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China surveillance ships near islands disputed with Japan

BEIJING/TOKYO (Reuters) - Six Chinese surveillance ships briefly entered waters near disputed islands claimed by Tokyo and Beijing on Friday, raising tensions between Asia's two biggest economies to their highest level since 2010.

Japan protested to China and urged that the situation not be allowed to escalate - an outcome neither side would welcome given the two countries' tight economic links.

Diplomats say Tokyo and Beijing would prefer to keep the row from spiraling out of control, but with China facing a once-in-a-decade leadership change, an election looming in Japan and mutual mistrust deep, managing the feud could be difficult.

"The dangers of miscalculation are real," said Brad Glosserman, executive director at Honolulu's Pacific Forum CSIS.

China's foreign ministry said that the ships entered the disputed waters to conduct maritime surveillance and that for the first time China was carrying out a mission of "law enforcement over its maritime rights".

The Japanese coast guard said it ordered the Chinese ships to leave the area. By afternoon, all had left the area without any use of force, a coast guard official said.

The islands, known as Senkaku in Japanese and Diaoyu in Chinese, are near potentially huge maritime gas and oil fields.

"We lodged a strong protest and also we made a strong case that the Chinese side should leave from the territorial waters around the Senkaku islands," Japanese Foreign Minister Koichiro Gemba told a news conference in Sydney after talks with Australia's foreign and defence ministers.

"I'd like to underscore that we should never let the situation escalate and we have strong hopes for the Chinese to respond in an appropriate and calm manner," he added.

Chinese ambassador Chen Yonghua, summoned to Japan's foreign ministry to hear a protest, repeated Beijing's stance on the islands but added it also hoped the situation would not escalate or hurt ties, a Japanese foreign ministry statement said.

The uninhabited islets were at the centre of a chill between Beijing and Tokyo in 2010, after Japan arrested a Chinese trawler captain whose boat collided with Japanese Coast Guard vessels in the area.

Sino-Japanese relations have long been plagued by China's bitter memories of Japan's military aggression in the 1930s and 1940s and present rivalry over resources and regional clout.

TENSION THREATENS TRADE

China warned Japan on Thursday that trade could be hurt by the flare-up. China, the world's second-largest economy, is Japan's biggest trading partner with mutual trade in 2011 growing 14.3 percent in value to a record $345 billion.

Tensions have risen since nationalist Tokyo Governor Shintaro Ishihara floated a plan for metropolitan authorities to buy the islets and build facilities on them. That prompted Prime Minister Yoshihiko Noda's government to buy them instead.

Japan deported Chinese activists who landed on the isles last month, triggering a tit-for-tat landing by Japanese nationalists and anti-Japanese protests in Chinese cities.

On Tuesday, Japan, which controls the islands, finalised their purchase from a private owner, ignoring warnings from China that the move would breach its sovereignty.

Japan's consulate in Shanghai said on its website at least four Japanese citizens had been injured in attacks stemming from the tensions and warned Japanese in the city to be careful.

Small protests continued on Friday in front of the Japanese embassy in Beijing, with groups of about 40 people shouting anti-Japanese slogans and waving Chinese flags.

Cheng Li, an expert on Chinese politics at the Brookings Institution think tank in Washington, expressed concern about the rise in tensions.

"We cannot eliminate the possibility of military conflict," Li said. "Chinese leaders actually talk tough and act carefully, but sometimes it's out of your control. Chinese public opinion has become so powerful."

Washington has expressed concern, this week urging both sides to tone down their increasingly impassioned exchanges. (Additional reporting by Ben Blanchard in Beijing, Kiyoshi Takenaka in Tokyo and Damian Gill in Sydney; Editing by Jeremy Laurence)