There needs to be more understanding on both sides of the China-Australia friendship for the relationship to be mutually beneficial writes Rowan Callick.

This is a frustrating time for a friend of China who is also an Australian. The same goes for someone who is Chinese and a friend of Australia. Many read this magazine.

We have seen debates start to rage about the big picture relationship, which scarcely resembles the true situation on the ground –and which is largely a positive and improving one, especially in the business world, and in education.

Investment is one of the issues. There has been a stream of Chinese investment proposals in the last 18 months, almost all of them targeting what China’s economic leaders most value in Australia – the country’s raw resources.

As a promising exception, the Zhejiang based carmaker Geely recently acquired New South Wales-based automatic transmission supplier Drivetrain Systems International. It bought the company out of bankruptcy, at a bargain basement price.

And the same goes for the rush of resource bids, too. They are sensing that both commodity and share prices are at or near the bottom of this cycle. But no one except China seems to have access to the credit to benefit. By far the biggest proposed investment is a further $30 billion for a very influential stake in Rio Tinto, the detail filling a 600-page legal document, by Chinalco.

Some opponents of this and other Chinese investments simply oppose all foreign investment in Australia. There are similar elements in China, still Hu Shuli, the editor in chief of China’s leading business magazine Caijing, recently warned that “we should take a close look at ourselves. China is a beneficiary of economic globalisation and free trade. But undeniably, it has tried all sorts of policies and activities tinged with protectionism in the past and present. The global crisis should be a catalyst for further opening.” She quoted Commerce Minister Chen Deming as saying: “If we shut the door as soon as we encounter dangers and challenges, we will be marginalised again, and miss opportunities for future economic development and technological innovation.”

China recently rejected a very high profile foreign investment proposal, the takeover of Huiyuan Juice Group by Coca-Cola for $A3.3 billion – a decision in which Professor Allan Fels, a famous former chairman of the Australian Competition and Consumer Commission, had played a part, discussing with the Chinese authorities his own rejection of a Coca-Cola Amatil bid for Berri, Australia’s largest juice producer, in 2003.

But while the debate over investment in Australia has been accompanied by some helpful, detailed argumentation, in the broader community it has produced more heat than light. On the one hand, are those including Rio Tinto and its advisers, who just want the deal to get over the line so they can bank the Chinalco money – for which the company is paying extraordinarily low interest, underlining that this is a deal driven by strategic national needs rather than by the plans of a company which would struggle to repay out of its own resources even a fragment. Some on this side have damaged their own cause by naively claiming that Chinalco is a discrete, autonomous commercial entity rather than a vehicle of a state that is increasingly centralising its core economic interests.

On the other hand, are people who see only sinister motives in every Chinese initiative. They wish to connect everything that happens within China in a causal chain that would cut off, for instance, normal economic ties because of the country’s human rights record.

The commonsense central position – that we can and should do deals with China, but take into full account of the state owned giants, how China Inc operates – has tended to go by default. This is chiefly because, at least on the Australian side, leading politicians have gone missing. Prime Minister Kevin Rudd, the best equipped leader Australia has so far elected to guide relations with China, appears to be anxious about being perceived as too “pro-Chinese.” Yet most Australian voters have consistently rejected candidates who play the race card. Rudd was widely applauded for his conversation in Chinese with President Hu Jintao during the APEC summit in Sydney 18 months ago.

Treasurer Wayne Swan by convention does not comment on such issues when there are applications before the Foreign Investment Review Board – which keeps him permanently silent in public, because there is such a train of Chinese bids. Other issues have fed in to this confused picture, including the relationship between Defence Minister Joel Fitzgibbon and Chinese Australian businesswoman Helen Liu – sparked because he failed to declare gifts including travel paid by her – and Rudd’s own failure to tell the Australian media about his reception at the Lodge for Politburo standing committee member Li Changchun, the number five on the Chinese hierarchy.

Last year, during his acclaimed speech to students at Beijing University, Rudd signalled a more mature and confident relationship with China, pledging to “engage in principled dialogue about matters of contention” and to “see beyond immediate benefit to the broader and firm basis for continuing, profound and sincere friendship.” Unfortunately, a year on, we are still waiting. However, a note of calm has been injected into the debate by Zhang Junsai, China’s ambassador to Australia. There are “a broad range of common interests,” he says, and no “fundamental conflicting interests.” He says arguments against Chinese investment “are not surprising.” But they should be conducted “in a rational and comprehensive manner... rather than using emotive language.”

The motivation of the investors is very simple: “They seek a long-term, sound and reliable supply of energy and resources.” As the countries get closer, rows will happen. That’s inevitable. And it’s helpful to have officials like Zhang helping pour oil on the temporarily troubled waters. ■

*Rowan Callick is the Asia-Pacific editor of The Australian.