Li and Japanese Prime Minister Ryutaro Hashimoto also oversaw the signing of a fisheries agreement that ends a dispute over an area of the South China Sea, said the officials, who spoke on condition of anonymity. Before Tuesday's talks, Hashimoto and Li walked down a red carpet through the courtyard of an Imperial Palace annex, where honor guards saluted and schoolchildren waved Japanese and Chinese flags in greeting. We have overcome these difficult times, as we are now enjoying much better relations. A major factor in improving ties is trade. Japan is China's largest trading partner and one of its biggest investors.
China is also the second-largest recipient of Japanese aid.
The increasing contacts between the two East Asian powers follow months of strained relations. China held military exercises and launched missiles in the Taiwan Strait to discourage any independence moves during Taiwan's presidential elections in 1996. China also strongly condemned the strengthening of U.S-Japan defense guidelines this year, fearing they could interfere with its claims to Taiwan. As a first step in smoothing relations, Hashimoto went to China in September and visited Shenyang, the city where Japan began its invasion of China in 1931. He also reassured Chinese leaders the U.S.-Japanese defense pact was not a threat.