(The) Japanese have been doing business with (the) Chinese for a very long time.
(Maybe using "the" is a bit offensive?)
Longman Dictionary of Contemporary English has the following entries:
people from China
people from Japan
So, these simply mean people from China and Japan, respectively.
The following sentence,
- The Japanese have been doing business with the Chinese for a very long time.
is completely grammatical and idiomatic. Japanese and Chinese are adjectives. They're heads of their respective noun phrases. Did you say noun phrases? Yes, it's an odd phenomenon, because usually you have nouns heading noun phrases (e.g., in a pretty girl, girl is a noun, and functions as head of that noun phrase), but some adjectives can be used this way as well; namely, poor, rich, free, gifted, Chinese, Japanese, etc.
This special construction where an adjective functions as fused modifier-head has a couple of interesting properties. One such property is that no other determiner other than the is permitted; for example, a poor / Chinese / gifted wouldn't be grammatical. Another property (with few exceptions) is that the entire noun phrase is plural, which means you can't say the rich / Japanese / free has something.
- Japanese have been doing business with Chinese for a very long time.
Once again, Japanese and Chinese are adjectives which normally function as attributive modifiers in these positions in a sentence – except there aren't any nouns they might modify: Japanese companies have been doing business with Chinese companies for a very long time would be okay because now there are nouns in that sentence which these adjectives modify.
Moreover, these adjectives aren't functioning as fused modifier-heads either. We can see that because the isn't present in these supposed noun phrases.
Sentence 2 is therefore ungrammatical.
I can think of two things.
Firstly, if you want to address the people of Japan in a general way, you may omit the article.
Japanese love sports.
But, if you are specific about those people, you put the.
The Japanese did better in the finals.
Secondly, words like Russians and Germans don't need 'the' because they are undoubtedly nouns. On the other hand, French and English are nouns and adjectives (French dishes). So, to distinguish between them, the definite article is needed.
Nevertheless, in your case, the context is clear as you want to address them in general, hence, I'd not put any article.
Japanese have been doing business with Chinese for a very long time.