"China's biggest diplomatic setback of the last 2-3 years," said the Chinese-language Singapore daily Zaobao of president Jiang Zemin's just concluded visit to Japan. Certainly, the visit has left the two giants looking at each other with suspicion that could eventually endanger world peace and prosperity. Franz Schurmann, professor emeritus at UC Berkeley, is the author of numerous books and articles on East Asian and world affairs.

It shouldn't have happened but it did.

The world expected Japan and China to take a big step toward world peace and prosperity. Instead, both colossi are eyeing each other with suspicion, that could lead to renewed hostility.

When Chinese president Jiang Zemin reached Japan on November 25 for a historic six day visit he expected a written apology from Prime Minister Obuchi Keizo for the trauma inflicted on the Chinese people by Japan's aggression in the 1930s and 1940s. This would have signaled the beginning of a healing process and the immediate opening of a way for both nations to work together to pull East Asia out of financial crisis.

Instead, Obuchi offered only an admission of Japan's "aggression" and a promise to "reflect" on its World War II crimes. He then started lecturing Jiang for harping on the past while he was offering the "mosaic of a beautiful future" to the youth of the world.

The Japanese media relegated the rest of Jiang's visit to secondary news, but the global Chinese-language media expressed alarm. They reported that just before Jiang's visit, Japan had taken a political turn to the right -- and noted that the right, which has long defended Japan's war-time record, has lately been highlighting a "China threat."

Obuchi's Liberal Democratic Party (LDP) did make an electoral alliance with the Liberal Party (LP) headed by Ozawa Ichiro, Japan's most prominent rightist. The LDP, which did poorly in elections last July, hopes the link will restore its long political dominance.

There is a lot of speculation about what price Obuchi paid for that alliance. But the Chinese media believe they know what that price was, and point to Obuchi's preaching to Jiang -- after some 25 years of friendly relations between the two countries.

Ozawa has written and spoken extensively on his "plan for the revitalization of Japan." Although Japan is ranked second among the world's economic superpowers, its political power is limited and its military power is shackled to the U.S. Ozawa wants to transform Japan into a fully sovereign power in its own right.

He also argues that Japan must abandon globalism, return its focus to Asia, and go back to nationalism. He knows there is strong sentiment across Japan's political spectrum for getting back to the furusato -- "the old village," a metaphor for the homeland. And the new LDP-LP lineup is appealing broadly to that spectrum.

Why pick on China? One line of thinking that appears with increasing frequency in the Chinese media is that many influential Japanese have decided that East Asia is too small to contain two such mighty entities.

Only a decade ago both countries played relatively modest roles in the world. Japan's was called "low posture" and China was making friends with all its neighbors to make up for Mao Zedong's policies of antagonizing them.

But when President Jiang came to the United States a year ago, President Clinton symbolically accepted China as a world-level superpower, and China's global role has been rapidly growing since then.

Japan did not quite believe its own colossal stature -- but for over a year now world leaders have been pleading with Japan to take the lead resolving the Asian financial crises. It has become common knowledge that one half of all investment capital in the world is in Japan.

The new LDP-LP line-up sends a strong message to both China and the United States that Japan, too, is a superpower. Obuchi gave South Korean president Kim Dae Jung, who visited just before Jiang, a huge US$36 billion investment loan along with a generous apology. Earlier, in Moscow, Obuchi made similar investment offers to Yeltsin to help out impoverished but resource-rich Russia.

Chinese leaders have strong historical memories. They fear that a rearmed Japanese superpower will again aim its weapons against China. Yet in Japan few if any want a war against China.

However, the Ozawa right does see in the cards an updated version of Imperial Japan's Greater East Asia Co-Prosperity Sphere with its capital in Tokyo. And many feel that this time the American colossus will have no choice but to side with them against China.

Maybe Obuchi's confident tone vis-a-vis Jiang was a sign that Japan can become a global winner. And that will make up for the humiliating defeat it suffered in 1945 at the hands of the Americans and their Chinese allies.