China official says spat with Japan derails free trade talks BEIJING (Reuters) - A festering territorial dispute between China and Japan has derailed talks for a free trade zone involving the two countries and South Korea, an adviser to China's central bank said on Thursday. Sino-Japanese ties are at their lowest in decades amid a row over a series of islands in the East China Sea, waters believed to be rich in natural gas deposits, with neither side backing down on its claim of sovereignty. Violent protests broke out across China last week after the Japanese government bought two of the islands, known as the Diaoyu in Chinese and the Senkaku in Japan. Tokyo also has a dispute over other islands with South Korea. "We hope the suspension is temporary," Chen Yulu, a professor at China's Renmin University and an adviser to the monetary policy committee of the People's Bank of China, said of the free trade zone talks. It will be a big loss for Asia if the process is terminated. Chen was speaking on the sidelines of a central banking conference involving representatives of all three nations. Despite the tension, Japanese and Chinese officials met on Thursday to mark 40 years of diplomatic relations, but the head of the Japanese side said he came "with a heavy heart." What was meant to be a high-level celebration of normalized relations was instead a stiff acknowledgement that the world's second- and third-largest economies remain neighbors with a long history of cooperation. "Today I have come to Beijing with a number of people who have worked hard over a long time on relations with China," former Japanese Foreign Minister Yohei Kono told Jia Qinglin, a senior Chinese leader, in Beijing's Great Hall of the People. The conditions are rather different from when I met Your Excellency in the spring, and I come this time with a heavy heart. Jia, the Communist Party's fourth-ranked official, called the Japanese visitors "old friends of the Chinese people." Reporting by Terril Yue Jones and Kevin Yao; Editing by Nick Macfie