China-Japan tensions: Who has the smartest approach?

What Abe's Yasukuni visit means for China-Japan ties
What Abe's Yasukuni visit means for China-Japan ties

Japanese Prime Minister Shinzo Abe's visit to a shrine honoring war criminals has aggravated tensions between Japan and China, prompting one expert to say Beijing is taking a 'smarter approach' to the strained relations between Asia's two biggest economies.

Tensions between the world's second and third largest economies have flared up in recent years following a territorial dispute over the East China Sea islands, which disrupted trade between the two nations. More recently, Beijing's introduction of an air defense zone has raised tensions further.

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Abe's controversial visit to the Yasukuni shrine in Tokyo on Boxing Day provoked criticism from China, while the U.S. Embassy said it was "disappointed" with Japan's leadership.

"The leadership in China seems smarter on this one and more astute on this and recognizing what is going on more than Abe. Abe seems a little bit more wound up on this," said David Zweig, director of the center on China's Transnational Relations at the Hong Kong University of Science and Technology.

Zweig said the U.S. government's decision to criticize Abe gave China a chance to "calm down and step back."

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"So it seems the Chinese are being a bit smarter on this, Abe is out on a limb a little bit here and I think the Chinese see that. They are thinking if the Americans are going to criticize him, let him dangle in the wind, that'd be a good thing," he added.

Demonstrators shout slogans as a man holds up a banner with the faces of current Japanese Prime Minister Shinzo Abe and Japanese World War II prime minister Hideki Tojo during an anti-Japan protest in Hong Kong on December 27, 2013.
AFP | Getty Images

A resurgence of political tensions could threaten a recovery in trade relations between the two countries at a time when export numbers are all the more important for Japan amidst its ambitious plan to drag the economy out of over a decade of deflation.

Japanese exports to China recovered strongly in the first half of the year, recording an annual decline of only 0.6 percent, up from a 10.8 percent decline last year. From July to November, exports have surged to 18 percent.

The strong recovery in exports has given Abenomics a boost, but the prime minister faces a number of hurdles in 2014, including the planned consumption tax hike in April and the expected reduction in household spending as consumer prices tick upwards, which could derail his good work.

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According to Zweig, Abe's decision to make the politically controversial visit could have been motivated by a bid to rally support from his right wing supporters.

"His [Abe's] domestic polls have gone down so I guess he's trying to strengthen himself on the right wing in Japan," said Zweig.

He added that it could have also been motivated by 'assertive nationalism' which has been used by both China and Japan in recent history, whereby both governments operate out of their own self-interest disregarding the other due to resentment over historical relationships.

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Zweig said the visit could prompt tensions between the two countries to further deteriorate either though more restrictions on trade, or worse, military action.

"The next step could be much more military confrontation around the islands that could be a serious problem… that could exacerbate things significantly… I hope it doesn't come to that," he said.

"They [China] could use more trade sanctions, the Chinese are not opposed to using trade more forcefully in their external battles particularly with the Japanese," he added.

The Yasukuni shrine honors 2.5 million killed in World War II, including many considered to be war criminals. The visit is said to have offended China, South Korea and other countries which suffered under the Japanese occupation.

(Read More: Biden urges Japan, China to lower tensions over air defense zone)

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie