Three Asian partners reshape their ties

"Political tensions aside, the outlook for Japanese investment in China depends on the size of the Chinese market" for particular industries or companies, says Yao Haitian, a researcher at the Institute of Japanese Studies, which is under the Chinese Academy of Social Sciences.

Trade between the two countries is strongly driven by investment. Most of the Japanese companies investing in China mainly sell their goods to the Japanese market.

Japan has kept its key technologies at home and just shifted "fringe" technology or some management functions to China, Yao says.

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"To my knowledge, most Japanese companies are planning to maintain their production in China, not expanding at the moment. However, companies in retailing and logistics, such as (clothing retailer) Uniqlo, desire to expand in China," he says.

Japan's exports to China in auto parts, metal machinery and electronic components declined last year, according to the Japan External Trade Organization.

JETRO notes that with increasing consumption in China, many Japanese consumer goods are becoming more popular. Shipments of children's clothing and camping products to China, for example, more than doubled last year.

However, experts say that political disputes between China and Japan are opening new doors for South Korea.

"For some products, such as electronics, vehicles and chemical products, which can be bought from South Korea, Chinese producers and consumers will make their own choices," says Zhang Xiaoji, director-general of foreign economic relations at the Development Research Center of the State Council.

"Japan and South Korea are competing in many areas. For example, as South Korea has made great improvements in LCD screens, I think Chinese consumers are favoring them more at the cost of Japanese products," Zhang says.

Still, Yao says Japan has very advanced technology and does better than South Korea in mechanical products.

"Competition will be shaped by the two countries' competitiveness. This process will also help improve the core competitiveness of Chinese companies," Yao says.

That view is supported by a report from South Korea's Hyundai Economic Research Institute. The organization says that despite South Korea's increasing market share in China's auto parts industry, 63 percent of these producers are losing competitiveness in the market.

They have to invest more in research and development, and also take advantage of the China-South Korea FTA, says the report.