IMF, World Bank urge China, Japan to overcome differences

Head of the International Monetary Fund (R) Christine Lagarde shakes hands with moderator NHK anchor Kaori Iida next to Japan's Finance Minister Koriki Jojima (2nd R) and Klaus Schwab, founder and executive chairman of the World Economic Forum, during the ''Globalization at a Crossroads: From Tokyo to Tokyo'' debate at the Tokyo International Forum October 11, 2012.

BEIJING/TOKYO (Reuters) - China's foreign minister on Thursday defended the withdrawal of its senior delegates from the International Monetary Fund meeting in Tokyo as "completely appropriate" although the head of the multilateral organization said they would "lose out".

China's delegation is being led by the Vice Finance Minister Zhu Guangyao and the vice head of the central bank, Yi Gang, instead of their bosses, in what appears to be a snub to Japan as host of the IMF and World Bank meetings this week.

Japan is hosting the gathering for the first time in nearly half a century and about 20,000 people are expected to attend the events, which end on Sunday, making it one of the world's largest international conferences.

The head of the IMF, Christine Lagarde, said she hoped the world's second- and third-largest economies could resolve their differences "harmoniously and expeditiously".

"I think they lose out by not attending the meeting," she said of the Chinese officials. "And they will be missing something great."

According to Chinese protocol, only the most senior officials usually lead such trips.

When asked about the absence of the senior officials from the meetings, Chinese Foreign Minister Yang Jiechi told reporters in Beijing that "the arrangement of the delegation for the meeting was completely appropriate".

The disputed group of islands, called Senkaku in Japan and Diaoyu in China, are located near rich fishing grounds and potentially huge oil-and-gas reserves. Taiwan also asserts its sovereignty over the uninhabited islets.

The row escalated in September when Japan bought some of the islands from their private owners.

Both countries have sent patrol boats to waters near the disputed islands, raising concerns that an unintended collision or other incident could escalate into a broader clash.

Japanese Prime Minister Yoshihiko Noda said in late September that his country will not compromise on the islands, but he seemed to adopt a more conciliatory tone in an interview with Bloomberg on Wednesday when he called for talks with China.

"We need talks through various channels to make sure there is no effect on the broader relationship," Noda told the news agency.

The latest row has been marked by violent protests and calls for boycotts of Japanese products in China. Japanese carmakers reported a tumble in September auto sales in China, the world's biggest car market.

Still, Naoyuki Shinohara, the IMF's deputy managing director, said the dispute was unlikely to have an immediate negative impact on Japan's economy.

"If the situation deteriorates sharply, it might potentially emerge as a risk," Shinohara told Reuters in an interview in Tokyo.

"But Japan and China are neighbors and have undergone a long history. I'm sure the policymakers of both countries are capable of finding a solution."

His comments were echoed by World Bank President Jim Yong Kim.

"I'm very optimistic that the leaders of these three countries will come back to their fundamental understanding of the importance of cooperation in the region," he said.

(Reporting by IMF reporters in TOKYO; Ben Blanchard in BEIJING: Writing by Neil Fullick; Editing by Ron Popeski)