Quotes of the Day

The Chinese are renowned for taking the long view. Australians, generally more easy-going, look ahead about as far as the weekend. To gauge where the relationship between the two countries is heading, you need a time frame that sits somewhere between several days and a couple of centuries: let's say 20 years. "The Chinese have been part of the Australian story since the early days of settlement. I expect China to be of ever growing importance to Australia," says Foreign Minister Alexander Downer. "In the next 15 or 20 years it has the potential to become our biggest trading partner, for sure." A highly placed Australian observer is prepared to look even further ahead.

"In 25 to 30 years, Australia will be to China much as Hong Kong once was," says the government official, who has been dealing with China for two decades. "There will be 5 to 10 million tourists coming here from the mainland each year. Our universities will be dependent on Chinese students. Large amounts of prime real estate in the major cities will be owned by Chinese investors. I see very large parts of the farming and mining sectors in Chinese hands. How else can a country of 20 million people survive and prosper in this part of the world, with a rising China?"

From the standpoint of 2005, that scenario seems overwhelming. Some might say it's unrealistic, a straight-line projection that ignores the risk of unforeseeable events or friction in the relationship. How easy is it, after all, to predict the behavior of an authoritarian regime that leads 1.3 billion people? But for governments and the forward scouts of free enterprise, such future-gazing is vital. To a medium-sized country like Australia, China's economic and political rise seems irresistible. The two countries have been been growing closer for some three decades, since Australia gave diplomatic recognition to the communist People's Republic in 1972. China's growth and reform have continued with barely a blip since 1978. But trade and the movement of people go back a lot further, as Fu Ying, China's Ambassador to Australia, notes. "The history, habits and nature of our peoples have laid the foundations for the extension of relations," she says. "We are able to understand each other."

When Prime Minister John Howard visits China this week, his meeting with President Hu Jintao and the announcement of Free Trade Agreement talks will take the headlines. In private, Howard's message to Beijing's elite will be that an open economy like Australia's welcomes more Chinese investment, particularly through direct stakes in resource projects. As well, Howard will be trying to persuade Beijing to open its markets to Australian financial services, agriculture and manufacturing companies. "China insists that it be characterized as a market economy," says an Australian official. "Well, it's not just a question about a label. China needs to internalize the concept and produce the conditions of a market economy."

Since 1996, Howard's practical diplomacy - focused on deals, dialog and trade - has been well received by Beijing. "The comfort level is rising," says Ambassador Fu. Howard speaks of a "partnership for prosperity" between the two countries. "When we think about the future of Australia in the world, we inevitably think of a world where China will play a much larger role," he said last month, in an address to Sydney's Lowy Institute for International Policy. "China's economic dynamism is something we feel palpably in this country." In the 1840s, thousands of Chinese indentured laborers and free settlers were drawn to a thriving colony. Today, 430,000 people, including merchant bankers, students, artists, gamblers and tourists, move between Australia and China each year; if Hong Kong is included, the figure almost doubles. China's rise is easing Australia's isolation, putting it close to one of the hubs of the world economy. But it is also taking a toll: last year, for example, China used an extra million barrels of oil a day, helping drive up prices - and making for a lot of grumpy Australian motorists. For the country's intellectuals, style queens, foodies and hucksters, however, China is the new black. Every other day, a new research partnership or joint venture is announced, or a delegation heads to Beijing or Shanghai. Chinese supermarkets, traditional medicine, tai chi and feng shui have hit the suburbs, and moviegoers are broadening their taste beyond Hong Kong's martial-arts kickfests. A Tianjin-born property billionaire whose projects have reshaped Sydney is inspired by Shanghai's buildings (fewer columns, more concrete, less steel). Australia has had such infatuations in the past. First it was Britain, then the U.S. and Japan. In the 1980s it was China; now, after a pause, it's China again. But this time, the life force is different: you can sense China's velocity and intensity, a pull and push that can't be stopped, but that hopefully can be managed.

Whether they're consumers or producers, shareholders or voters, laborers or arts mavens, citizens of the world or school children, Australians can feel the dragon's heat. China is at once an old friend, a potential foe, a buyer, a seller, an alien nation and a muse. It's the face and spirit of globalization: Australia's distant factory floor and an endless market for the country's minerals, gas, technology and brain power. China's soft power is seeping into Australia's cities, suburbs and remote corners. It's changed the nation, and continues to change it. Yet the transformation has attracted surprisingly little attention. Just where is this silken revolution heading?

Follow the ore. In the ocher landscape of the Pilbara, in Australia's remote northwest, you'll see what China's appetite for minerals can do to a region - and for mining companies and their shareholders. In 2004, Australian iron-ore exports to China increased by 41%. In such a strong market, Chinese steel producers agreed to a 20% price rise. But if miners had been able to dig up the ore and ship it out faster, the Chinese would have bought even more. Mining company Rio Tinto has been selling iron ore to China for three decades. It has vast interests in the Pilbara, including nine mines and three ports. Through its subsidiary Hamersley Iron, Rio Tinto has a joint venture with Chinese steel producers in two mines, Channar and Eastern Ranges. The Channar partnership (China's first foray into foreign mine investment) began in 1987. Major new port, mine and rail projects will increase the company's production capacity to 170 million tons by next year. "We are running flat out, going as hard as we can," says Sam Walsh, who heads Rio Tinto's iron ore group. "There is a buzz in the Pilbara. Everybody loves a new project. Our Dampier port upgrade is employing 840 people. It's good news for the region."

There's a swagger among miners from Mount Isa to Perth, and it's largely thanks to China. Last year, exports to the country soared: nickel by 88%, coal 72%, copper 35%. No longer do miners feel outdated and outsmarted by the dotcom people. China's growing metal consumption is pushing up prices across the board, giving companies the upside they need to commit to exploration and mining projects. Comalco, owned by Rio Tinto, recently commissioned an alumina refinery at Gladstone in central Queensland, the first plant of its kind to be built in the world for 20 years. The first liquefied natural gas shipments will begin next year from the North West Shelf to Guangdong province: the start of a 25-year, $A25 billion contract that took many Australians by surprise when it was announced in 2002. The country's largest ever export deal, it was negotiated by Australia's Woodside Petroleum with the help of the Australian government. Other LNG projects are now in the works, with China a key customer. But China's hunger for resources has also exposed inadequacies in Australia's infrastructure and work practices. Exports could have been even higher. Long queues of ships kept waiting off Dalrymple Bay in Queensland to load coking coal for China symbolize the problems. In this year's iron ore negotiations, Chinese buyers settled for a 71.5% price increase (BHP Billiton, fresh from securing a 25-year supply contract, had sought to double its price via a rise in the freight rate it charges mills). Chinese officials say supply bottlenecks are to blame for the price hikes. Ambassador Fu has raised the issue with Australian officials. "There is strong investment in the minerals field, but not enough to meet demand," she says. "The price is rising faster than the (Chinese) side can cope with." But Australia's government won't be intervening. "China aspires to be recognized as a market economy," said trade minister Mark Vaile last week. "Well, hello, this is how a market works." If Chinese interests had greater equity in the local resources sector, says an Australian government official, much of the ill-will arising from contract negotiations would disappear. Cashed-up China can afford to invest directly. But it hasn't yet done so in a big way, although it has assets of around $A2.2 billion in resources, real estate, power stations and farms. Still, China's buying potential elicits murmurs about "selling off the farm," an echo of grumbles that were once directed at the Americans and Japanese.

It's a great time to be a consumer in Australia: incomes are rising, interest rates are low, and stores are flooded with a vast array of inexpensive products - from $A12 cordless drills to $A90 DVD players - many of them imported from China. China makes half the world's cameras and one-third of all TVs. In 2004, imports from China rose by almost 26% to $A17.9 billion, almost all of it manufactured goods (such as clothing, computers, toys and sporting goods, telecommunications equipment and furniture). Last year, Australia exported to China a mountain of wool and cotton. Ships carrying a tiny fraction of what China's clothing factories can produce brought back an even bigger mountain of clothing, much of it bearing the labels of Australian and overseas fashion houses.

Maurice Salha, who came to Australia from Lebanon 40 years ago, imports homewares from China, supplying the Mum-and-Dad discount stores some people call "$2 stores" or "junk shops." On a Monday morning in the southwestern suburbs of Sydney, his warehouses are abuzz as workers unload newly arrived shipping containers Since the early '70s, Salha has been buying goods in Asia, watching the focus shift from Hong Kong to Japan to Korea to Taiwan and now to mainland China. When he first went to Guangzhou in 1974, it took him four hours to see all the merchandise at a trade show. "Now it takes six people like me two weeks to cover it," says the quick-eyed Salha, who imports 500 containers a year. Sometimes, he adds, the cost of freight is higher than the value of the goods. He travels to China on trips every six weeks, bumping shoulders with buyers from national homeware chains, multinational merchandisers and a multitude of hungry importers. "As a wholesaler I have to give my guys value," he says, surrounded by faux entombed warriors, meter-high bird cages and multi-colored plastic pots. "There's a constant pressure on me to find goods that they can sell for a 100% margin. Chinese labor is starting to become too expensive in this industry. You'll find they will soon move up the scale into more high-tech goods. It's evolution." Canberra's newish national museum has an eclectic permanent collection, mixing exhibits that tell bits of the story so far. There are galleries devoted to indigenous peoples, British settlement, immigration, and 1960s suburbia - where you will find a display recreating the kitchen-and-backyard idyll that nurtured the baby boomers. Looming large in this time capsule is a petrol-powered, rotary-engine Victa lawnmower and, tucked inside a cupboard, a Sunbeam Mixmaster. The two products speak of a time of rising prosperity in which Australians aspired to a house on a quarter-acre block, children played in the backyard after school, and people did their own chores, like mowing grass and baking cakes. The Victa lawnmower was featured in the opening ceremony of the Sydney Olympics; 7 million Victas have been sold since Mervyn Richardson produced the first model at his home in Sydney in 1952.

The chief guardian of the Victa and Sunbeam brands today is Ian Campbell, managing director of GUD Holdings. The tall, trim Campbell has a modest office in Melbourne's western suburbs above a plant that once made Ryco oil filters for automobiles. But last month, after reducing his workforce from 600 six years ago to just 50, Campbell closed the factory. Ryco-brand products will now be made overseas. "The total cost of labor for a process worker is $A49,000 a year. In China, it's $A2,500 a year. Add the cost of shipping and other things, and we can employ 15 people in China for the cost of one Australian worker." Factoring in longer work hours and leave, the Chinese worker will also toil for 100 days a year longer than his Australian counterpart. Then there's the cost of components. Some companies can now land inputs from China at the price they used to pay for the raw materials. A few years ago, GUD closed the remaining Sunbeam plant in Sydney. Sunbeam products - kettles, toasters, food processors, irons - are now designed in Australia and made in China. Sunbeam's 60 Chinese suppliers are licensed to make a product for Australia, but are permitted to sell the same items into other markets if they pay Sunbeam a royalty.

"How important is it to have made in australia stamped on a product?" says Campbell, an energetic figure amid the dourness of secondary industry. "A dyed-in-the-wool manufacturer will take that idea to their grave. But if you have a good product at the right price, supported by warranty and after-sales service, that argument doesn't hold water." However, China does present a significant new challenge for Campbell when it comes to Victa, which also benefits from cheaper component costs for its lawnmowers. The company has traditionally held about 50% of local sales. But in the past year, a new brand called Talon, made in China, has entered Australia and has already taken an estimated 20% of the market. "The Chinese are trying to eat my lunch," says Campbell. The drought and city water restrictions are already hurting Victa, but Campbell has an ace up his sleeve. In coming months, Victa plans to introduce a base-model lawnmower made in China to its specifications. "It's not important where the model is made," says Campbell, "as long as it maintains the quality and values of the brand."

As a group, Australian manufacturers are not frightened by China's great leap, but they are wary. According to Heather Ridout, the chief executive of Australian Industry Group, a combination of the two Cs - currency appreciation and China - has caused a slackening of factory exports. In a 2004 survey of members, the manufacturers' lobbyist found that 60% of respondents are restructuring their businesses in response to the pressures being generated by China. Union leaders fear more job losses, saying the country will simply become a quarry and that pay and conditions will be cut in a "race to the bottom" with low-wage countries. Many firms that once thought themselves immune to import pressure are feeling China's productive muscle. "We have a two-China approach - the China we sell to, and the China we buy from," says Richard Leupen, managing director of the United Group, whose Newcastle-based Goninan company makes rail cars: soaring demand in the resources sector prompted Goninan to start importing fully made rail wagons from China to meet orders. According to Leupen, although the freight cost would be huge, there's no reason why a Chinese competitor could not bring in whole passenger trains. "We want to be making trains in Australia, not just cleaning them," says Ridout. For producers like Leupen, the competition is relentless. "The competitive pressure used to come like a slow locomotive. It now comes at you like the Concorde, and it's hitting some companies with ferocity: there are pressures on price, delivery and materials. Thankfully, it doesn't apply to everyone all the time, but you need to have a business model that's sustainable in the face of a growing China." From his office, Ian Campbell looks out on a vista of marooned shipping containers and the rusting industrial landscape of western Melbourne. Tariff cuts have taken a toll, to be sure, but most heavyweight manufacturers have decamped for China, leaving the country's industrial and engineering heartland as a distribution hub and home to small, parochial players. If you want to get the friendly Campbell really riled, ask him about bilateral trade deals. "I just want one of those Canberra politicians or bureaucrats to explain the value of free trade agreements," he says. "What is the actual net tangible benefit to Australia?"

Spread out on a sofa in his Parliament House office, Foreign Minister Downer has the answer to that one down pat: "We get imports more cheaply, and we get better access to their export markets. There's no doubt that the net impact on our economy would be very positive." And politically? "An FTA is a way of building a very strong bond with a country," Downer says. He believes the Chinese view Australia as more important to them than before, while Canberra's friendship with Washington gives it "gravitas" in the region. "As China's economic power has grown," Downer says, "it has looked around to see who matters around here, and Australia has been one of the countries it has particularly focused on." Ambassador Fu not only agrees with Downer that the relationship between their two countries is better than ever, she uses the same phrases to explain why. "We do not see each other as a threat," she says. "There are no strategic obstacles in our relations. We are able to understand each other's concerns."

As well, "our economies are quite complementary, like gears meshing with each other," says Fu, whose mix of charm, steeliness and intensity has made a big impression on locals during her year in Canberra. "China has what Australia needs: a market for its resources and technology. Australia has what China needs. Both sides can see the opportunities and want to seize them." Two-way trade has tripled in value since 1998. Despite Australia's growing dependence on China, its share of all the goods going into the People's Republic is a mere 2%. Downer sees no reason why the two nations shouldn't enter into the FTA talks as equals. Fu is not so sure. "The biggest difference we have is the gap in per capita income," she says. "So Australia should always remember that it is dealing with a very poor country. If Australia wants to keep China as a friend, it has to understand the need in China."

But behind these crafted lines and negotiating gambits, there are other agendas on both sides. An FTA with a developed country would give China international legitimacy, says an Australian government adviser. It would also expose China to the realities of the international trading system and give a wary state, which has experienced sanctions in the past and is disinclined to trust the world trading system, greater security over resources. For Australia, an FTA would be another step in a deepening relationship with a potential superpower; it would also help Canberra to lay the foundations for a treaty to govern future Chinese investment - relaxing the rules of what and how much a foreign entity can own in Australia - at a time when public resistance to an increased Chinese presence is virtually non-existent, says the adviser. At the time of federation in 1901, according to historian Geoffrey Blainey, "many politicians, especially on the Labor benches, thought that the Chinese were an economic, moral and political menace." One of the first federal laws passed was to restrict Asian immigration, the so-called White Australia Policy. But other politicians passed no slur on Asians as human beings, writes Blainey in A Shorter History of Australia: "Alfred Deakin, who was three times prime minister in the first decade, eloquently expressed a widely held opinion: 'It is not the bad qualities, but the good qualities of these alien races that make them dangerous to us.' " Still, the policy long outlived its usefulness in protecting an infant nation, and was a forlorn relic by the time it was dropped in the 1970s.

It hardly needs to be said that Asian migration has revitalized Australia. At the 2001 census, the country's 19 million people included 550,000 of Chinese ancestry; since then, another 30,000 new Chinese-born migrants (or 10% of all migrants) have settled in the country. As well, there are some 70,000 Chinese students living in Australia. Chinese is the second-most spoken language in Australia. "The Chinese have ceased to be a demonized group in Australia," says writer Nicholas Jose, who worked as cultural attaché in Australia's Beijing embassy in the 1980s. "Besides, if they do experience discrimination they see it for what it is, and they will stand up to it now." Jose has made many lasting friendships in the Chinese community, particularly with those who were part of the 20,000-strong cohort of students who were living in Australia at the time of the Tiananmen Square killings in 1989 and whose visas were extended. (After years of reviews, red-tape and court challenges, almost 40,000 students, their families and asylum seekers have been granted permanent residency.) "They were a revolutionary generation that had golden dreams," says Jose. "Their expectations of what they wanted to do here had to be radically adjusted, but they wanted to achieve and move forward." As well, he notes the resilience of Chinese culture and a celebration of family bonds. "At what point does the post-1989 generation become Australian?" says Jose. "The identification with China is still so strong. And this has allowed China to expand at the borders in a way that does not depend on political structures." Jose points to a chain of ethnic-Chinese societies from Beijing to Sydney, along which people move with ease. "There's a real sense of China's proximity" in Australia, he says, "that you just don't experience in Europe."

In multicultural Australia, the chinese, with their tenacity, family and business networks and culture, are writing a variation on the old story of the migrant's progress (work, save, accumulate). Their influence is growing even before they start to crack the political order. "Australian society is very open," says Wang Yiyan, a Chinese studies lecturer at the University of Sydney, who came to Australia in 1988. "But the system is closed." Many migrants are challenging that order through their children. "The Chinese community values education. They are fanatics about it," says Wang. The goal of preparing children for entry into the best government high schools - and keeping them at the top of the class - has given rise to a new neurosis among middle-class non-Chinese parents. It's not uncommon for six-year-old children to attend coaching college for six hours on a Saturday. The objective: to gain a place in an opportunity class or to ace an exam that could be five years away. Chinese names adorn the honor rolls of schools all over the country. "You have to have your kids coached just to keep up," says a father whose daughter attends a Sydney selective school. "Teachers assume that everyone's got a private tutor." Some alumni believe the sheer number of academically gifted but narrowly focused Chinese kids at their old schools has made it difficult for the institutions to field sports teams and to develop other life skills. Changes to the way students are selected (by introducing a creative writing component to the exam), seems only to have created a cottage industry of tutors in this discipline. The Chinese cult of education is being exploited by Australian educators in schools, vocational colleges and universities. Institutions are not only teaching more Chinese students, and Chinese studies, but are also setting up campuses in the People's Republic. As well, secondary schools are developing courses and training host teachers so that students in China can satisfy university entrance requirements in both countries. The Chinese form Australia's largest group of international students, flipping open their laptop computers in all parts of the country. The student surge is revamping inner cities and the culture of universities. In Melbourne, foreign students from a range of campuses have opted to live in town, saving property developers from "a huge embarrassment of oversupply in city apartments," according to Monash University urban planner Kevin O'Connor.

At the Royal Melbourne Institute of Technology's main campus, hemmed in by the city's shops, offices and apartments, Kezeng "Lily" Liao, 26, is hunkering down for study. Born in Shanghai, the marketing student with a diploma in the dark art of public relations arrived in Australia in 2001 to learn English. Liao has given up well-paid work as a guide for Chinese tourists visiting Victoria to concentrate on campus clubs and activities - and the subjects she hopes to complete to finish her degree by the end of 2006. "I think that adjusting back to life in China would be very difficult for me now," says Liao, who hopes to settle in Australia, where she has developed a sense of independence. "In Australia the work is less stressful, there is a well maintained social-welfare system and a much stronger economy. For me, all of that makes for a better standard of living compared to China."

According to Monash's O'Connor, foreign students have brought vitality to campus life and the classroom. "But it can be a mixed blessing," he says. "The learning styles are different, more resources are needed for language support, and in some classes local students shy away from doing group work with Asian students." Academics and administrators are sensitive to claims of a slip in degree standards, poor-quality students and soft marking to keep foreigners coming through the turnstiles. RMIT vice-chancellor Margaret Gardner believes that going all out for growth in student numbers is a dangerous game. "Australian higher education has been very successful. But it would be wrong to think that you can simply project that success forward. We have to think seriously about quality, otherwise we will lose the ability to provide that vibrancy that students are expecting when they come here."

Australians have a fairly positive image of China and a curiosity to know more about it. But there is a distinct cultural gap. Basic questions pop up all the time that people don't quite know how to answer. Is China still a communist country? Yes, and it retains many of the hallmarks of a totalitarian state. Can people travel freely from China? That depends on where they live in China. It also helps if they choose an Approved Destination (Australia and New Zealand were among the first countries to be granted this status). In such a poor country, where do people get the money to buy flash cars, clothes and Shanghai apartments? That's complicated. Wealth can be due to luck, corruption or cleverness. China's "peaceful rise" is a brand that's been pitched in the same manner as a multinational mining company would push its green credentials. "Ambassador Fu is out and about and very focused on China's image," says an Australian bureaucrat. "But their methods have been heavy-handed on Falun Gong - they've given them far too much attention." On Taiwan, says another official, the Chinese have been emphatic in public and assiduous in working the back channels. If anything, the charm offensive has worked so well that usually robust Australians - afraid to give offense or spoil a business venture - often seem unduly sensitive about Chinese feelings. In numerous interviews for this story, participants new to China prefaced their remarks by saying, "I don't want to offend the Chinese, so don't print this." Off-the-record remarks are a feature of reporting, but they're usually red-hot and racy, like a Sichuan stir-fry. As in any partnership, there are challenges ahead for Australia. "China's is a high-maintenance relationship," says a third government adviser. "There are tricky issues all the time: human rights, intellectual property, Taiwan, visas, the commercial stuff. It does underscore, however, how engaged we are." For public servants - including police, defense personnel and customs officers - China is becoming part of the workload. Police, for instance, see an increased level of threat coming from China as its economy grows. The Australian Federal Police are working with their Chinese counterparts to combat transnational crimes like drug trafficking, money laundering, people smuggling and sexual servitude; the agency is educating its officers in Chinese language and culture and building relationships. Agent Mike Phelan manages the A.F.P.'s border and international network. He's been to China three times in the past 10 months, a reflection of the key role China's police now play in areas such as major drug busts (particularly for amphetamines, for which illicit factories in southern China are a major source). "The biggest threat to Australia where we require assistance from China is in drug trafficking," he says. "China is a major transit country for the heroin coming from the Golden Triangle." On the other side, China's focus is currently on 500 economic fugitives who have absconded with billions of dollars; six suspects have been repatriated from Australia.

Soon the issue of uranium sales will come under debate in Australia again. Given its expansion and global carbon-emissions protocols, China's energy future is looking increasingly nuclear. Australia has the world's largest uranium reserves. The two countries are working on a nuclear safeguards agreement. "We believe in the peaceful use of nuclear energy," says Foreign Minister Downer. Although environmentalists are not the political force they have been in the past, uranium mine expansions or a Chinese stake in the industry would bring protesters to the streets. The Howard government has changed the way Australia addresses Chinese human rights violations by pursuing what Downer describes as a "practical and constructive" bilateral dialog rather than by condemning China in a meaningless vote in Geneva. Critics say that approach is only slightly better than doing nothing. "Trade is a great news story," says writer Jose. "The whole question of human rights in China is not getting much play - and that's a big concern." An Australian official who has played a role says the dialog gives Australia "a great insight into Chinese thinking." "We get input into the training of jurists and improving the legal system. The hard issues, such as torture and political prisoners, are all out in the open."

It may seem implausible, but perhaps Australia is exerting its own soft power on the Middle Kingdom. Think of all those students, like Lily Liao, who say they've become "Australianized," who cherish the freedoms and friendships they've found in their second home. Or the brightest Australian graduates, who can't wait to pack their bags for a gig in Shanghai. When Beijing hosts the 2008 Olympics, Australians will have been behind the scenes there for years; a number of Games venues will have been conceived in Australian design and architectural offices.

Follow the ore. Perhaps a future Chinese president will have gained a Rio Tinto scholarship to study at the Australian National University or honed her engineering skills at a Pilbara mine. Beyond this week's landmark visit by Prime Minister Howard, Australia's quiet revolution will continue. The long view could be just as surprising for 1.3 billion Chinese.

• Tom Dusevic
• As China rises, its influence on Australia is all-pervading. Time hits the ground to see the transformation