With a nationwide boycott of Japanese products gathering force and many Chinese tourists canceling their Japanese tours, the territorial dispute around the Diaoyu Islands has spread to the economic sphere.

Some scholars affiliated with the Ministry of Commerce recently disclosed that "the possibility of economic sanctions on Japan is not excluded." I maintain that if the dispute cannot be addressed in a timely fashion, the territorial dispute will inevitably affect the economy.

I believe that China has the ability to use economic sanctions to deter Japan.

With the dispute escalating, the Sino-Japanese relations have become worse than the "ice age" when Junichiro Koizumi was Japan's prime minister.

Even during the "ice age," Sino-Japanese economic ties remained strong. However, this Diaoyu Islands crisis is very likely to break the pattern of "cold politics and hot economy" that has often characterized Sino-Japanese relations. If the situation keeps worsening, it would be the first time in modern Sino-Japanese relations that political deterioration has led to economic sanctions.

Unlike before, China has now surpassed Japan in gross economic terms, ranking second in global GDP in 2010. It has a far-reaching influence on the world economy with its huge market and booming development in various industries. Therefore, China has the capability to play the economic card with Japan.

In contrast, Japan, who has suffered nearly two decades of economic stagnation, is not that optimistic. Japan's sluggish domestic demand has been a big headache in its economic growth. As a result, Japan greatly depends on the outside world to develop its own economy, such as exporting. In addition, it is affected by the heavy burden of its enormous government debt. Its weak domestic demand and huge debt are just two factors contributing to its depressed economy.

Furthermore, China is Japan's biggest trading partner, while Japan is China's fourth biggest partner. Bilateral trade reached $340 billion in 2011, with Japanese exports accounting for 57 percent. So Japan is more reliant on China than vice versa. Therefore, once China's economic countermeasures are taken, Japan is expected to suffer more.

It is also noteworthy that during the political tension, several Japanese domestic media have already expressed worries on their future economic scenario. According to the Tokyo News, they fear that cases like China's suspension of rare earth exports to Japan after the boat collision in 2010 will happen again, since cultural exchanges between the two sides have been suspended.

Nevertheless, we have to find that the economic sanctions are a double-edged sword. In implementing economic sanctions, we must be very cautious and be wary of their potential negative impact on our economy. Otherwise, China will suffer from the side effects.

As Japan has depended on exports to develop the economy due to its weak domestic demand, we can reduce imports from Japan. Since China is Japan's No.1 trading partner, this would surely deal a blow to its manufacturing industries and employment.

However, we must be prudent in controlling trade with Japan, since it has many factories and companies set up in China, employing tens of millions of Chinese workers. We can limit the trade of strategic materials and energy resources instead.

Tourism is another effective and harmless target. China tops the list of Japan's most important countries to attract tourists from. Chinese tourists spent 14,000 yuan ($2,215) on average during a trip. In January the number of Chinese tourists in Japan reached 254,000, composing 43.7 percent of total foreign tourists and they contributed a total of 356 million yuan ($56 million) to Japanese economy.

If economic sanctions are imposed, we must prepare for the potential economic retaliation from Japan. Japanese companies may close down their business in China. In that case, we should find employment solutions for affected workers, such as exporting labor to the other countries. We can also seek other countries as substitutes in trading. Though economic sanctions are far from a cure-all, China can cautiously apply them on the condition of minimizing its adverse effects on our economy.

The article was compiled by Global Times reporter Yu Qian based on an interview with Feng Zhaokui, vice chairman of the Chinese Association for Japanese Studies. yuqian@globaltime.com.cn