Originally published by The Wall Street Journal,15 Aug 2010

By RACHEL PANNETT

 CANBERRA—Australia’s main opposition group is vowing to re-engage key Asian trade partners, especially China, if it wins Saturday’s national election.

But a new government run by the Liberal-National coalition may find it no easier than the current Labor government to solve issues that complicate the China-Australia relationship. That includes foreign investment, especially as conservative voices in the coalition favor banning investment in Australian resources by state-owned companies—a ban that could hit Chinese buyers.

The relationship was tested in the past year with the conviction of former Rio Tinto executive and Australian national Stern Hu for bribery and stealing commercial secrets, the visit to Australia of Uighur leader Rebiya Kadeer and confusion over Australia’s stance on Chinese investment in its mining sector.

At the same time, both Beijing and Canberra have moved to keep the relationship smooth. In June, up-and-coming Chinese Vice President Xi Jinping visited Australia in June, on a trip in which Chinese companies unveiled a string of deals with Australian partners.

Australian polls have been mixed ahead of Saturday’s vote. A poll published in the Daily Telegraph newspaper Sunday showed the coalition could win the 17 seats it needs to replace Labor. A nationwide Nielsen poll published Saturday put Labor ahead 53% to 47% on a two-party preferred basis.

The opposition coalition has sent mixed signals on how it would smooth relations. Opposition leader Tony Abbott has called Australia’s role in the region a “kind of a neighborhood watch scheme in support of Western values.”

Mr. Abbott has also said his coalition of center-right parties could revise foreign investment laws if it wins, applying closer scrutiny to farm purchases and promising to “sell the food, rather than sell the farm.”

Chinese company have also looked to Australia for deals as they look to secure supply of raw materials by buying directly into resource companies and projects around the world. Many of the deals have run into opposition in Australia, particularly one last years by Aluminum Corp. of China to investo $19.5 million into Rio Tinto, which fell apart amid skepticism from Australian officials.

Ian McCubbin, whose legal firm Norton Rose advised China on a number of Australian resources deals, argues the debate on allowing inroads by state-controlled Chinese companies has been “blown out of all proportion” by both sides.

Mr. McCubbin says Australia accounted for only 8% of China’s total foreign direct investment globally by deal value last year. The U.S. is Australia’s largest foreign investor.

Australian Foreign Minister Stephen Smith says Labor is “not starry eyed” about its relationship with China. But he doesn’t believe Labor damaged Australia’s ties with Asia in its first term.

Still, Mr. McCubbin says Australia is viewed by China as a “difficult jurisdiction” for deals since Labor announced plans for a profits-based tax on mining companies in May.

The proposal played a role in the ouster of former Prime Minister Kevin Rudd by his own party in June amid concerns it was an electoral liability and claims it would damage Australia’s reputation with overseas investors.

Mr. Rudd’s successor, Julia Gillard, brokered a deal with the country’s major miners to reduce the headline rate of the tax to 30% from 40%, and Smith says Chinese concerns about the tax have since “fallen away.” The coalition has vowed to scrap the tax if it wins power.

http://online.wsj.com/article/SB10001424052748704296704575430982178128658.html?mod=googlenews_wsj