Japan, India agree on tighter ties amid China risk

Japan and India pledged closer strategic ties between Asia's second and third biggest economies in talks on Monday, as Tokyo struggles to offset the risk of its growing dependence on giant rival China.

Trade and investment flows with India have been unspectacular as Japanese firms focus on business with China and Southeast Asia, but recent Sino-Japanese tensions have underscored the risk of over-reliance on China's dynamism to help Japan's stalled economy.

Indian Prime Minister Manmohan Singh and Prime Minister Naoto Kan endorsed a bilateral economic partnership deal and urged speedy agreement on a civil nuclear pact that would give Japanese firms access to India's fast-growing market.

They also agreed to hold annual ministerial economic talks.

"I strongly believe that we can, and we must, synergise our complimentary stance to impart new momentum to Asia as well as global economic growth and prosperity," Singh, in Tokyo until Tuesday, told a group of business leaders from both countries.

Sino-Japanese relations deteriorated sharply last month after Japan detained a Chinese trawler captain whose boat collided with Japanese patrol ships near a chain of disputed islands in the East China Sea, called Senkaku in Japan and Diaoyu in China.

Concerns remain in Japan that Beijing is holding back shipments of rare earth minerals, vital for electronic goods and auto parts, following the dispute.

"Japan wants to cultivate India as a strategic partner to offset problems in its relationship with China," said Jeffrey Kingston, director of Asia studies at Temple University's Japan campus.

"Japan remains economically closely tied to China and will for the foreseeable future, but clearly, it behoves the Japanese government and businesses to hedge their bets," he added.

Trade between Japan and India, Asia's second and third biggest economies respectively, totalled 940 billion yen ($11.55bn), four percent of Japan's trade with China.

In September, Tokyo and New Delhi clinched a basic accord in September on an economic partnership agreement (EPA) to promote two-way trade and investment, concluding more than three years of wrangling over such sticking points as tariffs on Japanese car parts and tough checks on Indian pharmaceutical goods.

Singh said he hoped Japan's decision to treat Indian generic drugs the same as domestic products and finish approval procedures smoothly would create new business chances for India drug companies including makers of generic medicines.

 Japan has been stepping up efforts to strengthen overall ties with India, with the two countries agreeing on closer security cooperation in December 2009.

They also started talks in June on a civil nuclear energy deal that would give Japanese firms access to the rapidly growing market amid rising global competition.

Firms from countries such as the United States, France and Russia have scrambled for a foothold in India's civilian nuclear market, worth about $150 billion, after a 2008 U.S. nuclear accord opened global access to it.

But Japan, the only country to suffer a nuclear attack, wants the deal to make clear that Tokyo would halt nuclear cooperation if New Delhi conducted another test, Japanese media have said, a stance India has so far rejected.

"Regarding civil nuclear cooperation, we obtained again understanding of our country's sentiment as a country that suffered a nuclear attack and agreed to speed up the negotiations on this matter," Kan told reporters after his meeting with Singh.

Singh said in an interview with Japanese media before leaving for Tokyo that mining and refining rare earth metals was another area in which the two countries could cooperate.

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