The Rising Influence of Rising Affluence

[DewDiligence]

Gillard Goes to China

http://online.wsj.com/article/SB10001424052748704677404576284451077249210.html

›APRIL 25, 2011, 6:45 A.M. ET
By DINNY MCMAHON in Beijing and ENDA CURRAN and DAVID FICKLING in

Australian Prime Minister Julia Gillard was scheduled to land in Beijing on Monday for her first visit to China since taking office, attempting to make her mark on an increasingly complex economic and security relationship.

Ms. Gillard, whose Beijing visit coincides with what's being billed as Australia's biggest-ever trade delegation to China, intends to discuss trade, investment flows, regional cooperation and human rights in meetings with officials including President Hu Jintao and Premier Wen Jiabao, according to the Australian government.

Australia's close economic ties with China helped its economy weather the global financial crisis far better than many developed economies. Unlike in many developed countries where people regard China's rise as having diminished their own economic prospects, Australians are broadly positive about their relationship with China. According to poll results released Monday by the Sydney-based Lowy Institute for International Policy, three quarters of respondents believe China's growth has been good for Australia.

But mounting unease over Beijing's increasingly assertive stance in the region, and over Australia's dependence on Chinese demand and the growing inflow of Chinese capital, has colored the relationship. The Lowy Institute poll, for example, also showed that 57% of respondents think the government has been allowing too much Chinese investment into the country, and 44% believe it is likely China will become a military threat to Australia in the next 20 years.

The China trip, which ends Thursday, will be an important test for Ms. Gillard, who took office in June as a relative foreign-policy novice. Australia's former Prime Minister Kevin Rudd, a fluent Mandarin-speaker and former diplomat, dominated Australia's relationship with China during his stint as leader. Mr. Rudd continues to have a hand in China relations as Australia's foreign minister.

Reflecting the importance of the business relationship, Ms. Gillard, who has also traveled to Japan and South Korea on her trip, will be speaking in Beijing to the Australia China Economic and Trade Cooperation Forum, a conference of dozens of senior executives from some of Australia's largest companies, including BHP Billiton and Australia & New Zealand Banking Group Ltd.

"Australia is more dependent on the Chinese economy than any other economy in the world other than Taiwan's," Australian Ambassador to China Geoff Raby said in remarks to reporters in Beijing last month. "No other country on earth can ever or will ever replace China in importance for the Australian economy."

Australia has benefited from China's enormous demand for resources, a hunger that's not showing any sign of letting up. [The same can be said for such companies as BHP and VALE.] In the latest mega-deal between the two countries, China Petrochemical Corp., known as Sinopec Group, last week signed an agreement to buy 4.3 million tons of liquefied natural gas annually over the next 20 years from a project planned for Australia's eastern coast—a deal worth billions of dollars.

In the 2009 to 2010 fiscal year, China was the third-largest source of foreign investment into Australia, while two-way trade totaled around 90 billion Australian dollars (US$96.68 billion). The world's second-largest economy accounts for some 25% of Australia's exports, up from just 4% a decade ago.

Relations between China and Australia have fluctuated in recent years, reaching a low point in 2009 when Rio Tinto executive and Australian national Stern Hu was detained and subsequently imprisoned on corruption charges. [I posted about this incident extensively on this board.] That episode coincided with domestic political opposition to a burst of Chinese investment proposed for Australia's resources sector.

The security implications of China's rise have also become a concern, with muscle-flexing from Beijing over territorial disputes last year rattling governments around the region. Security issues were on the table for Ms. Gillard's discussions with Japan and South Korea's leaders.

At the end of 2009, then-Prime Minister Rudd singled out China's military mobilization as warranting increased spending on Australia's defense.

"We encourage China to engage as a good global citizen and we are clear-eyed about where differences do lie," Ms. Gillard said in an address to the U.S. Congress last month.‹