Quotes of the Day

In their foreign policies, countries respond not just to existing power but to potential power. That is what is happening now in Australia's relations with China. The process is subtle: doors to ministerial offices open more easily; diplomatic language is crafted more carefully; complaints are responded to more speedily. China may lag far behind the U.S. in military capability, but its political and economic influence is growing very fast. Since the early 1990s, China has emerged as a significant regional power. Its economy powered through the Asian financial crisis and it has become the world's investment magnet. Its low-cost factories have transformed global manufacturing. And with economic growth has come political confidence. On issues ranging from North Korea's nuclear program to regional economic cooperation, Beijing is playing an important diplomatic role.

Australia's recent economic growth owes much to China. It is essentially China's demand for resources that has lifted Australia's terms of trade to a 30-year high. China is already our second largest export market, and the growth is not just in minerals and energy. Some estimates suggest that by 2010, a million Chinese tourists may be visiting Australia each year. China is already Australia's largest source of overseas students. This structural complementarity between the two economies offers huge potential for closer trade ties.

China is also beginning to exert a greater influence on Australian foreign policy. The paths to many of Australia's regional ambitions, including participation in the proposed East Asian Summit and a free trade agreement with China, now pass through Beijing. Ties with China will not supplant Australia's military alliance with the U.S., which is still supported by the great majority of Australians. Differences in political systems and social attitudes also impose a barrier to the sort of easy interaction Canberra enjoys with Washington. But in all sorts of ways, Beijing's voice is being listened to. Foreign Minister Alexander Downer has used very careful language about Australia's attitude to potential conflict between China and the U.S. over Taiwan. The government restates its One China policy clearly and frequently. And, as part of the negotiations for a trade agreement, Australia will declare China to be a market economy.

The government's approach to China has strong public support. Australians see China as an opportunity, not a threat. According to a recent opinion poll conducted by the Lowy Institute, the potential trade agreement with China has more support than the existing one with the U.S. And China's growing power was seen as a less worrying threat to Australia than any of the other nine options listed. Any remnants of Australia's historical panics about the threat from the north - the "yellow peril" - seem to have been consigned to a chest in the national attic.

But Australia will soon face foreign policy challenges different from any the country has experienced before. For the past 50 years, Asia's most important power, Japan, has been a staunch partner of the U.S. Australia has not had to make choices between its principal ally and its most promising market. But it may now face the uncomfortable challenge of having to maintain constructive relations with both Washington and Beijing. Its success in doing this will depend critically on two things: U.S. strategy towards its emerging Asian competitor, and China's own behavior.

The jury is still out on whether Washington will try to contain China - America's most likely future "peer competitor" - or give it space to emerge as a great power. Prime Minister Howard says correctly, but also hopefully, that competition between China and the U.S. need not necessarily lead to conflict. But it is easy enough to imagine circumstances in which it might: tension in the Taiwan Strait, mishandled territorial disputes between Japan and China, even access to Middle East oil supplies.

Developments within China will also shape the future relationship. China is so large, and its problems so complex, that the important question is not whether economic and political crises lie ahead - they certainly do - but how the Chinese government handles them. The signs domestically since the disaster of the Tiananmen Square killings in 1989 have been reassuring, but the challenges are enormous. China's foreign policy skills will also be tested as it manages what it calls its "peaceful rise." Will it revert to traditional Middle Kingdom ways of thinking about its neighbors and thereby generate a backlash? It is not just relations between Beijing and Washington that Australia may have to navigate skillfully, but relations between Beijing and Tokyo (still by far Australia's largest export market) as well. To deal with the challenges ahead, Australian leaders will need all their resources of strategic foresight, diplomatic skill and political cunning.

• Allan Gyngell
• Australia will have to craft good relations with both Washington and Beijing