* China's Wen demands captain's immediate release
* Wen warns of further, unnamed retaliation
* Japan calls for talks, urges calm
(Adds comment from China foreign ministry, paras 10-11)
By Ben Blanchard and Chisa Fujioka
BEIJING/TOKYO, Sept 22 (Reuters) - Chinese Premier Wen
Jiabao threatened more retaliation against Japan unless it
releases a trawler captain whom Tokyo accuses of ramming with
two Japanese coastguard ships near disputed islands.
Japanese leaders urged calm but showed no sign of backing
down on an issue one analyst said is largely a row over energy
resources in sea around the islands that both claim.
In the first comments by a senior Chinese leader on the
issue, he told a meeting of ethnic Chinese in New York on
Tuesday that the skipper must be set free unconditionally.
"The Japanese side has paid no heed to China's numerous
serious representations, and so China cannot but take necessary
countermeasures," he said, in comments carried on the Foreign
Ministry's website (www.mfa.gov.cn) on Wednesday.
"If Japan acts wilfully despite advice to the contrary,
China will take further actions, and Japan must accept full
responsibility for all the severe consequences," he added,
calling the islands "China's sacred territory".
Beijing has suspended high-level contacts with Japan over
the issue and postponed talks on increasing flights between two
countries with close business and trade ties.
The case has become a distillation of the distrust that
threads through relations between Asia's two biggest economies,
drawing in territorial disputes, Chinese bitterness over
wartime occupation and Tokyo's anxieties about China's rise as
an economic and military power in Asia and further afield.
Many executives say they are unlikely to feel any effect
from the spat. Some, however, are drawing a connection between
it and the announcement this week that the government in
Hangzhou, a wealthy Chinese city, had fined the auto finance
unit of Japan's Toyota Motor Corp for alleged bribery.
Japan's Chief Cabinet Secretary, Yoshito Sengoku, asked to
comment on Wen's remarks, said: "It would be good to have
high-level talks as soon as possible, on issues including
broad, strategic matters."
But China made clear that it was in no mood for such talks.
"If Japan really attaches importance to the bilateral
relationship, it should immediately correct its mistake and
unconditionally release and return the Chinese captain,"
foreign ministry spokeswoman Jiang Yu said in a statement.
China has already said Wen would snub Japanese Prime
Minister Naoto Kan, also in New York for a U.N. summit.
Kan told reporters he had no plans to ask for a meeting
there. "I'd like people in each position to act calmly."
The row with China is turning into a test of the diplomatic
skills of Kan, fresh from fending off a party leadership
challenge and struggling with a raft of problems from a strong
yen and weak economy to a divided parliament.
NEITHER WANTS TO RISK TRADE
Analysts say neither country wants to risk its growing
trade flows with confrontation. But the case has reopened
disputes put on hold as the two governments sought to end
decades of quarrels.
The two are also at odds over China's exploration for
natural gas in the East China Sea, which separates the two
countries. And Beijing has territorial disputes with southeast
Asian nations in the South China Sea -- further to the south.
"This dispute is a conflict over energy resources. The
islands themselves are actually not so important, but the heart
of the issue lies in the natural resources in the nearby
waters," said Shigeki Sakamoto, law professor at Kobe
University in Japan.
A group of activists set sail from Hong Kong to the islands
to help assert Beijing's claims, but were warned by authorities
not to complete their journey.
China has been Japan's biggest trading partner since 2009
and bilateral trade reached 12.6 trillion yen ($147 billion) in
the January-June period, up by a third.
Trade ties remain robust, though state media has reported
on a fall-off in Chinese tourists to Japan.
Japanese authorities have accused the Chinese captain of
colliding with two patrol ships and obstructing officers near
the disputed, uninhabited islets in the East China Sea, called
Diaoyu in China and Senkaku in Japan.
Japanese prosecutors have until Sept. 29 to decide whether
to bring charges against the captain. Japan's Asahi Shimbun
paper said prosecutors are considering indicting him for
obstructing coast guard officials.
(Additional reporting by Yoko Kubota, Kiyoshi Takenaka, Linda
Sieg and Michael Watson in Tokyo, James Pomfret in Hong Kong
and Simon Rabinovitch in Beijing; editing by Ron Popeski)
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