KEY POINTS:
A Frisson of hope ran through Canberra this week as Prime Minister Helen Clark and Chinese Premier Wen Jiabao sealed the West's first Free Trade Agreement with the rising Asian giant in Beijing's Great Hall of the People.
Only days after Clark's triumph, Australian counterpart Kevin Rudd emerged
from a meeting with Wen to announce that the two countries would resume negotiations for their own free trade pact, and that Trade Minister Simon Crean would fly to Beijing next week to get them moving after a long, glacial pause.
"The recently concluded China-New Zealand FTA appears to be a good agreement for those two countries," Crean told a conference in Melbourne on Thursday. "In some areas, such as trade in goods, the outcome will clearly be useful for us in our own negotiations with China."
Agriculture Minister Tony Burke raised similar prospects after meeting Commerce Minister Chen Deming before Rudd's visit this week to Beijing. Noting the signing of the New Zealand deal, Burke said he had left Chen with a "real sense of optimism".
But Tibet and the protests plaguing the Olympic torch that threatened to overshadow Rudd's visit showed Canberra has a hard road ahead in China, riddled with trade, investment, security, human rights and diplomatic pot-holes. Although Australia has climbed from the diplomatic trough of the mid-1990s, when its support for American muscle-flexing in the Taiwan Strait severely strained relations with Beijing, its paramount alliance with the US still colours ties with China. And while Chinese observers tend to think that a Mandarin-speaking Sinophone as Prime Minister in Canberra will be more objective than sympathetic, Japan has been clearly uncomfortable.
Muffled rumblings followed Rudd's first major jaunt overseas as Prime Minister, taking in the US, Britain, Europe and China - but not Tokyo.
Rudd later announced he would visit Japan - a key trade and security partner - mid-year.
Managing these crucial and frequently contradictory relationships will be one of Canberra's greatest challenges, emphasised by China's rapid growth as a trading partner: its hunger for resources is at present shielding Australia from the worst of the global economic storm thundering out from America's sub-prime crisis.
In the past three decades trade between the two countries has soared from A$100 million ($117 million) to more than A$3 billion. China is now Australia's largest trading partner and second-largest export market, and Australia is China's ninth largest trading partner. Within this is growth vital for Australia's future economy beyond coal, iron and other commodity exports.
In the past five years China has moved from the nation's eighth-largest market for elaborately transformed manufactures to third-largest, behind New Zealand and the US.
Its ballooning, affluent middle class is driving new consumption: China is now Australia's third-largest export market for services.
And while two-way investment is small, it is growing rapidly. By the end of 2006 Australian companies had invested A$3 billion in China, with Chinese investment in Australia climbing to A$3.4 billion.
"This only represents 4 per cent of Australia's outbound investment, meaning there remains huge potential for growth," Crean said.
But this potential runs against difficulties in both countries, and against China's ambition to gain new footholds in Australia while protecting its own vulnerable sectors. Investment and services will be two key battlegrounds in renewed FTA negotiations.
"The New Zealand Free Trade Agreement showed that we could get openings in agriculture, but for Australia's FTA with China we've got to build on those opportunities [and] extend them into services," Crean said. "Australia will not sign an FTA that does not deliver commercially meaningful outcomes across all sectors of the economy."
Even as Crean prepared to fly to Beijing, underlying frictions flared.
China wants to become a major player in resource giant BHP Billiton's bid to take over fellow titan Rio Tinto. Beijing already holds 9 per cent of Rio Tinto and wants to take a significant slice of BHP, raising concerns in Australia at the prospect of state-owned Chinese enterprises gaining a key role in its vital resources sector.
Beijing has been worried by rising commodity prices and the power a merged BHP and Rio Tinto could exert on global coal and iron ore markets, and has a broader agenda of investment in resource sectors in Australia. But Canberra, mindful of investment barriers in China, is baring its own chest. Rudd has said any such moves will be subject to Foreign Investment Review Board scrutiny and to the national interest. Nor would he try to intervene in the market to moderate commodity prices.
