Davos (Switzerland) (AFP) – Japan on Wednesday told the world it must stand up to an increasingly assertive China or risk a regional conflict with catastrophic economic consequences.

In a landmark speech to the World Economic Forum in Davos, Japanese Prime Minister Shinzo Abe issued what amounted to an appeal for international support in a potentially explosive dispute with its superpower neighbour over islands in the East China Sea.

“We must restrain military expansion in Asia … which otherwise could go unchecked,” Abe told the annual meeting of global business and political leaders, which Chinese Foreign Minister Wang Yi is due to attend on Friday.

“If peace and stability were shaken in Asia, the knock-on effect for the entire world would be enormous,” Abe added.

“The dividend of growth in Asia must not be wasted on military expansion.”

Although Abe did not explicitly mention China, his speech had been flagged up in advance by Japanese officials as an alarm call to an influential audience over what Tokyo sees as bullying by Beijing.

The dispute over the uninhabited but potentially mineral-rich islands is being played out against a backdrop of Japanese fears that China is seeking to exert control over lifeline shipping lanes around its vast coastline and that the United States’ commitment to guarantee Japan’s security is waning.

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Markets are moving today with  stocks tumbling 1% early in the U.S. trading session.

Global markets went into risk-off mode overnight following the release of disappointing flash manufacturing Purchasing Managers Index survey data, which suggested that Chinese manufacturing may unexpectedly contract this month.

“We expect more soft data prints ahead, as the impact of slowing credit growth seeps through to the real economy,” said Societe Generale’s China economist Wei Yao.

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Canada and South Korea are having “tremendous discussions” toward a free-trade agreement, said Canadian Agriculture Minister Gerry Ritz, a deal that could increase trade in meat and autos.

Talks began in 2005, but were later hung up over disputes such as a delay in South Korea scrapping its ban on Canadian beef. South Korea lifted its nine-year-old ban in 2012.

“It (would be) a great agreement to have free trade into Korea,” Ritz said on a broad-ranging conference call. “It’s a very primary agriculture market for us, a premium product market and we continue to press ahead in those negotiations.”

A free trade deal would be welcome news for Canadian beef and pork shippers. Without such an agreement, Canadian producers fear that shipments to South Korea would shrink once Seoul’s free trade deal with the United States takes full effect in 2016.

Canada’s auto sector is worried, however, that a free-trade deal would damage its industry.

Rudy Husny, a spokesman for Canadian International Trade Minister Ed Fast, would not say how close a deal is, but said the two countries continue to work toward an agreement.

Canada and the European Union agreed in October on a multibillion-dollar trade pact.

(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Chizu Nomiyama)

 Canada’s economic recovery has been quite strong, and could continue to improve as the global economy advances, Prime Minister Stephen Harper said on Wednesday.

“It’s not been robust but it has been a relatively strong recovery,” Harper said during a question and answer session at Tel Aviv University. “But there are still too many people out of work.”

Still, the number of jobs created since the recession ended has been a net 1.1 million, he said.

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