The widening political rift between China and Japan centering on the disputed Diaoyu Islands could have a major impact on both countries economically.

Of course, the loss of trade with Japan will not do much to weaken China's standing in the global trade arena. The country, after all, has strong trade ties with the US, the EU and member states in the Association of Southeast Asian Nations (ASEAN).

Yet, the high technology products that China has long relied on Japan for could soon be harder to come by as tensions between the two Asian giants flare up. Moreover, the slowdown in Japanese investment into China's nascent technology sector could throw a major wrench into plans to phase out the country's labor-intensive growth model.

Due to inefficient support from the government as well as a scarcity of local talent, China still lags behind in terms of technological prowess. The country should try to segregate political matters from trade in order to keep the wheels of its economy turning.

The author is Liu Ligang, chief economist at ANZ Banking Group.