Japan was China’s major trading partner in terms of China’s total imports and exports until 2004 when dramatic changes took place. Its trading status with China dropped to the third place following the European Union (EU), which dashed into the lead to become China’s most important trading partner, and the United States. This has aroused the concern from trade circles and scholars of both China and Japan. Digging into the causes and analyzing the future development trends have thus become a subject of common interest among the trade circles and scholars of China and Japan. This study is now a necessary cognitive prerequisite for studying how to further the economic and trade cooperation and expand investment and trade relations between the two countries. This paper indicates there is the potential for Japan to restore its leading position as the biggest trading partner of China. With the rise in the prices of production factors in China’s coastal areas, Japanese enterprises are sure to follow the objective law governing economic development and increase their investment in the middle and western parts of China. If Japanese enterprises are aware of such changes and thereby reposition its investment in China by establishing new export processing bases, it is possible for Japan to return to its former position as the biggest trading partner of China. Japan was China’s major trading partner in China’s total imports and exports until 2004 when dramatic changes took place. Its trading status with China dropped to the third place following the European Union (EU), which dashed into the lead to become China’s most important This has aroused the concern from trade circles and scholars of both China and Japan. Digging into the causes and analyzing the future development trends have thus become a subject of common interest among the trade circles and scholars of China and Japan. This study is now a necessary cognitive prerequisite for studying how to further the economic and trade cooperation and expand investment and trade relations between the two countries. This paper suggests there is the potential for Japan to restore its leading position as the biggest trading partner of China. With the rise in the prices of production factors in China’s coastal areas, Japanese enterprises are sure to follow the objective law governing economic development and increase their investment in the middle and western parts of China. If Japanese enterprises are aware of such changes and thus reposition its investment in China by establishing new export processing bases, it is possible for Japan to return to its former position as the biggest trading partner of China.