By Sui-Lee Wee
BEIJING (Reuters) - Chinese leader-in-waiting Xi Jinping denounced Japan's decision to buy disputed islands as a farce on Wednesday and said Tokyo should "rein in its behavior" as China moved to snuff out anti-Japan protests.
Relations between Asia's two biggest economies have faltered badly, hitting their lowest point in decades on Tuesday when China marked the highly charged anniversary of the start of Japan's occupation of its giant neighbor in 1931.
Tension had run high on land and at sea, with four days of major protests in cities across China and Japanese and Chinese boats stalking each other in waters around a group of East China Sea islands, known by Japan as the Senkaku and by China as the Diaoyu.
"Japan should rein in its behavior and stop any words and acts that undermine China's sovereignty and territorial integrity," Xi said in a meeting with visiting U.S. Defense Secretary Leon Panetta, according to Xinhua news agency.
Xi, whose recent absence from public engagements sparked a series of rumors but was eventually pinned to a back injury, is expected to replace Hu Jintao as party chief at a Communist Party congress this year.
Xi has been known for using blunt language, and on this occasion he used it to become the first top Chinese leader to stake out a position on the islands since the uptick in tensions, promoting his own leadership credentials.
Like any new Chinese leader, Xi must try to establish his authority even while his predecessors retain considerable influence. The protests contained some criticism of Beijing as being too soft on its traditional Asian rival, creating pressures that could push China's incoming new leadership deeper into a diplomatic corner.
Chinese analysts and Western diplomats have said Xi is not the hardline, militarist nationalist of some portrayals. But activists campaigning for China to regain control of the islands said Xi would have to be more assertive than Hu in pressing Japan, or risk losing credibility.
Shi Yinhong, a professor in international relations at Renmin University in Beijing, said Xi's comments were "very normal" and would not encourage further protest.
"The Chinese government has discussed the anti-Japan protests but never encouraged them," Shi said. "It's very clear too that the Chinese government is about to open its 18th Party Congress. I think after September 18, the Chinese government will not encourage public opinion on these protests anymore."
Tokyo's nationalist governor, Shintaro Ishihara, floated a plan in April for metropolitan authorities to buy the islets, prompting Japan's government to buy them instead in a bid to defuse the crisis.
"If Japan yields to China on this problem ... China's hegemony in Asian waters would easily be established," Ishihara told the Tokyo Metropolitan Assembly.
Japanese businesses shut hundreds of stores and factories across China, some sending workers back to Japan in fear the protests would get out of hand. Japan's Beijing embassy had been under siege by protesters throwing water bottles, waving Chinese flags and chanting slogans evoking Japan's occupation.
"It seems the protests in front of our embassy have subsided," the embassy said in an email to Japanese citizens.
Outside the embassy, police moved on a lone protester who had been shouting "Defeat small Japan" early on Wednesday.
To prevent a repeat of the protests, large numbers of riot police were deployed around the embassy and Beijing's subway operator closed the station nearest to the Japanese mission.
On Tuesday, about 50 Chinese protesters surrounded and damaged a car carrying U.S. Ambassador Gary Locke outside the U.S. embassy, which is close to the Japanese embassy.
"Our embassy personnel just met with the Ministry of Foreign Affairs this afternoon to express our concerns but also to urge them to do everything possible to protect our personnel as well as our facilities in China," Locke told reporters.
He added that the Chinese Foreign Ministry "promised a thorough review". Chinese Foreign Ministry spokesman Hong Lei said it was "an individual case" which would be investigated.
Rowdy protests sprang up in other major cities including Shanghai, raising the risk they could get out of hand and backfire on Beijing, which had given its tacit approval through state media. One Hong Kong newspaper said some protesters in the southern city of Shenzhen had been detained for calling for democracy and human rights.
Tuesday was especially significant as China marked the day Japan began its 1931 occupation of parts of the mainland.
Sino-Japanese ties have long been plagued by China's bitter memories of Japan's military aggression in the 1930s and 1940s and present rivalry over resources. The disputed islands are believed to be surrounded by large energy reserves.
Panetta said Washington was concerned that these "disputes could lead to greater conflicts and to greater violence".
"I understand the deep wounds that China suffered during World War Two," Panetta told Chinese military cadets. "But at the same time we cannot live in the past."
(Additional reporting by Terril Yue Jones, Michael Martina, Max Duncan and David Alexander in BEIJING, Melanie Lee in SHANGHAI and Antoni Slodlowski, Kiyoshi Takenaka and Nathan Layne in TOKYO; Editing by Nick Macfie)