Tighter Australia-China ties worry Asian neighbors

It is a match made in heaven – China's ravenous appetite for raw materials and the billions of dollars' worth of minerals lurking beneath the rust-red dirt of Australia's vast outback.

Australians are growing rich, in large part because of the Chinese economic juggernaut, which has sent property prices soaring, propelled the stock exchange to new heights, and plunged unemployment to its lowest level in more than 30 years.

But as economic and political ties between Canberra and Beijing strengthen on the back of the mining boom, alarm bells are ringing across other parts of Asia. India and Japan, in particular, feel that the Australians are paying far too much attention to China. Japan is acutely aware that last year it was eclipsed by China as Australia's top trading partner. And while Australia had strong trading ties with China under former Prime Minister John Howard, ties have ratcheted up under Kevin Rudd, the only Western leader who speaks fluent Mandarin.

An Australian announcement earlier this month that it was unilaterally abolishing a quadrilateral security dialogue with the United States, India, and Japan, went down badly in New Delhi and Tokyo.

"As far as the rest of Asia is concerned, Australia has taken a very strong pro-China tilt under this new government," says Richard Martin, managing director of IMA Asia, which analyzes international market trends. "The view in India and Japan and [South] Korea is that the Rudd government has been captured by the Chinese. They perceive us as having taken a giant step toward China."

Mr. Rudd visited China, but no other Asian nation, on a recent global tour last month, which also took him to the US and Europe. Australia is increasingly "kowtowing" to the Chinese, a senior Indian former diplomat told The Australian newspaper. "We get the impression that Australian policy is becoming increasingly Sinocentric," said G. Parthasarathy.

An Indian strategic commentator, B. Raman, was blunter. "China, China, China, China, and more of China was the recurring theme of his speeches in the countries visited by Mr. Rudd," he wrote recently in India's Outlook magazine.

For all its intimacy, the Sino-Australian relationship is not without tensions. On his visit to China, Rudd gave a frank assessment of rights abuses in Tibet, telling a Chinese audience that there were "significant problems." And there are signs of growing unease in Australia about China's seemingly unstoppable ascendancy in the region.

When the Olympic torch relay arrived in Canberra last month, the capital was swamped by some 10,000 flag-waving Chinese, some of whom bullied pro-Tibet supporters. "Beijing suppressed freedom of expression in the heart of our democracy," The Australian wrote the next day.

Canberra is also nervous about Chinese corporations seeking to buy into Australian resources companies to secure future supplies of uranium, iron ore, bauxite, and other minerals.

The Rudd government was particularly concerned in February, when the Chinese government-backed Chinalco Corp. bought a 9 percent stake in Australian mining giant Rio Tinto. The acquisition was part of a Chinese strategy of blocking a bid by resources giant BHP Billiton – nicknamed "the big Australian" – to take over Rio Tinto, its rival iron ore supplier. Chinese buyers fear that if the firms merged, their resulting enhanced bargaining power would enable them to further raise the price of iron ore.

The $14 billion Chinalco raid prompted Rudd to declare that he would defend the "national interest" in reviewing proposed investments by Chinese firms.

In spite of the windfalls it is enjoying, there is disquiet in Australia at the prospect of becoming China's quarry, given that China may one day challenge the military and strategic supremacy in the Asia Pacific of the US. Nor does it make sense from a business point of view for Australia to allow its biggest trading customer to own, or partly own, Australian producers.

"We're seeing a rise in resource nationalism," says Mark Thirlwell, a senior analyst in international economics at the Lowy Institute, an Australian think tank.

"It's muted in Australia, compared to countries like Russia or Venezuela, but there is still a worry about the future ownership of Australia's resource base."

IMA Asia's Richard Martin concurs. "There is unease in Australia about China, even though we've had massive investment in the resources sector by the Japanese and the Koreans for years. We're not used to a company as big and high profile as Rio Tinto being targeted."

Still, most Australians appear relaxed about the Middle Kingdom's rise. A 2005 survey by the nonpartisan Lowy Institute found that, remarkably, Australians regarded the US as a greater threat than China. The survey of 1,000 people found that only 35 percent of people were concerned about China compared with 57 percent who worried about US foreign policy, especially in Iraq.

Another startling finding was that a majority was strongly opposed to siding with the US in any conflict over Taiwan.

Australians hope they will be able to continue to have the best of both worlds – maintaining the 60-year-old alliance with the US while building a friendship with China. The latter is key to continuing Australia's remarkable 17-year economic boom. Graduate geologists with no experience are walking into jobs that pay about $112,000 a year.

Electricians, mechanics, and other skilled tradesmen are flocking to the mining states of Western Australia and Queensland. The sheer number of school graduates and young workers attracted by mining has even contributed to a recruitment crisis for the Australian Army: Too few pilots to fly the light aircraft that transport workers into mining camps.

Pension investment schemes are bulging and government coffers are swollen each year with extra tax revenue.

"Australians are pretty positive toward China," says the Lowy Institute's Mr. Thirlwell. "We're going to carry out a similar survey later this year and it will be interesting to see how the results compare with 2005. But it's hard to be resentful about people who are making you rich."