At a meeting of Japanese business leaders, the Chinese ambassador said that relations went through a deep freeze in 2012. Trade between the two countries from January to November fell to $302.8 billion, down 2.9 percent year-on-year.

The possibility of further escalation "still cannot be ruled out'', but the situation remains "controllable'', said Yang Bojiang, a Japanese studies specialist at the Chinese Academy of Social Sciences.

This year will witness the 35th anniversary of the Treaty of Peace and Friendship between China and Japan.

Though there is no apparent mood to celebrate the event, Cheng was guardedly optimistic over the new Japanese government.

Cheng urged the Japanese Cabinet to take a positive approach and abide by the four key political documents signed by the two countries.

"We hope that Japan meets China halfway and finds appropriate ways to ease the tension over the Diaoyu Islands through dialogue and consultation," Cheng said. "We shouldn't let our spirit sag when facing difficulties."

The Japan-China Economic Association is organizing a group of Japanese business people to visit China.

There are more than 20,000 Japanese firms operating in China, according to Yohei Kono, former speaker of Japan's House of Representatives and currently president of the Association for the Promotion of the International Trade.

"The current state of relations harms both countries. The Japanese government should improve ties with its neighboring nations, especially China," Kono said. "It is time for new wisdom to change the status quo."

Yang believed that Beijing and Tokyo will continue to seek opportunities to improve ties.

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