VZCZCXRO9795
RR RUEHPT
DE RUEHBY #0663/01 1980736
ZNR UUUUU ZZH
R 170736Z JUL 09
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 1794
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHJA/AMEMBASSY JAKARTA 5485
RUEHKO/AMEMBASSY TOKYO 3618
RUEHWL/AMEMBASSY WELLINGTON 0051
RUEHBJ/AMEMBASSY BEIJING 9538
RUEHUL/AMEMBASSY SEOUL 9857
RUEHDN/AMCONSUL SYDNEY 4759
RUEHBN/AMCONSUL MELBOURNE 6521
RUEHPT/AMCONSUL PERTH 4786

UNCLAS SECTION 01 OF 02 CANBERRA 000663 
 
SENSITIVE 
SIPDIS 
 
TAGS: ECON PREL ETRD AS CH
SUBJECT:  2009 AUSTRALIA-CHINA REVIEW 
 
REF:  CANBERRA 631 
 
¶1. (SBU) The Australia-China relationship is currently under stress 
over the pricing of contracted iron ore exports to China, the 
detention of Rio Tinto's iron ore manager in Shanghai as well as 
resentment in China over the Rudd government's seemingly unwelcoming 
approach to Chinese investment.  New light was shed on these issues 
at the China Update 2009 conference, held at the Australian National 
University (ANU) in Canberra on 14 July 2009.  END SUMMARY. 
 
THE EMERGING AUSTRALIA-CHINA RELATIONSHIP 
 
¶2. (SBU) Speakers at the China Update 2009 conference highlighted 
how China has become a key economic partner for Australia and a 
leading market for Australian exports.  Treasurer Swan stated at the 
conference that, "As our second-largest trading partner in 2008, 
China is of particular importance to the Australian economy."  China 
is Australia's biggest export market for iron ore, copper, wool, 
cotton and a major market for natural gas.  China's more recent 
investment proposals, however, have been the subject of controversy. 
 
 
¶3. (SBU) Swan defended the GOA's guidelines and investment review 
criteria, released in February 2008, as applying equally to all 
investments by foreign governments and related entities, including 
Chinese state-owned enterprises, sovereign wealth funds and other 
government-related investors that have thrived recently.  Swan 
supported his defense of the foreign investment screening regime by 
adding that China-sourced investment proposals have been approved at 
the rate of more than one per week. 
 
ASSESSING FOREIGN INVESTMENT POLICY 
 
 
¶4. (SBU) Professor Peter Drysdale, head of ANU's East Asia Forum 
noted that production at some resource projects, such as OZ 
Minerals, was only maintained thanks to Chinese investment. 
However, according to Drysdale, concern about the Chinese 
government's influence over contracts and pricing of resources by 
state-owned enterprises (SOEs) motivated a nationalist reaction in 
Australia.  He stressed that Australia has a globally-competitive 
mining sector but warned that opposition to Chinese investment could 
lose markets for Australian exporters, as happened in the 1970s with 
Japan, and would slow the development of resources...  Drysdale 
expressed confidence that existing taxation, foreign investment and 
corporate governance regimes can cope with any potential problems 
with SOEs, such as transfer pricing. 
 
GEOPOLITICAL IMPACT OF CHINA 
 
¶5. (SBU) Professor Hugh White, head of ANU's Strategic and Defense 
Studies Center, emphasized the impact of China's economic rise on 
the geopolitical leadership of the U.S.  White questioned Secretary 
of Defense Gates' view that non-state actors, such as terrorists and 
the rogue states that allow them to operate, should be the focus of 
future U.S. defense policy.  Instead, White suggested that China's 
growing economic power will erode U.S. primacy in the Western 
Pacific region, which would in turn expose Australia to a less 
benign strategic environment.  While not endorsing the Australian 
Defense White Paper finding that China could overtake the U.S. 
economically by 2020 (he considers it will take longer), White 
pointed to an erosion of U.S. superiority in sea power in the region 
as an indicator that a turning point in strategic balance was 
Qas an indicator that a turning point in strategic balance was 
occurring.  Professor Corden, from Johns Hopkins University,) was 
more conciliatory about China's rise and emphasized that income in 
China is still only around USD 3,000 per capita.  Corden also 
pointed out the positive impact on the world economy of China as a 
buyer of U.S. financial securities and Australian resources 
 
CLIMATE CHANGE POLICY 
 
¶6. (SBU) China and the U.S. are two of the largest carbon emitters 
in the world.  Professor Yongsheng Zhang, from the Development 
Research Center of the State Council, argued that China and other 
developing countries should accept binding caps on emissions, so 
long as these caps are set fairly.  Zhang called for caps in all 
countries to avoid carbon leakage -- emissions-intensive industries 
moving to countries with weaker policies -- and argued for 
allocating entitlements on a per capita basis.  Zhang also supported 
developed-country financing of R&D, commercialization of 
low-emission technologies and their subsequent adaption to 
developing countries.  In contrast, Professor Ross Garnaut, head of 
Garnaut Climate Change Review, advocated a more gradual introduction 
 
CANBERRA 00000663  002 OF 002 
 
 
of per capita-based allocations. 
 
¶7. (U) COMMENT:  During the conference, which was part-sponsored by 
Rio Tinto, commentary on the Hu detention case (reftel) was limited 
to a small mention during opening remarks.  The multi-faceted 
discussion on the Australia-China relationship generally concluded 
that, despite some thorny areas, economic growth, trade and 
investment were all enhanced by the relationship.   END COMMENT. 
CLUNE