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There is a palpable increase in tension among staff at Beijing's hippest new eatery, Capital M, when Michelle Garnaut strolls in on a wintry evening, and it's hardly surprising. That's her initial in the restaurant's name, and the 51-year-old Australian is an industry celebrity — the pioneer of China's fashionable-dining scene, whose invariably popular ventures occupy iconic locations in their chosen cities. By her own account, Garnaut has come a long way from being a woman "famous for my bad temper" and a "detail-obsessed" micromanager who "drove everyone crazy." These days, "have no enemies" is her main rule of business.

She may no longer throw guests out of her restaurants for daring to complain, but Garnaut remains formidable. While chatting amiably, her eyes never stop roaming around the spectacular space overlooking Tiananmen Square that houses Capital M. A blown lightbulb is spotted and ordered changed. A faulty fireplace is dealt with. A quivering waiter is asked to recite the list of beers offered by the restaurant (he fails and is sent away with an admonition to do better next time, though not unkindly). The restaurant manager is summoned ("I shouldn't be doing this in front of a reporter," she says, "but I have to say something") and told to replace the red mullet in the Catalan fish stew with a less oily fish.

This kind of quality control has helped to keep Garnaut in business for two decades in an industry notorious for failure. So has the combination of homely Australian cum Mediterranean cuisine (her salt-baked lamb is a comfort-food classic), served in highly original settings. The latter constitute a distinctive selling point in a country where smart restaurants are more likely to be found in the contrived spaces of soaring hotels or office-block podiums. "When I first arrived in Asia," she explains, "I was in Hong Kong and got into a lift to go up to a restaurant on the seventh floor, where we were greeted by 20 Chinese guys saying 'Ciao' and singing 'O Sole Mio.' I thought, 'This is crazy.' A restaurant has to have some soul. The whole make-believe world has to have some basis in reality."

Garnaut's first establishment, Hong Kong's M at the Fringe, was housed in a 97-year-old heritage building originally used as a cold-storage warehouse. (The landlord's decision to repossess the property meant that the restaurant had to vacate the premises in December and begin the search for a new home.) Her two Shanghai establishments — M on the Bund and the Glamour Bar — overlook the Huangpu River from the Nissin Shipping Building, built in 1921. They were the first ventures of their kind to grace the Bund since its prerevolutionary heyday. "At the time, everyone thought I was crazy to open a fine-dining restaurant there," Garnaut recalls, and the venture's rapid failure was predicted. Instead, scores of restaurants, bars and clubs followed in her wake, and the Bund is once again one of the most famous entertainment strips on the planet.

Capital M's location is in Beijing's Qianmen project, an area of shops, hotels and restaurants purportedly constructed to give a flavor of the way Qianmen was before the communist takeover in 1949, when it was one of Beijing's livelier quarters. It doesn't have anything like the same degree of authenticity as the Bund, but the restaurant's spectacular view over the north end of Tiananmen — facing the two huge imperial gates — can't be beaten for sense of place. The location took seven years to find. Even then, a plan to open before the 2008 Olympics was scuttled by delays in Qianmen's construction; the restaurant was then only open briefly before being shut again during the huge security operation surrounding the celebrations marking the 60th anniversary of the founding of the People's Republic last October. "The restaurant business is difficult anywhere," says Garnaut. "But you do probably need more patience in China than elsewhere."

The eldest of nine children from a Melbourne family, Garnaut stumbled into restaurant work out of necessity, contributing to household income in an effort to ensure that all her siblings were fed and clothed. She arrived in Hong Kong in the mid-1980s as a backpacker and almost immediately found herself working for Nineteen 97. It was a bar, restaurant and café located in what was then an obscure back alley downtown, but has since mushroomed into fame as the Lan Kwai Fong nightlife district. Garnaut became Nineteen 97's highly visible manager during its heyday as a watering hole for bankers, socialites and local celebrities — a priceless opportunity that gave her contacts with some of the city's most eligible investors. By 1989 she had persuaded enough of them to back her in M at the Fringe.

Today, with Capital M without question one of the essential spots for visitors to Beijing and its initial teething problems seemingly solved, Garnaut says she is slowly relaxing and possibly even thinking about further projects in China. They will no doubt produce their own uniquely Chinese challenges, but Garnaut reckons she is ready. "I'm creative, but I am also tenacious," she says. Words to live by for anyone doing business in China.

• Simon Elegant
• For two decades Australian Michelle Garnaut has been a groundbreaker for independent Western dining in China — and she is not letting up