Pacific Money

Gillard’s China Moment?

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Pacific Money

Gillard’s China Moment?

Although Gillard’s trip to China this week was praised for expanding Australia’s trade, tensions lurk underneath.

China’s economic clout has been on display in the recent Boao Forum on Hainan Island involving regional leaders, including Australian Prime Minister Julia Gillard. Yet for the Australian leader, her extended tour has marked a rare foreign policy victory under the close scrutiny of the Australian business and diplomatic community.

After boldly declaring in her meeting with Chinese President Xi Jinping that ties had been “taken to a new level,” Gillard officially tied the knot on Tuesday in Beijing with Chinese Premier Li Keqiang by signing a “strategic partnership” agreement.

Under the agreement, annual meetings are scheduled to occur between the prime ministers and other senior ministers of both nations, putting Australia’s ties with its major trading partner on the same level as the United States, Britain, Germany and Russia.

After previous skepticism of Gillard’s foreign policy credentials, the Australian media lavished praise on the agreement, with the Melbourne Age running headlines proclaiming “Gillard lands a big one” and the Australian’s Sid Maher declaring a “foreign policy coup.”

“Capping a five-day visit to China by Australia's most senior political delegation, the deal represents one of the most significant breakthroughs in the Australia-China relationship since [former Prime Minister] Gough Whitlam recognized the communist state more than 40 years ago,” Maher wrote.

He noted that Australia now had “strategic relationships” with both emerging Asian economic powerhouses of China and India.

"When the history of this relationship is written, I think this will be remembered as a day that a big step forward was taken," Gillard said.

The agreement was reportedly a decade in the making, having been initially raised during the latter years of the Howard government and pushed by Gillard ahead of the Chinese leadership succession.

Economic ties boosted

The Australian leader committed to “building a stronger and more comprehensive relationship with China,” including stronger defense ties and the conclusion of a proposed free trade agreement (FTA), which was launched in 2005.

In Shanghai, Gillard launched a tourism promotion, “Australian Week in China” as well as signing a currency trading deal allowing Australian dollars to be directly traded into Chinese renminbi – “the third currency in the world to do so after the U.S. dollar and the Japanese yen.” The deal was applauded by Australian bank chiefs, while aiding China’s goal of creating an alternative to the U.S. dollar as the world’s reserve currency.

The focus on economic interests reflects China’s rise as Australia’s top trading partner and China’s seventh-largest, with two-way trade having grown drastically in just five years to A$121 billion as of 2011, accounting for 30 percent of Australian goods exports.

Of the A$90 billion in Chinese investments approved since 2007, nearly 96 percent have been in the resource and energy sector, with an annual average growth rate of 90 percent in the five years to 2011.

The official China Daily hailed the push for an FTA, saying, “China and Australia's common interests, space for cooperation and common responsibilities are increasing,” acknowledging Australia’s role as “a stable resource supplier of China”.

Business worries

Yet for all the mutual praise, analysts said the economic relationship was still far from normal.

“Even if we can get something signed on a piece of paper, the reality is that Australian companies won't get great access to the Chinese political economy,” Sydney University’s John Lee told ABC radio.

“If you actually look at how the Chinese economy works, the government has essentially reserved around a dozen sectors of the economy for national champions and state-owned enterprises to compete in and thrive. And they essentially will block out foreign companies and domestic private companies and they do this for political reasons in order to try to bulk up the state-owned sector.”  

A leaked briefing paper from Australia’s Department of Foreign Affairs and Trade (DFAT) said the jailing of Australian businesspeople was “putting considerable strain on the bilateral relationship”. Five Australians are currently in Chinese jails over allegedly commercial disputes, with DFAT warning of a lack of transparency.

BRW columnist Leo D’Angelo Fisher spoke of the “dragon in the room” amid the “fawning” display of Australian business and political leaders in China.

“..Rather than insisting that China play by international rules of conduct between nations, Australian businesspeople wanting to cash in on the China bonanza [are told] to accept that the cuddly panda bites,” he wrote, pointing out that “about the only value that Australia and China share is economic growth.”