Activity in China's non-manufacturing sector continued to expand in March, but at a slower rate than in the previous month, according to official data.

A statement from the China Federation of Logistics and Purchasing said China's non-manufacturing purchasing managers' index (PMI) printed at 54.5 in March, after a read of 55 in February.

A reading on the PMI above 50 indicates expansion, while a reading below signals contraction.

The non-manufacturing PMI covers services including retail, aviation and software as well as the real estate and construction sectors.

The data are based on replies to monthly questionnaires sent to purchasing executives in 1,200 companies in 27 non-manufacturing sectors.

The federation issues the data along with the National Bureau of Statistics.

Activity in China's services sector hit a four-month high in March, according to a private survey.

The HSBC China Services Business Activity Index printed at 51.9 in March, up from 51.0 in February, but growth remained subdued in the context of historical data.

Chief economist, China and co-head of Asian economic research at HSBC, Hongbin Qu, said the HSBC China Services PMI suggests a modest improvement of business activities in March, with employment expanding at a faster pace.

"However, combined with the weaker manufacturing PMI reading, the underlying strength of the economy is softening, which should ultimately weigh on the labour market," he said.

"Beijing should focus on leading indicators to launch fine-tuning measures that support growth."

China's central bank said current domestic economic conditions remain within a "reasonable range," though the economy still faces complicated situations.

Domestic price levels are basically steady, but growth continues to slow for some other emerging economies, the People's Bank of China said in a brief statement released Thursday following its quarterly policy meeting.

The first-quarter economic data have been mostly disappointing, and analysts expect the nation's economy in the period to expand just above 7 per cent from a year earlier. Beijing has set a growth target of around 7.5 per cent for the whole year.

The PBOC also reaffirmed its policy goal of keeping the yuan exchange rate at an appropriate level, while pledging to further push exchange-rate reforms.

It will keep a close eye on cross-border capital flows, the PBOC said.

The central bank also plans to maintain liquidity at reasonable level and ensure reasonable growth of money and total social financing.

All signs are pointing to a disappointing first quarter for the Chinese economy. Banks, funds and think tanks both in and outside of China are downgrading their forecasts for economic growth, including the Chinese Academy of Social Sciences, Beijing’s key brain trust.

The academy thinks the growth rate for 2014 will dip below the official target of 7.5 per cent. UBS China economist Wang Tao expects first quarter real GDP growth to soften from 7.7 per cent in the last quarter of 2013 to 7.4 per cent.

Weak PMI data has also added anxiety to an already nervous market. This has sparked speculation that Beijing will unveil a stimulus package to boost growth. Media reports have seized on announcements from the state council -- the Chinese cabinet -- to speed up railway investment in the Western region as evidence of Beijing’s willingness to unleash a stimulus package.

I’m sorry to disappoint, but the Chinese government is not about to inject a large dose of stimulus into the system just to maintain the 7.5 per cent growth rate. Beijing has repeatedly emphasised that it is moving away from its previous fixation on GDP growth. It seems some analysts are still stuck in the mindset that Beijing will do whatever it takes to maintain its own growth target.

Stephen Roach, former chairman of Morgan Stanley Asia, asked the Chinese Finance Minister Lou Jiwei whether China should abandon its growth target. Lou said, "the government now stresses three macroeconomic goals -- job creation, price stability and GDP growth" and "it’s moving away from its once single-minded emphasis on growth targeting."

Roach, who teaches at Yale University, says "unlike most Western observers, who are fixated on the slightest deviation from the official growth target, Chinese officials are actually far more open-minded. They care less about GDP growth per se and more about the labour content of the gains in output."

Li Yang, the deputy head of the Chinese Academy of Social Sciences, a leading government think tank, also made it clear that the government would not introduce new stimulus measures until red lines such as unemployment figures, inflation and GDP growth were crossed.

"The government has announced its bottom lines. Everyone can stop guessing what the government will do. There will be no policy changes until red lines such as unemployment, inflation and GDP growth are crossed," he reportedly said at a recent steel industry conference in Beijing.

The Chinese government has emphasised a "comfort zone" for the economy. Its upper limit has inflation levels at 3.5 per cent and its lower limits have GDP growth at around about 7.5 per cent and a labour market robust enough to absorb 10 million new entrants into the urban labour market.

Of the three key indices, GDP is perhaps the most flexible, and it is closely linked with the unemployment level, which is arguably the most watched and important figure for Beijing. Until we see a noticeable deterioration in the labour market, the Chinese government will not implement fiscal measures to boost growth.

When you look at the announcement on railway spending measures more carefully, Beijing is actually inviting the private sector to take part in building this key infrastructure.

The Chinese government wants to establish a railway infrastructure investment fund, which would include both public and private sector contributions that could invest between 200 and 300 billion yuan a year. This year’s 150 billion yuan railway bond will also offer favourable tax treatments to investors. It also wants to get financial institutions like funds to invest in railways.

It shows that the Chinese clearly want to depart from their usual method of directly injecting money into shovel-ready projects when the economy stalls. It wants to lure the private sector into previously off-limit areas like the railways to boost investment without taking on more debt as it tries desperately to deleverage.

The Ministry of Finance is also promoting Public-Private Partnership (PPP) to provinces and cities. The move is designed to take the pressure off some heavily indebted local governments while maintaining growth momentum.

Another element of the hyped stimulus measure is not actually through increased spending but more aggressive tax cuts to small and medium enterprises. The State Council thinks small businesses will play a key role in absorbing new entrants into the labour market.

The tax rate for small businesses is only 50 per cent of the company tax and Beijing is also considering lifting the tax exemption threshold. So this round of policy measures will be nothing like the massive stimulus package of 2008 when the  Chinese government splurged $600 billion in infrastructure spending.

East Asia Forum

There is one international player that stands to gain from the recent turn of events in Ukraine, regardless of its outcome. This player apparently has nothing to do with the crisis that has engulfed Russia, the EU and the United States, and makes a point of staying on the sidelines. This player is China.

The leadership in Beijing must be secretly delighted watching the struggle between Russia and the West. The Ukraine mess can seriously poison Moscow’s relations with Washington and Brussels for a long time to come, thus reducing their mutual ability to coordinate policies on the major issues in world politics. One such issue is the rise of China.

Up to the present, Russia has pursued a relatively balanced and circumspect policy toward its giant Asian neighbour. Although China has recently signalled that it would welcome closer strategic ties with Russia -- perhaps even a security alliance -- Moscow so far has been reluctant to transform their current ‘strategic partnership’ into a full-blown geopolitical entente. In particular, Russia has not been ready to back Beijing’s assertive stance on various territorial disputes in East Asia.

Western political and economic sanctions will inevitably push Moscow toward Beijing, increasing the likelihood that China and Russia will align their foreign policy toward the West. This, in turn, will reinforce the Middle Kingdom’s strategic positions in Asia. Having acquired Russia as a safe strategic rear area, as well as privileged access to its vast energy and minerals base and advanced military technologies, China would feel far more confident in its rivalry with the United States for primacy in the Asia Pacific. Events in Ukraine are likely to finally clinch a Russia–China gas pipeline deal long delayed by haggling over fuel prices. Western sanctions will certainly make Moscow more compliant with Beijing, landing China a bargain that will provide it with a stream of cheap Siberian gas.

China’s response to the recent developments around Ukraine is telling. Ever since the crisis began to develop late last year, Chinese media have tended to blame Western meddling. After Russia took over Crimea and declared its readiness to use military force, the Chinese Foreign Ministry blandly urged ‘the relevant parties in Ukraine to resolve their internal disputes peacefully within the legal framework so as to safeguard the lawful rights and interests of all ethnic communities in Ukraine’. Discussing the crisis with Putin, China’s President Xi Jinping remarked, somewhat enigmatically, that ‘the situation in Ukraine, which seems to be accidental, has the elements of the inevitable’. China’s official press commentary is sympathetic with Moscow, stressing that Putin’s determination to protect the interests of Russia and Russian-speaking citizens is ‘quite understandable’.

Beijing has abstained at the UN Security Council vote on Crimea, and made it quite clear that it disapproves of using the UN to pressure Russia, with China’s foreign ministry commenting that the Security Council’s vote on the US-prepared draft resolution ‘will only lead to confrontation among all parties, which will further complicate the situation’.

What really matters is China’s willingness to go along with the sanctions against Russia. However, there is zero probability that Beijing will support any political or economic penalties on Moscow. China’s stance amounts to a sort of benevolent neutrality toward the Kremlin. One suspects that, in exchange, Beijing will expect the same kind of benevolent neutrality from Moscow: for example, with respect to its actions in East Asia and the Western Pacific.

In the 1990s, Zbigniew Brzezinski likened Eurasia to a grand chess board, emphasising the geopolitical interconnectedness of various parts of the supercontinent. The metaphor is now even more relevant. What is now occurring in Ukraine and around it will inevitably affect the games being played out on the opposite side of the board, if only because the players are often the same. This is well understood by some American strategists, who worry that excessive pressure from the West ‘may alter the geopolitical balance by putting Russia closer to China’. However, Washington has not still made up its mind as to who is America’s top geopolitical competitor in this grand chess game: Russia or China?

When the US enjoyed its ‘unipolar moment’ in the 1990s and the first half of the 2000s, Washington could easily pursue a dual containment policy. Since that time, the balance of power has changed significantly. America is hardly in a position to confront two great powers in Eurasia simultaneously. Americans have to decide which region is more important to them -- post-Soviet Eastern Europe or East Asia. The choice may be unpalatable, but indefinitely postponing it will have consequences.

It is eerily fitting that the Ukraine crisis should have broken out on the hundredth anniversary year of the First World War, which was triggered by a dispute in the seemingly insignificant Balkans. Russia’s current stance toward Crimea and eastern Ukraine is reminiscent of past Austro-Hungarian attitudes towards the Balkans. The fear of losing control over the Balkans drove Austria-Hungary into the embrace of Imperial Germany, even though Vienna and Berlin had traditionally vied for control of Central Europe and fought a war in 1866. The alliance of Germany and Austria-Hungary contributed to Europe’s splitting into two camps and eventually the general war.

Sino-Russian relations, of course, have been historically complicated, but this may not preclude them forming an entente, as long as they perceive a common adversary. Hopefully, the current Ukraine situation will not result in war, but it could well become a major step toward transforming the international order into a confrontational bipolarity, with the US-led West facing a Sino-Russian axis. The Western push to ‘isolate’ Russia may prove self-defeating. Rather than forcing Moscow to withdraw from Ukraine, it will draw it closer to Beijing.

Artyom Lukin is Deputy Director for Research at the School of Regional and International Studies, Far Eastern Federal University (Vladivostok, Russia). He is also Associate Professor at the Department of International Relations.

A version of this article originally appeared here on the Foreign Policy Research Institute website and was first republished on the East Asia Forum. Republished with permission.

The latest statement from China's central bank suggests a cut to banks' reserve requirement ratio is not imminent, the Shanghai Securities News reported, citing economists.

The People's Bank of China said in its quarterly statement that economic conditions remained in a "reasonable range" and said it planned to ensure appropriate growth of the money supply and keep liquidity at a reasonable level.

Many experts expect at least one RRR cut this year. For example, Nomura predicts a 50-basis-point cut in the second quarter and another in the third.

But the PBOC's latest statement casts doubt on this, the Shanghai Securities News said, noting that the central bank's wording on monetary policy was unchanged from the previous quarterly report.

What's more, an RRR cut isn't the most effective way to cut financing costs for companies, the paper said, citing Industrial Bank chief economist Lu Zhengwei.

Mr Lu said lowering the 28-day repo rate and cutting restrictions on funding for railway projects would be more effective.

Meanwhile, the country's banking regulator has told China's lenders to control bad loans and strengthen their balance sheets amid growing concern over debt problems, The Australian Financial Review reports.

According to the newspaper, the regulator asked banks to increase their provisioning for non-performing loans and conduct stress tests, giving particular attention to real estate and steel trading, instructing banks not to use off-balance sheet loans to cover up bad debts in an apparent targeting of China's fast-growing shadow finance sector.

Defense Secretary Chuck Hagel said Thursday that the U.S. is "increasingly concerned" about China's disputes over territory in the South China Sea and is urging its Asian rival not to use force to pursue its claims.

Speaking to reporters at the close of a meeting of Southeast Asian defense ministers, Mr. Hagel didn't mention China specifically in issuing the warning, but left little doubt that he was sending a message to Beijing.

"The United States is increasingly concerned about the instability arising from the territorial disputes in the South China Sea," he said. "It's important that all claimants avoid the use or threat of force, or intimidation or coercion."

China is embroiled in disputes with several nations over small islands and reefs in the South China Sea. China has created a horseshoe-shaped boundary, known as the "nine-dash line" to mark its disputed claims in the sea.

Underscoring the tensions in the region, the Chinese Coast Guard tried last week to block a civilian Philippine ship carrying supplies for soldiers in one of the disputed areas.

Mr. Hagel made his comments on the eve of a week-long trip to Japan, China and Mongolia, where the territorial disputes are likely to emerge as a point of contention in meetings with leaders in Beijing.

The trip will mark Mr. Hagel's fourth visit to the region since he became defense secretary a year ago. President Barack Obama is planning to visit the Philippines later this month to emphasize the U.S. commitment to pumping more resources into the Asian-Pacific region.

Mr. Hagel said this so-called "pivot" is "not a contain-China strategy," but said the Asian nation's actions loom large over U.S. aims in the region.

"I consider the Chinese as friends," he said. "We have differences. We are competitors. We disagree in areas. But we're certainly not enemies."

Mr. Hagel said he welcomes China’s international role and wants to find common ground between Washington and Beijing.

A 27 per cent jump in iron ore exports for the month of March from Port Hedland appear to support the view held by Brazil’s Vale that concerns about the oversupply of iron ore are too pessimistic.

Iron ore exports to China from the port lifted by 27 per cent to a record 27.04m tonnes in March following a dip in February, but are still 16 per cent higher than January’s 23.3m tonnes.

Total iron ore exports from the port rose to a record 34.43 million tonnes in the month, compared with 27.79m in the previous month.

The news follows another lift in the iron ore price this morning to $US115.5 a tonne, surpassing the level it was trading at before it charted its largest one-day price fall in more than four years last month.

Total exports to China from the port, across chromite ore, copper concentrates, manganese ore, salt and iron ore were 27.41m tonnes in March, up from 21.45m in February.

The port exported a total of 35m tonnes across all types of cargo in the month to other parts of Australia and countries including India, Japan, Korea, Malaysia, Spain and China, up from 28.3m in February.

Lowy Interpreter

Prime Minister Abbott's team for his current visit to Japan, South Korea and China is certainly business-heavy. So too was his warm-up speech,  which one observer suggested might be seen as 'a tad too mercantilist'.  Nothing wrong with that. Concentrating on trade seems sensible given the many pitfalls on the security side, though let's not forget that this bright trade future depends on keeping the security issues under control.

The focus is on pending free-trade agreements (FTAs). These FTAs should properly be called bilateral preferential trade arrangements (PTAs), but if just about everyone else is ignoring the multilateral distortions involved, you have to follow along.

New Zealand has done particularly well out of its pioneering FTA with China. Fonterra's huge success in selling milk, riding in on the melamine scare, should be a case study on the premium that can be obtained by having a 'clean and green' reputation in Asia's middle-class food markets.

The Korean FTA has already been agreed, ready for signing. If the Prime Minister can resist the temptation to rush the unfinished negotiations with Japan and China, this will send a useful message to the negotiators on all sides.

For Japan, delay might allow better coordination with the Trans-Pacific Partnership. This is not the moment to undermine Prime Minister Abe's attempts to break down agricultural protectionism by signing up to an agreement which makes no progress in this area. For China, fuzzing the earlier commitment to finish the FTA by year-end might help our negotiators to get a better deal. 

Delaying these two FTAs would be no great loss. The biggest 'take-away' from the visit might instead be the 'being there' educational dividend for the participants themselves: the Prime Minister, the state premiers and the 600 businesspeople accompanying him. Of course, most already have exposure to Asia, some substantially so. But what contrasts there are among these three countries, what lessons are there to be absorbed and what opportunities to be imagined!

First port-of-call is Japan. Here is a reminder that economic success can suddenly turn into stagnation and deflation. But the story is complex and nuanced. Allowing for Japan's demography, per capita GDP growth has not done so badly, and growth per worker looks better still. The visiting Australians might also observe how a society copes with the complex pressures of an aging population.

This sclerotic economy still managed a fundamental transformation by transferring much of its manufacturing capacity to cheap-labour neighbouring countries. It was the early mover in establishing the multi-country supply chains that have come to characterise manufacturing trade in Asia, a revolution largely missing in Australia's economic links with Asia.

South Korea should stun the visitors by the sheer audacity of its development achievement (which so besotted Joe Studwell). Anyone who sees a large-scale manufacturing future for Australia should check out the competition.

In China, what lessons should the visitors absorb?  Relevant to the FTA negotiations (where China is looking for less discriminatory treatment for its investment in Australia), the central focus should be on the specific and idiosyncratic characteristics of the China-Australia investment relationship. This should not be an argument about differential treatment for state-owned enterprises (how do we think the SOEs will damage us?) but should aim to reach a common understanding on where the sensitivities lie and how to deal with them.

The overwhelming long-term issue is that we are small and they are big.

Both sides want to get the benefit of the synergistic natural comparative advantage between our two economies, but resource security for China has to be reconciled with the Australian people's sensitivity about 'selling the farm' (and the house as well) to foreigners. Over time, we may well want to re-balance the terms of investment (one day we will want to return to the idea of a counter-cyclical super-profits tax on resource exports). Global commodity price setting and transfer pricing issues will emerge. We need an adaptive framework if we are to maintain smooth relations.

The first stop of the visit provides relevant history. Japan had the same natural comparative synergy which led it to promote, fund and act as reliable customer for the first great Australian resources boom in the 1960s. This not only required vision and persistence, but also a recognition that there would be non-economic sensitivities on the Australian side. The 'one size fits all' investment clauses typical of FTAs will not cover these subtle issues, but dealing with them effectively will determine whether, in half a century, we will judge the China-Australia investment relationship to be as satisfactory as the Japanese relationship.

What might be the main 'take-away' from this visit? Given Australia's half-hearted mental engagement with Asia so far, at least some of the tourists might come to recognise the enormity of the Asian economic relationship. In our trade and investment flows, China occupies first place, with flows nearly twice America's, and Japan just behind America.

Asia's heft in global growth might come as an eye-opener on where the economic future lies. Even at its more moderate post-2008 pace, China is growing six times as fast as Europe and three times as fast as America. China accounts for nearly half of global growth. The 2008 global crisis demonstrated that Australia, whose GDP formerly cycled in lock-step with America, now depends more on Asia in general and China in particular.

And this is just three of our 'near north' neighbours. The members of Tony Abbott's business delegation should soon be re-packing their bags to visit the rest of Asia.

Originally published by The Lowy Institute publication The Interpreter. Republished with permission.

Prime Minister Tony Abbott says a free trade agreement with Japan is within Australia's grasp.

"Things are going very well indeed in the negotiations for a Japan-Australia economic partnership or free trade agreement," Mr Abbott told a business function in Tokyo on Monday.

He said such a deal had eluded Australia for many years.

"But (it) is now within our grasp," he said.

Mr Abbott thanked Trade Minister Andrew Robb for his tireless effort in seeking the agreement with Japan.

"Japan has arisen from the ashes of war to become one of the world's most prosperous societies ... a liberal democracy and a model international citizen," Mr Abbott said.

The prime minister is leading a delegation of business leaders and premiers through Japan, South Korea and China.

He said the futures of all three nations and Australia were "inextricably linked".

"The countries of the Asia-Pacific will advance together or we won't advance at all."

Beijing has warned the United States against interfering in Hong Kong's affairs after US Vice President Joe Biden met with two of the city's outspoken pro-democracy campaigners last week.

In an unusually high sign of support, Biden attended talks at the White House on Friday with Martin Lee, a founder of Hong Kong's opposition Democratic Party, and Anson Chan, former number two in the city's government.

Biden "underscored our long-standing support for democracy in Hong Kong", the White House said in a statement.

In the first official response from Beijing, Chinese state-run news agency Xinhua on Monday quoted an official as saying that the US should "proceed discreetly" to prevent damaging China-US relations.

Hong Kong -- a former British colony which is now a special administrative region of China -- is at a critical time of political reform and Beijing opposes interference by any country in China's internal affairs, a foreign ministry spokesman in Hong Kong said, according to Xinhua's dispatch.

Lee and Chan used their visit to Washington last week to speak out against what they described as growing interference by Beijing in Hong Kong.

Britain returned the financial hub to China in 1997 under a deal that granted it semi-autonomous status and enshrined civil liberties not guaranteed in mainland China.

China has promised direct elections for Hong Kong's chief executive in 2017, but many pro-democrats fear that Beijing's Communist rulers will control the choice of candidates to secure the election of a sympathetic official.

Beijing has ruled out demands that voters be allowed to choose which candidates can stand for the top position, an issue which regularly sparks angry protests.

China has previously hit out at pledges by other foreign officials to support Hong Kong's pro-democracy activists.

In September, China described comments by British Foreign Office minister Hugo Swire that Britain was "ready to support in any way we can" those pressing for greater democracy in Hong Kong as "irresponsible".

Protesters say they are considering ending their three-week occupation of Taiwan's parliament, after its Speaker intervened to try to end the stand-off over a contentious services trade pact with China.

"Discussions about the direction of the movement are now under way," said Shih Yen-ting, a spokesman for the Sunflower movement which is staging the first parliamentary occupation in the island's history.

"Hopefully there will be a conclusion by early this evening," he said, as the number of protesters occupying the main chamber dwindled to dozens from a peak of around 200.

Parliamentary speaker Wang Jin-pyng of the ruling Kuomintang party entered the chamber on Sunday to meet students.

He pledged not to preside over further parliamentary debate about the pact until a law has been introduced to monitor such agreements with China. Protesters described his promise as a "goodwill" gesture.

Calls for the demonstrators to quit parliament have been rising even among some of their sympathisers.

"Now it's a opportune time to leave parliament," said Rex How, a publisher who quit as an adviser to President Ma Ying-jeou in protest at the pact with China.

Local media speculated that the protesters would leave following Wang's concession.

But unconfirmed reports said some radical student groups had refused to back down.

Politicians from both ruling and opposition parties have been meeting the students since the occupation, but Sunday was the first time that the Speaker had entered the chamber since it was seized.

Around 200 student-led demonstrators occupied the chamber on March 18 and swiftly drew a large crowd of supporters, with more than 10,000 congregated outside at one point.

There were violent clashes on March 23 when baton-wielding police turned water cannon on protesters who had stormed the nearby government headquarters.

And on March 30 tens of thousands gathered to pressure embattled President Ma to retract the trade pact, which they say will damage Taiwan's economy and leave it vulnerable to political pressure from China

Ma, who has pursued closer ties with China since taking power in 2008, has agreed to the students' demand for a law to monitor all pacts with China, but the protesters have rejected the government's bill.

The latest pact would further open up trade in services between China and Taiwan, which split 65 years ago after a civil war.

East Asia Forum

Shiro Armstrong recently claimed in these pages that China is Australia’s most important economic partner, indicting Australian government endorsement of the US for the position. The defence of the US offered by Australia’s foreign minister Julie Bishop and others is unsatisfying, and the case for China is reasonable. However, Australians and others should be mindful that China’s current importance is probably transient and there are subtle reasons to regard the US as Australia’s key partner.

One way to argue for the US over the PRC, as Australia’s foreign ministry has, is to cite the larger stock of American investment in Australia as trumping Sino-Australian annual trade volume (which is much larger than US-Australian volumes). Armstrong is quite right to dismiss this. A trade dollar is not comparable to an investment dollar and merging them in one overarching ‘relationship’ figure does not make sense.

The stock of investment accumulates over time while trade is reset annually. If only annual transactions are compared, trade is much larger and swamps investment. More important, individual trade transactions are one-time while investment transactions constitute a continuing relationship. Hence trade and investment are separated into the current account and capital account, respectively, in the balance of payments.

There is also a practical reason not to stress American investment as crucial in determining the most important partner: American investment in Australia may not always outstrip Chinese.

American outward investment around the globe ebbs and flows, soaring in 2011 but slipping in 2012 and 2013. To this point, Chinese global investment, while it remains far smaller than American investment, has steadily increased. Further, Australia is more important to the PRC as an investment partner than Australia is to the US. So investment in Oz may not always be a bastion of American pre-eminence.

Meanwhile, Australian goods and services trade with China was more than twice as large as with the US in 2012–13. Perhaps more important, Chinese demand for Australian goods surged as the global recession hit in 2008 and accelerated through 2010. While other countries struggled with government borrowing and loose money as policy responses, Australia enjoyed very effective stimulus, courtesy of the PRC.

Oddly, though, it is trade that illustrates flaws in deeming China as number one. Growth in Australian exports to China has slowed considerably since 2010. While understandable, this is also set to continue. It may even be that exports will contract.

Iron ore, of course, dominates the trade relationship, accounting for about half of total exports and 30 per cent of all trade, including services. And iron ore exports have much more downside risk than upside.

There are two scenarios for Chinese steel production: no growth and outright decline. China has refused to rein in steel for some time. Regardless of whether or not Xi Jinping’s government is different from Hu Jintao’s, though, the industry cannot get bigger. Overcapacity is too extensive, exceeding demand by perhaps one-third.

If the current government in Beijing is actually serious about overcapacity, as it claims, steel is first on the chopping block. The process may have already started in the top provincial producer Hebei. In that case, total iron ore imports are likely to decline, threatening Australian producers.

Chinese urbanisation will not be riding to the rescue, as many commodities producers still hope. The wildly expensive forced urbanisation program bandied about a year ago all but disappeared at last month’s meetings of the National People’s Congress (thankfully). While it will still be discussed, it is highly unlikely to materialise. One reason: the size of China’s debt is prohibitive.

The same story holds for less-important metals such as copper and nickel. Other commodities could emerge as replacements, but Australian competitiveness in supplying China with coal, gas and wheat is unclear. If metals exports are capped indefinitely or shrink, Sino-Australian trade will be sizable but no longer exceptional.

As Armstrong notes, a painful contraction in metals exports would indeed prove China’s current importance to Australia. But that importance will also prove temporary, whether metals contract or just stagnate. Those espousing China as number one may be buying at the peak.

It is true that China being overvalued does not automatically make America undervalued. Australian trade with the US will remain considerably smaller even if China decisively curbs its steel industry. Dollar figures will still cast doubt on the US as top partner.

But dollars don’t reveal the full value of the US economically — something Singapore has not forgotten and Australia should not, either.

China has demonstrated ability to inhibit progress at the WTO, but not to lead it. The US is currently disengaged from the WTO but has certainly led in the past. Despite American missteps, the Trans-Pacific Partnership is an attempt at a deeply liberalising, even transformative agreement. The Regional Comprehensive Economic Partnership is far less ambitious.

If the global economy is going to be changed for the better, it will be done based on principles established by the US and with indispensable American participation. China is nowhere near this kind of global partner and does not look to be one anytime soon. This is also part of valuing an economic relationship.

The embrace of China as number one that Armstrong and others want should be a short one.

Derek Scissors is a resident scholar at the American Enterprise Institute.

Australian telecommunications giant Telstra may have been exploited by Chinese executives while conducting due diligence on two mobile companies it purchased five years ago, according to The Australian Financial Review.

The issue, which relates to two firms that have been the subject of significant write-downs, came to light after reports in Chinese business publication Caixin, which discussed kickbacks to executives at state-owned China Mobile.

Telstra reportedly met China Mobile executives to discuss a purchase of the two companies -- Sharp Point and China M -- worried that the recent growth of the firms may be short-lived. According to the report, China Mobile offered words of comfort to Telstra on the purchase, but the telco was unaware two China Mobile executives were to be paid $US67 million from the $259m deal.

“We are concerned about any ­allegations of impropriety against the companies and we take governance and compliance extremely seriously,” a Telstra spokesperson told the AFR. “We exercised due diligence in the transaction."

Telstra is not accused of any wrongdoing.

Westpac will open a branch in the newly established Shanghai free trade zone after securing the authorisation of the China Banking Regulatory Commission, according to The Australian Financial Review.

The development follows news that ANZ Bank would open a branch in the free trade region, around Pudong, which is being set up to test further liberalisation of the Chinese economy.

Westpac institutional bank’s chief executive Rob Whitfield told the AFR the new branch will aid with the bank’s funding and foreign exchange operations in China as more of its customers do business in yuan.

It was also reported that Westpac would today announce the appointment of Simon Israel to a non-executive role on its Asian advisory board.

Prime Minister Tony Abbott says Australia's enhanced security co-operation with Japan shouldn't raise concerns in China, which is involved in territorial disputes with its southern neighbour.

During his visit to Tokyo on Monday, Mr Abbott struck a new free trade deal and also broke new ground on defence that elevates the bilateral security relationship between Australia and Japan to a new level.

Mr Abbott said there was already a high degree of co-operation between Australia and Japan on defence and security.

The countries' respective defence forces hold exercises together and Japan has purchased some Australian defence equipment, including Bushmaster armoured infantry transport vehicles.

"We want to see more inter-operability between our militaries, we want to see more exercises between our militaries, we want to see over time more significant intelligence co-operation," he told ABC radio on Tuesday.

But this special relationship shouldn't raise concerns in China, which Mr Abbott will visit on Wednesday.

"It's not against any specific country and as far as I am concerned -- as far as just about every country is concerned -- what we want to see is more democracy, more freedom, more respect for the rule of law," he said.

Mr Abbott said Australia was takings no side in the territorial disputes between China and other nations, including Japan.

It was only calling for those disputes to be resolved peacefully.

"We say there should be no change to the status quo, which is brought about by force or by the threat of force," he said.

Tens of thousands of Taiwanese students have occupied the debating chamber of the country’s parliament for the 21st day, demanding the government scrap or renegotiate a service trade agreement with mainland China that is largely in favour of Taiwan.

If Prime Minister Tony Abbott could extract a similar concession from the Chinese, he would be hailed as hero back at home. It is understood that Australian diplomats have privately communicated their bewilderment about the students’ action to the Taiwanese mission here.

So what is the fuss about the service trade agreement between Taiwan and mainland China? The service pact is part of the so-called Economic Cooperation Framework Agreement (ECFA) signed between Taiwan and mainland China, which is designed to foster closer economic relations across the Taiwan Straits.

Under the agreement, China would open 80 service sectors to Taiwan while the island country would liberalise 64 sectors. Of these, 27 sectors such as car rentals and Chinese medicine wholesales are already subject to competition from China. The magnitude of openness for the remaining newly opened sectors is less than 10 per cent.

“The pact is supposed to give Taiwan more favourable access to the mainland Chinese market than other World Trade Organisation members, with none of the local sectors opened beyond WTO standards,” says Marcella Chow of Bank of America Merrill Lynch.

There are many misconceptions around the service agreement and it seems most of the student protestors don’t even know what the actual content of the agreement is. Some protesters are playing the proverbial fear card and saying the agreement would lead to a massive influx of cheap Chinese labourers.

In fact, the agreement does not allow Chinese labourers to work in Taiwan and it only permits mainland Chinese investors to bring in a maximum of seven staff members if their investment threshold exceeds US$ 700,000. Chinese companies are also not permitted to hire regular employees from the mainland.

Bank of America Merrill Lynch says the claim that the agreement will result in large-scale unemployment is also false and that Chinese investment actually created close to 10,000 jobs and only brought in 264 managers. In fact, even if Taiwan opens up its labour market, it is not even clear if mainland graduates want to work in Taiwan. Their starting salaries are similar and Chinese get paid more bonuses than Taiwanese, according to a human resources survey.

So why are they protesting against a largely concessional agreement from China? The real answer is they are protesting against closer economic integration with China and they’re fearful of an eventual take-over by an increasingly powerful and resurgent China.

The balance of power across the Taiwan Straits is decisively shifting in favour of China, economically, militarily as well as politically. Influential American international relations expert John Mearsheimer argued recently that Taiwan’s days as a de facto independent state are numbered which has sparked heated discussion in Taiwan.

Domestically, Taiwanese society has been fighting a civil war over its identify since the 1990s when the pro-independence president Lee Teng-Hui came into power after decades-long military rule by the exile Nationalist party. Back in the early 1990s, a majority of Taiwanese saw themselves as Chinese and the island state as the “free China” versus the “Red China” across the straits.

In 1996, only 24.1 per cent of Taiwanese saw themselves as Taiwanese and the number soared to 52.6 per cent in 2010, according to polls conducted by the National Chengchi University. The decline in Chinese identity is both due to heavy-handed political pressure from Beijing as well as the Democratic Progress Party’s relentless campaign to purge Taiwan of its Chinese roots.

The results have been a deeply divided society between the so-called Waishengren, mainlanders who fled to Taiwan after the 1949 Chinese civil, and Bensgengren, Chinese migrants to Taiwan prior to the civil war. Taiwan has been trapped in a self-destructive dilemma, says Professor Zhang Yazhong from the National University of Taiwan in a column in the Financial Times.

The students are not protesting against the service agreement per se but rather against a closer relationship with mainland China. The pro-independent opposition party Democratic Progress Party is adding fuel to an already dire situation.

Taiwan cannot afford to trip up on this important economic agreement – one that anyone else would kill for. The consequences could be dire for the island nation of 23 million people if the agreement is derailed.

It can only start free trade agreement negotiations with other countries, such as the Transpacific Partnership (TPP) or Regional Comprehensive Economic Partnership (RCEP), after finishing the negotiations with China. So the delay in completing the service trade agreement will harm Taiwan’s competitiveness as its rivals such as South Korea get a head start.

For example, South Korea just signed a free trade agreement with Canada last month and more importantly just concluded the 10^th round of FTA negotiations with China. Bank of America Merrill Lynch expects Taiwan’s GDP growth rate to fall from 2.9 per cent to 2.4 per cent if lawmakers fail to pass the service agreement.

President Ma Ying-Jeou has warned of the dire consequences for Taiwan’s export economy if the service trade agreement is derailed. “If the service trade agreement is not ratified or if it has be renegotiated, it could have serious consequences and be detrimental to Taiwan’s interests,” he told The Economist.

Fruit growers say a Japanese import tariff cut is a big win for the industry.

But dairy producers say the new free trade agreement does nothing for them and are concerned about a potentially bleak upcoming deal with China.

Fruit Growers Victoria deputy chairman Gary Godwill says the agreement, which eliminates tariffs on a range of canned fruit and vegetables, puts them on a level playing field with other players in the market.

"Access to the Japanese market is a wonderful thing," he told AAP on Tuesday.

Victorian fruit growers have been under pressure after canning company SPC Ardmona tried - and failed - get a federal government bailout earlier in the year.

Mr Godwill said real access to key Asian markets was important.

But United Dairy Farmers Victoria president Tyran Jones said the agreement had mainly ignored dairy farmers.

"Dairy farmers currently pay $116 million a year in import tariffs on $511 million of processed dairy products going into Japan," Mr Jones said.

He said members of Australia's $13 billion dairy industry were now worried about future free trade deals.

"This really doesn't bode well for a meaningful trade agreement with China," Mr Jones said.

"The track record's there. We didn't get much out of Korea, and we got even less out of Japan."

National Farmers' Federation president Brent Finlay said the agreement has not delivered enough for Australian agriculture.

"We are disappointed with the overall outcomes for agriculture with a number of sectors facing marginal improvements or limited commercial gains," he said

However, Mr Finlay said Australia was the first major agricultural exporter to achieve gains on some of Japan's high import barriers.

Former Labor prime minister Kevin Rudd took Australia's relationships with its key Asian neighbours backwards, billionaire James Packer says.

The Crown casino boss is this week taking part in a trade delegation to Asia led by Prime Minister Tony Abbott.

"I think the truth is Australia's relationships with China, Japan, India and Indonesia all went backwards over the last five years," Mr Packer told Fairfax radio on Tuesday.

"When you go round and lecture people - I think you'd know who I'm talking about - some people don't take it that well."

The delegation, which is due in Seoul on Tuesday, will visit China on Wednesday and Mr Packer says building strong ties with the world's second-largest economy was key to Australia's future.

"I wish Kevin Rudd well, but that's my personal view, that our relationships in China went backwards," he said.

"Australia's integration into Asia is, at a macro level, just about the most important thing our government can do."

Mr Packer also repeated his call for online visa applications to be available to Chinese visitors to Australia.

He noted tourists from 70 countries can apply online for visas, but Chinese tourists had to apply through the post, and in English.

Mr Rudd, a Mandarin speaker, was prime minister from 2007 to 2010, when he was rolled by Julia Gillard. He returned to the job in 2013 ahead of Labor's defeat by the Liberal-Nationals coalition.