For more than two decades, much of the work of the Shanghai office of Japan’s Osaka Prefecture was helping small Japanese parts suppliers join the shift of manufacturing capacity from their high-cost homeland to far cheaper China.

These days staff spend more time helping small to medium enterprises make contact with Chinese customers so they can make up for a dearth of Japanese domestic demand, says office chief representative Katsuaki Tanaka.

“In the past, China was called the world’s workshop – now it’s the world’s market,” Mr Tanaka says. “And (Japanese) companies of all types want to operate in this market.”

Shifting demands on Mr Tanaka’s time are part of a historic broadening and deepening of the economic relationship between East Asia’s pre-eminent powers.

Even the most cautious Japanese companies are keenly aware of China’s potential as a source of sales, a message highlighted by Beijing’s success in mustering its financial resources to shrug off the effects of the global economic slowdown.

The growing sophistication of Chinese manufacturing and the maturity of Japanese-invested operations means industrial supply chains are ever more tightly enmeshed. China is no longer just a cheap place to do final assembly of Japanese products for shipment elsewhere.

“Previously, parts and intermediate products came in and finished goods were exported to Japan but now the flow goes both ways,” says Yasuo Onishi, president of the Shanghai office of the Japan External Trade Organisation.

China looks likely to surpass Japan as the world’s second-largest economy in market dollar terms this year. Chinese per capita incomes remain low but plenty of urban consumers are able to sample high-value goods and services.

Japanese businesses from restaurants and resorts, to pharmaceuticals providers and sake brewers look to tap into Chinese growth. New investment in Shanghai is mostly in the service sector, says Mr Onishi.

Japan’s advanced environmental technology means it could well play a central role in China’s efforts to cut pollution and greenhouse gas emissions.

But while China replaced the US as Japan’s biggest export market last year, Japanese groups face problems. Companies from Japan operating in China are keen to expand but the proportion mak­ing a profit there has fallen in the past 50 years to just above 50 per cent in 2009, says a Jetro survey. Japanese businesses in China appear vulnerable to labour unrest and their technological edge could be eroded by Beijing’s demands that they share secrets with local partners.

Still, the rise of cash-rich Chinese companies eager to expand abroad has created another role for Osaka Prefecture’s Shanghai office. “We are trying to get Chinese enterprises to invest in Osaka,” notes Mr Tanaka.