By Steve Adler and Paul Taylor
DAVOS, Switzerland (Reuters) - Tensions between Tokyo and Beijing took centre-stage at the World Economic Forum in Davos on Wednesday as Japan's prime minister called for military restraint in Asia and a senior Chinese academic branded him a troublemaker.
Prime Minister Shinzo Abe defended his visit to a controversial shrine to Japan's war dead, which outraged China and South Korea, and took a veiled swipe at China's military buildup in his speech to global business leaders.
Sino-Japanese ties, long colored by what Beijing considers Tokyo's failure to atone for its occupation of parts of China before and during World War Two, have deteriorated in the past two years over a territorial dispute, Abe's visit to a shrine that critics say glorifies Japan's wartime past and a new Chinese air-defense zone.
Asia's two biggest powers each accuse the other of bellicosity. Strategic experts in Davos said their tensions posed the biggest risk of conflict around the world in 2014, along with hostility between Iran and Saudi Arabia.
"We must ... restrain military expansion in Asia, which could otherwise go unchecked," Abe, the first Japanese leader to give the keynote address, said in a speech dominated by a defense of expansionary economic policies dubbed Abenomics.
"The dividend of growth must not be wasted on military expansion," he said. "We must use it to invest in innovation and human capital, which will further boost growth in the region."
Abe is pursuing a more assertive military and national security policy, such as moving towards approving the use of force to help allies under attack and calling for debate on revising Japan's pacifist post-war constitution.
His government has ended years of declines in defense spending and plans modest increases in coming years. At the same time, Tokyo has criticized China's decades of hefty rises in military spending and implicitly accused Beijing of a lack of transparency in its defense budgets.
"Military budgets should be made completely transparent and there should be public disclosure in a form that can be verified," Abe said, following his government's custom of not naming China in such references.
He also called for resolving disputes through "dialogue and the rule of law, and not through force and coercion", a formula Japan has used to criticize China's actions including its abrupt declaration in November of an "air defense identification zone" overlapping the disputed East China Sea islets controlled by Japan.
Abe said the Yasukuni Shrine honors the dead of World War One and the 1868 Meiji war, not just war criminals or others who died in World War Two, and it also contains a memorial to all the victims of war regardless of nationality.
Previous prime ministers had gone to the shrine, he said, noting he had made a commitment on his visit to ensure that Japan never again became involved in a war.
His stance draw sharp criticism from Chinese academic Wu Xinbo, speaking on another Davos panel, who branded the Japanese leader a "troublemaker" and equated him with North Korea's unpredictable leadership.
Wu, whose views usually reflect those of the Chinese leadership, said trust between the two countries was very low, chiefly because of Abe's visit to the Yasukuni Shrine, which had fanned public hostility in China.
While neither China, Japan nor the United States had an interest in war, relations were set to remain very tense, he said, adding that Beijing and Tokyo should develop a crisis communication mechanism.
"Political relations between our two countries will remain very cool, even frozen for the remaining years of Abe in Japan," said Wu, professor of international studies at Fudan University in China.
China demands that all aircraft flying through the zone identify themselves to Chinese authorities.
Japan has urged China to rescind the decision, and its military and civilian aircraft have defied the requirements, flying through the zone without notifying China. Japan's treaty ally, the United States, refuses to recognize the zone and has sent military aircraft through it.
Abe also reiterated his plans to revive growth in the world's third-biggest economy, increase the participation of women in society and review the portfolio of Japan's $1.2 trillion Government Pension Investment Fund.
Asked by WEF president Klaus Schwab whether Japan's issuance of even more government debt to fund the stimulus program might not break the country, Abe said it was only by reviving growth that Tokyo could increase tax revenue to pay down the debt.
John Chipman, chief executive of the International Institute for Strategic Studies, said the best prospect for avoiding an escalation of disputes between the two Asian powers lay in quiet military-to-military discussions to seek confidence building measures.
Both Abe and Wu called for Japan and China to develop crisis communications mechanisms.
(Additional reporting by Elaine Lies in Tokyo and Lisa Jucca in Davos; Writing by Paul Taylor; editing by Anna Willard)