Fran O'Sullivan: Brand Australasia a strategy for growth in the Asian century

Australian Prime Minister Kevin Rudd's revelation of how a slip of the tongue as a young diplomat in Beijing indelibly put him on China's radar map is an example of how the Aussie PM readily uses self-deprecation to defuse bilateral tensions.

Melbourne's Age newspaper reports Rudd this week reflected that as a young Beijing-based diplomat, he was called on to translate for Australian ambassador, Ross Garnaut at a meeting with Chinese officials.

Professor Garnaut apparently said Australia and China had a relationship of unprecedented closeness. But the young Rudd's translation efforts met with shock and laughter.

"Apparently what I'd said ... was that China and Australia are currently experiencing fantastic mutual orgasm ... Ever since then our Chinese friends have remembered my visit to Beijing," the Age recorded.

After a series of diplomatic issues such as the failed Chinalco bid for a slice of Rio Tinto, and, the visit by Uighur leader Rebiya Kadeer to Canberra which led to Chinese accusations that Australia is "anti-China" and had "sided with a terrorist", Rudd's amusing anecdote was well-timed.

At this stage of the game, John Key's relationships with China are more prosaic. Under Key, New Zealand has effectively continued the Faustian bargain his predecessor Helen Clark struck with Beijing (when the Labour Government recognised China as a "market economy" well ahead of other Western democracies).

Key has been diplomatically down-playing (at least in public) thorny issues such as Tibet while he seeks to further leverage the Chinese free trade deal to our own economic advantage.

New Zealand's relationship with China has yet to be challenged.

There has (for instance) been no major attempt yet by Chinese firms to invest heavily in New Zealand's prime dairy industry - despite forewarnings by one major Hangzhou food manufacturer that China should be allowed to invest in here to secure safe dairy supply lines.

But with China poised to overtake the United States within a decade as the world's largest economy, it is no surprise that the implications of China's rapid economic rise were given considerable focus during New Zealand and Australia's first joint Cabinet meeting in Sydney eight days ago.

Herald inquiries indicate Rudd went to considerable lengths to outline why the two Australasian countries should move closer together at a strategic level through maintaining "close foreign policy settings" during a lengthy overview he gave as co-chair of the joint Cabinet.

The issue barely rated a mention in the two prime minister's joint press statements. But Herald inquiries indicate that Rudd strongly positioned the impact of China's rise on Australasia during a lengthy strategic overview.

Several Cabinet Ministers from both sides privately credit the "risks based" analysis - above all other factors - as paramount in the Rudd Government's decision to focus on New Zealand's strategic utility to Australia, by moving to finalise single economic market negotiations by 2015. And to increase military co-operation to protect (if needed) supply lines between Australasia and the region during possible fractious times ahead.

Under this scenario, Australia - as a country with "middle power" pretensions - will increase its regional impact by drawing New Zealand further within its own strategic sphere of influence.

Rudd - who thinks deeply about strategic issues - believes that unlike previous downturns, Australia and New Zealand cannot rely on American consumers to quickly refuel global economic growth through another debt-fuelled spending binge. Both New Zealand and Australia thus needed to focus on how to sustain their respective economies.

Both prime ministers share the belief that it is in the countries' interests to strongly brand Australasia as an investment destination focused on quality products and lifestyles, and, are concerned at the upcoming "war for talent" implied by changing demographics.

Key, in particular, sees a future where both nations will have to pay "near global price" to attract and retain highly-skilled people such as doctors, lawyers and engineers.

By drawing closer together the two "Europeans in Asia" will be able to more strongly position themselves as the Asian century develops. That's the strategic spin. In reality, there are opportunities and risks for New Zealand from this new connection with Australia.

By moving towards more interoperability within our respective militaries - and ultimately an Anzac ready response force - New Zealand will increase its own reach in a more economically efficient fashion.

But we have also previously enjoyed a louder diplomatic voice internationally through taking an independent stance. Marrying the two perspectives will be a challenge.