japanese loans to China had totalled US$20 billion, according to statistics from the Ministry of Finance. The loans, with their low interests, have helped financed more than 170 projects in China, providing the country's modernisation with much-needed capital.

However, Japan has grown increasingly uneasy in recent years over the build-up in China's military power, which consumes a large part of the country's budget, despite the fact that Beijing still pursues aid from richer countries.

Beijing is not unaware of the heated opposition to such loans brewing in Japan. ''Politics play role behind slashed loans,'' declared a headline in the state-run Business Weekly this week.

The paper quoted Foreign Minister Tang Jiaxuan saying China understands that it is economically necessary for Japan to reform its aid programmes, but that Beijing is against any efforts to link the loans with political issues on the Japanese side. (IPS)