Japanese investment in China recorded a steep drop in October, amid friction between Asia’s two largest economies over a chain of islets in the East China Sea.

According to data from Beijing’s Ministry of Commerce, direct investment by Japanese companies totalled $460m last month, down almost a third from last year’s levels. The sharp fall knocked Japan’s overall direct investment in China to an annual growth rate of 11 per cent, from 17 per cent in the first nine months.

Monthly figures are an imprecise indicator, as investments tend to have long lead-times. But analysts say that the recent escalation of a long-simmering dispute over the Senkaku islands, which China calls the Diaoyu, has given executives cause to rethink the risk of investment in China.