A German executive vying for a lucrative Australian submarine contract says awarding the contract to Japan could damage Australia's relationship with China.

German's ThysennKrupp Marine Systems, Japan's Mitsubishi and French company DCNS are in the running to build 12 conventional submarines that the Australian navy expects will cost at least 56 billion Australian dollars ($43 billion).

Hans Atzpodien, the German company's chairman, on Thursday described the Japanese bid as a choice for Australia between its relationship with China, its biggest trading partner, and Japan, its second biggest partner.

Japanese defense officials argue that the military partnership between Japan and Australia will enhance peace and stability, especially maritime security, in the Asia-Pacific region amid China's military buildup in the East and South China seas.