Australia needs to recognise the importance of both its relationship with China and Japan writes Rowan Callick.

It would be hard, on the surface, to conceive of three countries and cultures as unalike as China, Japan, Australia.

Oddly, many Australians who are engaged in business with Japan regard the relationship of Australia with China as an unwelcome competitor, and the same goes for some of the Australians doing business with China, congratulating themselves that they have chosen the country with the faster current growth path.

Yet the relations of all three are becoming extraordinarily intense and complex. We need each other more than ever.

China is Australia’s number one trade partner, Japan is number two. China is also Japan’s biggest trading partner. Japan’s technological pre-eminence, its management skills and its high tech components are vital for China.

Australia’s overall relationship with China has already become broader than that which it developed with Japan at a similar stage of mutual economic advantage, 40 or more years ago. There are simply more Chinese people around in Australia, as students, as tourists, as migrants, there is more of a two-way flow, more cultural and other exchanges, than there were – or are – with Japan.

The failure to build on Australia’s strong export flows of commodities to Japan, means that Australian investments there have not been as large as they could and should, especially given Australia’s massive funds under management. And there were for long, significant non-trade barriers to investment by the services sector that actually dominates the Australian economy, while leaving Australia’s far smaller resources industry to drive its growth. Japan for its part for too long saw Australia principally as a quarry, then as a tourist destination.

There are lessons to be drawn from that, for Australia’s relations with China of course.

In the cases of both Japan and China, Australia has been frustrated in its hopes of negotiating free trade agreements, substantially due to the resistance of both countries to the inclusion of agriculture in such a deal. After about five years’ largely fruitless talks in each case, this needs to be resolved one way or another.

But in Japan’s case, there are strong indications the newish Democratic Party of Japan government is soon to put its long uncontrollable rural lobby in its place, phasing out farm tariffs and replacing them with temporary subsidies – a move that would enable the country to complete several overdue FTAs, including that with Australia.

Now the big emerging strategic issue, is the renewed competition for influence in Asia between China, our crucial economic partner, and the USA, our security ally. An essay recently published on this question by former deputy defence secretary Hugh White, now a professor at the Australian National University, has excited considerable debate on how Australia should respond.

Canberra has said very little if indeed anything about the manner in which this is already being played out, in the waters of East Asia. Interestingly, influential Chinese commentators have for a few months been promoting Australia as a sympathetic mediator over this long, complex and fraught issue. China Daily noted with approval that Stephen Smith, when Foreign Minister (now Defence Minister) had said that any tensions there should be “resolved bilaterally.”

The newspaper said that the Gillard government is thus “seen as siding with China on the South China Sea issue, which the United States has wanted to internationalize.”

Shen Dingli, the executive vice dean of the Institute of International Affairs at Fudan University in Shanghai, later wrote in a commentary for Australia’s Lowy Institute: “By differing from America, which meddles directly, Canberra receives more respect in the region, and could nurture more sensible interaction between China and its neighbours.”

Will Australia take up such suggestions, and work in tandem with China in such a way? It seems to me unlikely, but we just haven’t learned enough yet about the Gillard-Rudd government’s international intentions, beyond its strong reassertion of the primacy of multilateral goals.

While Japan’s relations with China ran pretty smoothly last year as Australia’s temporarily soured, the situation has been reversed this year. That’s probably to be expected, that there will be a few dramatic swings as the global centre of gravity shifts to Asia.

Japan’s trade with China reached A$156 billion in the first half of 2010, up an extraordinary 34.5 percent from 2009. Thirty percent of major Japanese firms’ manufacturing output is produced in China. Thus Japan like Australia needs to find a way to live comfortably, predictably and profitably with China.

What of the possibilities for Australia-Japan-China collaborations? Recently the Japan International Cooperation Agency announced that it is strengthening its joint efforts with its Chinese and South Korean counterparts. This is one area in which Australia too might engage, given that it is doubling its official aid by 2015, to $8 billion a year. Working together in fourth countries by delivering aid is a great way to build better understanding.

And within Australia, we see at Oakajee in Western Australia, Mitsubishi developing the port, rail and other infrastructure that should open the way for the construction of many new mines – with 14 of them Chinese-owned. Could we also imagine Australian and Chinese firms collaborating in projects in Japan, or Australian and Japanese companies working together in China? We need to start stretching our imaginations in such ways. ■

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