Prime Minister Tony Abbott has defended his decision to visit South Korea and Japan on the same trip, telling his Korean counterpart he could not play favourites in the region.

But he's stressed Australia wants more than just trade from Korea, because it's a country that would rather "find friends than pick fights".

Mr Abbott arrived in Seoul on Tuesday for talks with President Park Geun-hye, and to formalise the free trade agreement struck in December.

His visit follows a two-day stint in Japan, where he and Prime Minister Shinzo Abe finalised a long-sought trade deal and agreed to elevate defence co-operation.

Seoul and Tokyo aren't on speaking terms, with the legacy of Japan's wartime rule over Korea and a territorial dispute feeding mutual hostility and suspicion.

Mr Abbott said he would continue to visit Japan and other countries in the region because they were so important economically to Australia.

"I didn't want to visit any of them, without visiting all of them," he said of this first official trip to North Asia.

"It's very important for me to show suitable respect to the countries that take our exports and provide us with so much of our prosperity."

South Korea, like China, is notoriously sensitive about Japan and suspicious of its desire to bolster its presence in the region.

Mr Abbott told a Japanese business lunch this week that his decision to stop in Japan first before venturing elsewhere in the region "was a deliberate statement of my government's priorities".

He will spend a little over a day in Korea, compared to two days in Japan and three in China.

But he used his meeting with President Park to show Australia takes Korea seriously, announcing a "vision statement" on defence co-operation.

Mr Abbott said both nations trusted each other, exemplified by a joint amphibious military exercise currently under way with Korean soldiers.

President Park also thanked Mr Abbott for supporting Seoul's desire to reunify the Korean Peninsula, still separated 60 years after the end of combat.

She also expressed a desire to boost defence technology links between Australian and Korean military companies.

Prime Minister Tony Abbott hopes to spur free trade talks with China this week by assuring investors they're welcome to do business in Australia.

Mr Abbott will depart for China on Wednesday, where he's expected to address the Boao Forum in Hainan before taking his trade message to Shanghai and Beijing.

The prime minister formalised Australia's free trade agreement with South Korea on Tuesday, a day after concluding long-running talks with Japan on a similar deal.

He's hoping to carry that momentum into the final leg of his North Asia trip, and will challenge any perception that Australia can be a risky place to do business.

"What I'll be wanting to reassure the Chinese government is that we are genuinely open for business," he told reporters in Seoul on Tuesday.

Under the FTAs signed with Korea and Japan, investors had to accept that any proposed farm buyouts over $15 million would be automatically scrutinised.

China reportedly doesn't like this clause, but Mr Abbott said many significant Chinese bids had been approved by the federal government.

He ambitiously promised at the election to secure free trade deals with the economic powerhouses of North Asia -- Japan, South Korea and China -- within a year.

With Japan and Korea out of the way, trade negotiators could now redouble their efforts on China.

But the prime minister said he wanted a good deal with China and wouldn't be drawn on when he expected talks to wrap up.

"Two out of three of these deals within seven months is pretty good progress," he said.

"We will do a deal with China if and when it is clearly in both our countries best interests to do so."

Mr Abbott will wrap up his visit to Seoul with a state dinner hosted by President Park Geun-hye.

The two leaders agreed in bilateral talks on Tuesday to deepen defence ties, and could consider developing links between Australian and Korean military technology companies.

North Korea, not surprisingly, was discussed at depth. Mr Abbott said Pyongyang was a threat to regional security and should be treated as a "rogue and outlaw state".

At the dinner, Mr Abbott will unveil a photo of President Park as a young girl with her father, a former Korean leader, and her mother planting a tree at Canberra's Korean embassy on her first overseas holiday.

The image is a moving tribute to her family legacy and the bilateral relationship, as both of President Park's parents were separately assassinated in political attacks.

The International Monetary Fund has warned of new challenges to developing economies as the global recovery broadens.

The Fund’s latest World Economic Outlook also shows Australian economic growth will remain below trend, while global growth will be slightly lower than forecast in January.

The IMF said global growth was now tipped to hit 3.6 per cent in 2014 and 3.9 per cent in 2015, 0.1 per cent below expectations outlined in January.

It will still be significantly higher than the 3.0 per cent mark hit last year.

Driving the global economic growth forecast lower were worries about low inflation, a weaker outlook for emerging markets -- particularly Brazil, Russia, Turkey and South Africa -- and the flow-on effect of geopolitical strains in Europe’s east.

“Against this background, the WEO underscores that stronger policy efforts are needed to fully restore confidence and ensure a durable and sustained global recovery,” the IMF said in a statement, adding that the balance of risks “remained to the downside”.

IMF chief economist Olivier Blanchard said talk of a normalisation of monetary policy was a positive sign, though economic risks had “not disappeared”.

“The recovery which was starting to take hold in October is becoming not only stronger, but also broader,” he said.

“Fiscal consolidation is slowing, and investors are less worried about debt sustainability. Banks are gradually becoming stronger.

“Although we are far short of a full recovery, the normalisation of monetary policy -- both conventional and unconventional -- is now on the agenda.”

Aust growth still seen below trend

Closer to home, the Fund retained the forecasts for Australian growth it produced in a February report, with growth expected to climb to 2.6 per cent this year, before lifting slightly to 2.7 per cent in 2015. Such numbers are comfortably below trend growth of 3.25 per cent.

However, the IMF raised its local unemployment rate predictions from an expected peak of 6.1 per cent to a revised forecast of 6.2 per cent. It is now expected to be at this level for much of the next two years, above the current rate of 6.0 per cent.

Assisting the Australian economy was news the IMF had lifted its commodity price forecasts for this year, despite leaving them well in the red.

In all, non-fuel commodity prices are now forecast to dip 3.5 per cent in 2014, an improvement on predictions for a 6.1 per cent fall. However, the rate of price decline is tipped to accelerate to 3.9 per cent in 2015, which is worse than the 2.4 per cent drop forecast in January.

Oil prices, meanwhile, are now expected to edge 0.1 per cent higher this year, above the previous forecast for a 0.3 per cent retreat.

The Fund reiterated that much of the impetus for stronger growth this year would come from the US, where numbers are predicted to be above trend.

Also aiding the recovery outlook is the euro area, where “growth has turned positive”. However, the IMF said it was crucial monetary policy remained accommodative in developed economies.

“The report underscores that policymakers need to avoid a premature withdrawal of monetary accommodation, given continued fiscal consolidation, still-large output gaps, and very low inflation,” the Fund said.

The forecast for China was left broadly unchanged at around 7.5 per cent for 2014/15.

“Although the evidence is not yet clear, potential growth in many emerging market economies … appears to have decreased,” Mr Blanchard said. “In some countries, such as China, this may be in part a desirable byproduct of more balanced growth.”

Commentators writing about Prime Minister Tony Abbott’s trip to three of our largest regional trading partners -- China, Japan and South Korea -- have almost all emphasised that it will be a difficult and delicate trip for the relatively new Australian leader when it comes to his visit to China and desire to advance free trade agreement negotiations.

Take Australian Ambassador to China from 2007-2011 and occasional Business Spectator columnist Geoff Raby, who told us in a Bloomberg interview over the weekend that “China is the ascending power and Japan is the declining power and there’s nothing that Abbott or his values can do to change that.”

Raby continues: The Prime Minister’s willingness to criticise China means “he will be under a great deal of scrutiny about his messaging and whether he can get the balance right”. Prominent Australian National University strategist and former senior defence official Hugh White agrees. According to White, “he’s (Abbott) still going to be on probation… The challenge will be whether he can refrain from causing further offense and salve the wounds in Beijing”.

These well regarded commenters on the Sino-Australian relationship are supported by a number of other pundits, business people and even former prime ministers such as Paul Keating and Malcolm Fraser. Are they correct?

These commentators generally assume that, in economic terms, China ‘rewards’ those countries that pay it political homage, and ‘punishes’ those countries that do not. The problem with this line of argument is that while it might be true that China can sometimes use economics as a carrot and/or stick for political gain, it has hardly been successful at extracting meaningful political gains from these same countries.

In fact, the evidence suggests a tense political relationship with Beijing does not preclude a good economic relationship between China and its major economic partners.   

First things first: it is true that the current government has been having a somewhat rough diplomatic relationship with Beijing.

Abbott appeared to ruffle some Chinese feathers when he called Japan “our best friend in Asia” late last year. Foreign Minister Julie Bishop was rebuked by Chinese counterpart Wang Yi after Bishop warned that Beijing’s unilateral establishment of an Air Defence Identification Zone over disputed areas in the East China Sea could threaten peace and stability in the region.

In a speech in late March to the Asia Society in Melbourne, Abbott appeared to refer to the dreaded ‘d’ word (democracy) when he argued that “as liberalisation spreads from the economy into other elements of Chinese life, I am confident that Australia will be a valued friend and strategic partner… to the Chinese people and government”. In other words, the Sino-Australian relationship is hindered by the lack of political and economic reform in China.

Whether the latter sentiment is true or not is a topic for another time. The point is that the Abbott Government has been frank and fearless about its relationship with China -- and on its points of disagreement. Such diplomatic boldness is normally reserved for countries such as Russia, with which Australia has no great economic relationship. But China is our biggest trading partner and the Abbott Government is committed to concluding an FTA with China as soon as possible. Has the current government shot itself in the foot?

To be sure, China has used economic coercion to intimidate smaller countries. For example, Beijing blocked shipments of Filipino bananas into its country on the basis that the fruit contained pests in the midst of a dispute in the South China Sea. It then began slowing inspections of papayas, mangoes, coconuts and pineapples from the Philippines and Chinese travel agencies were instructed to halt organising tour groups to the Philippines.

Similarly, China halted export of rare earth metals to Japan during a dispute in the East China Sea in 2010 during a diplomatic crisis involving the detaining of a Chinese fishing vessel operating in disputed waters. Other examples include Beijing’s decision to freeze FTA negotiations with Norway and the imposition of regulatory obstacles on imports of Norwegian salmon after the Oslo-based Nobel Prize Committee (which has nothing to do with Norway’s government) announced that it would award the Nobel Peace Prize to Chinese activist Liu Xiaobo. 

Let’s look at some lessons from recent history.

During the first three years of Kevin Rudd’s first tenure as prime minister, the Sino-Australia political relationship reached a generational low. Yet Chinese imports of Australian iron ore continued to break records. This is preliminary evidence that China trades with Australia because it needs what we have to sell, not because Beijing likes Australia’s political policies of the day.

Could it ban Australian iron ore, or some other commodity – agricultural products into the future perhaps? Yes, it could. But the same principle applies: countries buy products from other countries because their economies need to, and there is always a significant disruption to the economy and livelihoods of citizens of that trading nation in the event of politically motivated disruption. Powerful Chinese steel mills would have something to say to their government if Australian iron ore shipments were halted.

Now consider China’s top seven trading partner countries in descending order: the US, Japan, South Korea, Taiwan, Germany, Australia and Malaysia. Beijing has political disputes with all of these countries that occasionally flare up.

All of these countries have hardened (not softened) their political stance vis-à-vis China over various issues over the past few years. Malaysia might be an exception in that it has a no-criticism policy towards China even though it is privately very critical of Chinese policies in the South China Sea.

But the point is that none of these countries have offered major political concessions to China when their interests are at stake, and will speak up when disagreements arise. Should Australia be different? Would it really improve our economic relationship with China?

Finally, what about an FTA with China? Would a softer diplomatic touch help the Abbott government conclude an agreement with China by the end of the year?

Perhaps, but as I argued in The Australian over the weekend, the drivers of China concluding a meaningful FTA are domestic, not external. No amount of cuddling up to China will persuade Beijing to sign something that it doesn’t believe to be in its interest.

Beijing might have offered Australia some very minor concessions that could be the basis of a watered-down FTA if Abbott made more positive noises about China in the region. But the gains for our exporters would have been slight and Australian diplomatic neutrality with regards to China will have been bought at a very low price.         

Using economics as a political lever is very difficult against maritime countries tapped into the regional and global trading system, such as Australia. China has used economic coercion and intimidation against countries such as Mongolia with good effect, but Mongolia is a landlocked, developing country uncomfortably nestled between China and Russia.

Meanwhile, the unexceptional reality is that Australia will continue to pursue its interests -- as will China. Sometimes they will converge, and other times not. The economic relationship between Australia and China will continue to expand if it is in the interests of both countries, and not because of diplomatic niceties or skill.

Dr John Lee is the Michael Hintze Fellow and Adjunct Associate Professor at the University of Sydney, non-resident senior scholar at the Hudson Institute in Washington DC, and a Director of the Kokoda Foundation. 

The federal government will move to make Chinese foreign investment in Australia that is below the value of $1 billion exempt from formal approval as it pushes forward with negotiations for a free trade agreement with China, The Australian Financial Review reports.

According to the newspaper, Prime Minister Tony Abbott is prepared to offer to China the same deal he extended to Japan, which will see the threshold at which the Foreign Investment Review Board will apply scrutiny for for an investment in “non-sensitive sectors” by a private entity rise from $248 million to $1.08 billion.

Mr Abbott flies to China today to continue FTA negotiations, after securing similar deals in Japan and South Korea.

The AFR reports negotiations between China and Australia will also encompass plans to establish Sydney as an official trading hub for the yuan.

Mr Abbott's pitch to the Chinese will be that they're welcome to do business in Australia.

He's hoping to carry the momentum of his visits to Japan and South Korea into the final leg of his North Asia trip, and will challenge any perception that Australia can be a risky place to do business.

"What I'll be wanting to reassure the Chinese government is that we are genuinely open for business," he told reporters in Seoul.

Under the FTAs signed with Korea and Japan, investors had to accept that any proposed farm buyouts over $15 million would be automatically scrutinised.

China reportedly doesn't like this clause, but Mr Abbott said many significant Chinese bids had been approved by the federal government.

He ambitiously promised at the election to secure free trade deals with the economic powerhouses of North Asia -- Japan, South Korea and China -- within a year.

With Japan and Korea out of the way, trade negotiators could now redouble their efforts on China.

But the prime minister said he wanted a good deal with China and wouldn't be drawn on when he expected talks to wrap up.

"Two out of three of these deals within seven months is pretty good progress," he said.

"We will do a deal with China if and when it is clearly in both our countries best interests to do so."

When Sichuan Hanlong wanted to acquire Sundance Resources in Australia, the Foreign Investment Review Board was concerned about the character of its chairman Liu Han, a prominent Chinese businessman.

Alarm bells went off when a routine background check on Liu revealed that he was the target of an assassination attempt in 1997 by a rival businessman Yuan Baojing, according to John Garnaut of Fairfax. There were also Chinese media reports about his alleged insider trading and tax dodging activities.

The Australian Securities and Investment Commission also started taking an interest in the company when it detected irregular trading activities just before the announcement of market-moving takeover deals for Australian-listed companies.

Two Hanlong executives were later found guilty of insider trading and had their assets frozen in Australia. One of them had since fled to Hong Kong and applied for asylum there.

However Liu’s illegal activities in Australia seem like kindergarten plays compared to what he has been formally charged with in China -- organised crime.  Two senior detectives and one prosecutor from Sichuan have been charged for providing protection to Liu’s alleged criminal syndicate.

More tantalisingly, Chinese media reports also hint at Liu’s connection to the apex of the Chinese political pyramid, the standing committee of the politburo of the ruling Chinese Communist Party, which effectively rules the country.

Liu is allegedly a business partner of Zhou Bin, who is the son of the reportedly detained former Chinese security chief Zhou Yongkang, one of the most powerful men in China, according to Caijing Magazine, one of China’s leading business outlets.

Chinese police have seized an estimated fortune of US$ 14.5 billion from Zhou’s family, which included 37 billion yuan worth of deposits, shares valued at 51 billion yuan and more than 300 apartments and villas.

The businessman reportedly used this amassed fortune to build a vast web of corruption and influence from small counties to Beijing. He even outmanoeuvred local officials and state-owned enterprises in securing lucrative business contracts and natural resources.

Liu and his brand of crony capitalism is the underbelly of China’s economic miracle. The unholy alliance between the thriving business sector and corrupt officials from the ruling party is causing deep strife within Chinese society. Ordinary citizens are increasingly fed up with endemic corruption and widening social inequality.

The country’s Gini coefficient, a widely used measure of inequality, was at 0.473 in 2013, amongst some of the highest in the world, according to the National Bureau of Statistics. Many people believe the official figure significantly underestimates the growing problem of inequality in China.

At the same time, there is the rise of the red oligarchs in China. A growing rank of super-rich in China is joining their plutocratic cousins worldwide.  

Many of these new oligarchs are rent-seekers, who have prospered through privileged access to the two essential economic goods that the state controls: land and capital, according to Chrystia Freeland’s Plutocrats: the rise of the new global super rich.

Many of China’s richest tycoons are in the real estate industry. As the state controls the land, their businesses are closely intertwined with the government. State-controlled banks also make up about 90 per cent of all loans in China, so the party can always offer favourable financing deals to well-connected businessmen like Liu.

Despite all of this, China has fared well on The Economist’s crony capitalist index, ranking 19th out of 23 countries. The United States has more crony capitalists than China! The reason why China ranks so well is that much of the wealth is hidden.

Many powerful Chinese politicians have disguised their fortunes through offshore accounts and non-transparent property records that also help them to evade detection. Crony capitalism and economic rent-seeking can seriously inhibit economic growth; you need not look further than many Southeast Asian countries and Latin America where rent seeking and economic growth have soared in tandem.

However, as the economy slows down, Chinese citizens are more likely to be less tolerant and patient with the country’s endemic corruption problem. Even top Chinese leaders believe it is one issue that could destroy the party. 

The Abbott government is considering a significant change in its approach to Chinese foreign investment to ease restraints on trusted companies in the hope of accelerating a free trade deal worth billions of dollars.

Sending an “open for business” message to Chinese leaders, Tony Abbott is looking at how to adjust an inflexible veto power over state-owned enterprises that want to invest in Australia. The changes could lure more investment into resources, infrastructure and the agriculture sector by removing obstacles for Chinese enterprises that have proven commitments to Australia.

The Prime Minister landed in China late yesterday for a bilateral meeting with Premier Li Keqiang to canvass a trade deal that could give Australian food producers and services companies greater access to a huge ­export market.

China has made investment rules one of its top priorities in the trade talks after years of concern at rules imposed by Wayne Swan five years ago to screen all investments from state-owned enterprises, regardless of their size.

While the Abbott government is not thinking of removing the threshold, it is searching for ways to make the regime more flexible for companies with a history of work in Australia or a commercial outlook, even if they are owned by the government.

The approach would not change provisions for the Foreign Investment Review Board to screen any farm purchase worth $15 million or more and any agribusiness purchase worth $53m or more, a core policy for the Nationals. But it would favour foreign investors that support new “greenfields” projects on the grounds they are helping to build the Australian economy rather than buying existing “brownfields” projects.

The Prime Minister’s advisers look positively on Chinese foreign investors such as Citic ­Pacific, which has poured $8 billion into expanding the resources ­sector in the Pilbara, creating ­projects that would not exist without its help.

Existing FIRB rules give the federal regulator a veto over non-agriculture deals worth more than $248m but they single out state-owned enterprises by removing the threshold, subjecting every deal to a potential veto.

This week’s trade deals with Japan and South Korea raise the threshold to $1bn for companies in those countries, matching an agreement with the US and setting a benchmark for China to seek in the trade talks.

China last night urged Australia to work towards an “early breakthrough” on the two ­nations’ free trade agreement, which has been under negotiation for almost nine years.

In a statement to The Aus­tralian, China’s Foreign Ministry said it hoped both countries could be “flexible” in the next round of official talks.

The negotiations hit a standstill after China demanded Australia greatly increase the investment thresholds applied to Chinese deals. Australia refused until China offered significant reductions in agricultural tariffs.

Mr Abbott will make investment attraction a central message in an address to the government and business elite at the Boao Forum today in southern China.

Trade Minister Andrew Robb is seeking significant concessions from China on agriculture, ­finance and services to lift Australian exports after signing a free trade agreement with South Korea on Tuesday and another with Japan on Monday.

Milk exports are a key issue in the negotiations, given a 400 per cent or more increase in shipments of New Zealand dairy products after it signed a trade deal with China.

In a sign of that potential, dairy company Pactum Dairy Group, half-owned by listed company Freedom Foods, signed a contract yesterday with China’s Bright Dairy to export 25 million litres of ultra-high temperature milk each year.

The Victorian town of Shepparton, at the centre of the debate over the future of fruit company SPC Ardmona, is a winner from the contract as Pactum expands its dairy facility to meet demand.

Completing a trade deal with China would meet Mr Abbott’s vow last October to settle the agreements within 12 months.

The Australian has been told a compact with China is close and the Prime Minister’s visit could help make progress. Officials were “reasonably confident” a deal was months away.

Mr Abbott used a meeting with Mr Li to emphasise that he wanted to increase two-way trade and investment between the two countries. The Australian was told after the meeting that both leaders underlined their determination to conclude the trade negotiations “as soon as possible” and to ensure it was a high-quality deal.

In his speech today, Mr Abbott is expected to herald a free trade deal with China as “perhaps most significant of all” in Australia’s negotiations with the three major nations of north Asia. A draft of part of the speech includes a message to China’s business and government officials about the reliability of Australia as a trading partner: “Australia has the strength and stability to give the countries of our region the resource security, food ­security and energy security you all seek.”

The Abbott government is getting all the right signs from China that they're keen to fast-track talks on a free trade deal with Australia.

Prime Minister Tony Abbott has been personally assured by Premier Li Keqiang that China is determined to conclude negotiations on a deal as soon as possible.

That's good news for Mr Abbott, who arrives in China having clinched agreements with South Korea and Japan and wants to redouble efforts to get Beijing across the line.

China remains the missing piece in his so-called trade trifecta and he wants to fulfil an election promise by delivering the three deals by year's end.

He'll use his visit to China to promote Australia's trade and investment potential, and will take his message directly to economic leaders on Wednesday in an address to the Boao Forum.

Parliamentary Secretary to the Prime Minister Josh Frydenberg said it was vital Australia secured a free trade deal with its largest trading partner.

"We will be pushing very hard to do that as fast as possible," he said in Shanghai.

"I must say, the Chinese leadership have made it very clear that they want to accelerate negotiations with Australia too."

Mr Frydenberg has arrived in Shanghai ahead of the prime minister to promote the inaugural "Australia Week in China" trade expo, which is being run across four major Chinese cities.

The government wants to show China it means business and has sent its largest ever trade delegation, stacked with corporate heavyweights, to drive its message home.

All the state premiers and visiting delegates will converge on Shanghai on Friday for a keynote speech by the prime minister.

But while trade dominated bilateral talks between Premier Li and Mr Abbott, there were some notable subjects left off the agenda.

It's understood Mr Abbott did not raise human rights concerns with China, or North Korea's recent provocative missile tests.

Mr Abbott branded North Korea an "outlaw state" during a symbolic visit to the demilitarised zone, but isn't likely to raise the issue with China who is Pyongyang's major ally and economic provider.

Westpac chief executive officer Gail Kelly has called for the quick establishment of Sydney as a renminbi hub, saying it will dramatically open up trade flows between China and Australia.

"Setting up Sydney as a renminbi hub would be very important in furthering the relationship between China and Australia," Mrs Kelly told a session at the Bo'ao Forum yesterday.

Mrs Kelly said that many Australian companies already trading with China would benefit from the change.

"Customers in Australia who are buying from China can then have their goods invoiced in renminbi and we can settle that right there in Sydney, quickly and easily through an approved clearing bank."

Prominent Chinese business leaders attending Bo'ao supported Mrs Kelly's call to make Sydney an offshore renminbi centre.

Zhang Guobao, Vice Chairman of the National Development and Reform Commission -- the super-ministry responsible for China's overall economic and social strategy - said that he hoped Australia and China would sign a free-trade agreement and that the renminbi could be further liberalised in Australia.

"I think if we really achieve those goals, the trade and business relationship with China and Australia will make further progress," Mr Zhang said.

Ma Weihua, Chairman of the Wing Lung Bank and a former president of China Merchants Bank, said that given the trade flow between China and Australia, Sydney was "a meaningful next location for renminbi clearance".

"Fortescue is importing over a hundred million tonnes of iron ore into China -- it should be settled in renminbi," Mr Ma said.

The AFR reported yesterday that negotiations between China and Australia as part of Prime Minister Tony Abbott's Asian tour will also encompass plans to establish Sydney as an official trading hub for the yuan.

The iron ore price is pushing $US120 a tonne, following steady gains throughout the week.

Benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US119.4 a tonne, an increase on the $US118.20 price in the previous session.

This is the highest point iron ore has reached since February 24, when it traded at $US119.9 a tonne.

In the first half of the week iron ore was trading in a range of $US115.3 to $US117.2 a tonne.

Earlier this month, iron ore posted its biggest one-day rise in nine months, flirting with the $US118 a tonne threshold it has since broken.

Last month, the price of iron ore charted its largest one-day price fall in more than four years on persistent fears over China's economy, dropping to as low as $US104.70 a tonne after closing out the previous week at $US114.20 a tonne.

Some analysts have cut growth forecasts for China, and predicted iron ore prices will sink to around $US80 to $US90 per tonne over the next few years.

Investors will now shift their attention to upcoming data in China, where the latest reads on the nation's trade balance and inflation are set to be released in coming days.

Six years after a wave of financial destruction crashed through the United States and then Europe, old and new risks are still challenging the global economy, the International Monetary Fund (IMF) says.

In reviews of global fiscal and financial sector stability, the IMF said gains had been made to repair budgets in advanced economies and to shore up banking systems.

But governments remain highly in debt and emerging economies are starting to pile up risky deficits.

Banks in Europe are still weak and new risks are cropping up in finance due to the long period of easy-money from the US and European central banks.

"Global financial stability is improving; we have begun to turn the corner, but it is too early to declare victory," Jose Vinals, IMF financial counsellor and director of its Monetary and Capital Markets Department, said.

Mr Vinals said that, generally speaking, good policies have placed the United States, Europe and emerging economies in the right direction.

But each faces its own challenges that need close monitoring and management, he said.

In the United States, the pullback from a half-decade of ultra-easy money policies needs to take place smoothly and enhance the current sluggish pace of growth, Mr Vinals said.

At the same time, he warned, a bumpy exit from the crisis policies could expose a new set of problems in US finance: rising risk-taking on the back of cheap funding.

"We continue to track growing hotspots in the US financial system," he said, pointing to rising levels of high-yield bond issuance, leveraged loans and falling underwriting standards.

"Supervisory measures, while now more intense, have not yet sufficiently restrained some of these excesses."

In Europe, the IMF said, banks and businesses are still weak; the banks holding large non-performing loans and still-inadequate capital levels, and companies laden with debt.

Together that is stalling the recovery of the region and especially the periphery economies.

On a different point in the economic cycle, China is just beginning to deal with its little-regulated non-bank financiers, who now lend as much as 40 per cent of gross domestic product (GDP), much of it feared to be for speculative investment.

"Achieving an orderly deleveraging of the shadow banking system is a key challenge," Mr Vinals said.

On the fiscal side, meanwhile, the advanced economies have nearly halved their deficits since the peak of the crisis, to a level of about 3.5 per cent of GDP.

But the same group still carries a huge debt burden, which on average will still top 100 per cent of GDP in 2019, said IMF Fiscal Affairs Department acting director Sanjeev Gupta.

"Fiscal consolidation must continue at a steady and gradual pace to lower debt ratios to prudent levels," he said.

The IMF wants these countries to lay out and implement clear plans to bring budgets into line, however, Gupta pointed out, both Japan and the United States have yet to do this.

Meanwhile, emerging-market economies are facing pressure as the US tightens policy, draining investment and raising debt costs.

When the Chinese economy finally overtook Japan in 2010, it was greeted with a sense of jubilation in China. For many Chinese, it was a historic moment when the Middle Kingdom resumed its rightful place in East Asia.

The victory was even sweeter considering Japan was a bitter former foe that had invaded and defeated China since the time of the Meiji Restoration in the 19th century. By the end of 2013, China’s GDP was 2.8 times larger than Japan’s, as measured by purchasing power parity, which better reflects relative prices in two economies for the same goods.

Not only has China overtaken Japan, the country is also poised to overtake the US by the end of this decade. China is often seen as the bright star of the future, despite its recent slowdown. Meanwhile Japan is often regarded as shorthand for stagnation and economic mismanagement.

Does GDP alone provide an accurate or a complete picture of the economic strengths of the world’s second- and third-largest economies? According to Standard and Poor’s, the answer is no. The ratings agency has issued an interesting report that challenges conventional wisdom by comparing the two countries according to a different set of metrics.

This may be pointing out the obvious; your average Mr Tanaka is still much richer than your average Mr Wang. As of 2013, China’s per capita GDP was US$9,828, a quarter of Japan’s US$37,135. Today’s Chinese living standard is comparable to Japan’s in the early 1980s.

Though Japan has stretched its "lost decade" into two, it still enjoys one of the highest living standards in the world. When a British MP visited a supposedly economic-stagnant Japan, he said, “If this is a recession, I want one,” according to Financial Times Asia editor David Pilling in his book Bending Adversity: Japan and the art of survival.

China and Japan are both export juggernauts. In 2012, China exported US$2.9 trillion worth of goods, while Japan sold US$1.2 trillion worth of goods abroad. Over the past 28 years, China has grown considerably faster than Japan, at an annualised compound rate of 16.6 per cent versus Japan’s 6.6 per cent.

However, if you look at the composition of the two countries’ exports, it tells a different story. Around 70 to 80 per cent of Japanese exports are medium and high-tech exports, while for China, they account for about 60 per cent. It’s clear that from a low level in the 1980s, China is catching up quickly with Japan. But the gap has stabilised at around 15 per cent in the last five years, according to Standard and Poor’s report, Is China’s Economy Really Besting Japan’s? A look beyond GDP.

Though there is a lot of talk of China buying up the world, let’s not forget the Japanese started this process as far back as the 1980s. Hollywood even made a blockbuster movie, Rising Sun, about Japan Inc’s conquest of the US.

Japan’s international investment positions or financial claims on the rest of the world stood at US$8.3 trillion in 2012, or 175 per cent of its nominal GDP. By comparison, China’s claim was about US$5.2 trillion, according to IMF data.

Though the gap is considerable, it is closing fast as China invests more aboard. However, Beijing has splurged nearly two thirds of its overseas investment into US Treasury bonds, which provide a safe but sub-optimal return. Despite all the hype about direct Chinese foreign investment, it only accounts for 10 per cent of the US$5.2 trillion.

On the other hand, nearly half of Japan’s total overseas investments are in bonds and equity claims and only 16.5 per cent are invested in official foreign reserves. It’s clear that Japan is the more mature international investor, with a better and more diversified investment portfolio than the Chinese, who still put their money in ultra-safe government bonds.

Though China has some of the largest banks in the world, its financial market is still relatively under-developed. According to the World Economic Forum’s Financial Development Index in 2012, Japan ranks 9th, while China is at a distant 23rd place.

Japan’s financial sector is larger than China’s for most metrics, including bank assets, bank and financial system deposits and private credit, according to Standard & Poor’s. Japan’s public bond market is the largest in the world, at 208 per cent of GDP in 2011.

In terms of innovation, although once-formidable Japanese corporates such as Sony, Toshiba and Panasonic are shadows of their former selves, the country is still one of the most innovative in the world, according to Bloomberg’s Global Innovation Index. It ranks 9th, while China sits in 29th position.

But Chinese companies are catching up fast, and it was in the top 10 for patent activity, as well as for manufacturing capability and high tech-density in 2012. Chinese e-commerce is arguably leading the world in terms of its development, and Japan’s Softbank is the largest investor in Alibaba.

Despite the trillions that Beijing has invested in bridges, railway, airports, the country’s infrastructure is still lagging behind Japan’s. According to the World Economic Forum, Japan ranks 9th globally for infrastructure, while China is in 48th place.

This is a timely reminder for people who believe in the inevitability of the rise of China as an economic superpower. The pretender to the US throne looks less imposing when you examine the quality of its GDP rather than just its raw number. Japan is still a formidable economic powerhouse, despite its recent stagnation, while China’s ascendency should be looked upon with more scepticism.

China's trade surplus expanded more than expected in March, according to official data.

In the month, China's trade surplus was $US7.71 billion, a significant turnaround from the $US22.98 billion deficit recorded in February.

Bloomberg analysts had expected a trade surplus of $1.75 billion in the month.

Exports fell 6.6 per cent on year in March, missing expectations of a 4.2 per cent increase. In February, exports fell 18.1 per cent.

Imports lost 11.3 per cent on year, also falling short of analysts' expectations of a 2.8 per cent increase. In February, imports rose 10.1 per cent.

Australia wants China to move quicker to deregulate its currency.

Treasurer Joe Hockey is in Washington for a meeting of the Group of 20 nations' finance ministers, ahead of Brisbane hosting the leaders' summit in November.

US Treasury secretary Jack Lew said in an interview just before the meeting that China needed to get back on a path of a market-determined exchange rate.

Mr Hockey said all nations should be encouraging China to move to full deregulation and open trading of its currency.

"The Chinese government has come a very long way in a relatively short period of time in relation to the renminbi and importantly in opening up the Chinese economy," Mr Hockey told CNBC.

"We all want it to move quicker but when you reflect carefully on what has happened over the last decade, there has been a lot of movement."

Mr Hockey said he was more bullish about the future of the Chinese and European economies than some other finance ministers.

"There will be a recovery," he said.

"The question is how we can facilitate that without creating dislocations that continue to create further instability in capital markets."

Prime Minister Tony Abbott has called for an acceleration of free-trade talks with China and expressed his hope that Australia could be a "true friend" of the country.

In a speech to the Bo'ao Forum in Sanya, China, Mr Abbott emphasised the closeness of the two countries.

"Australia is not in China to do a deal, but to be a friend," he said.

Mr Abbott's remarks followed a speech by Chinese Premier Li Keqiang that emphasised the role of free trade in driving growth in the region.

"As Premier Li just said, free trade means jobs, and freer trade means more jobs," he said.

Mr Abbott arrived in Sanya yesterday where he was feted by Premier Li. China marks the last stop of his North Asian trade mission.

Mr Abbott earlier concluded free trade negotiations with Japan and signed a free trade agreement with Korea.

Josh Frydenberg, parliamentary secretary to Prime Minister Tony Abbott, said yesterday that there were sensitive issues still to be discussed, including the $248 million cap on Chinese investment without Foreign Investment Review Board approval.

China would also want to see the removal of remaining tariffs on footwear and textiles.

Australia wants more agricultural access and the lifting of restrictions on education, he said.

Chinese Premier Li Keqiang has poured cold water over investor expectations that Beijing will unleash stimulus measures to boost its slowing economy, saying the government is more concerned over the medium to long-term prospects of the economy.

Speaking at the Bo'ao Forum in Hainan, Mr Li said in the opening speech that the Chinese government would not undertake short-term fiscal stimulus measures to counter temporary fluctuations in the economy.

He said the government was more concerned about the sustainable development of the Chinese economy.  

“The target GDP growth rate for the Chinese economy is about 7.5 per cent. Because we said it was 'about' 7.5 per cent, it means there is room for fluctuation," Premier Li told a gathering of international political and business elites including the Australian delegation.

"It does not matter whether it grows faster than 7.5 per cent, or slower than that. As long as we can guarantee sufficient employment and there is no big fluctuation, we are operating in the reasonable zone."

There has been market speculation that the Chinese government would use fiscal stimulus measures to boost growth in anticipation of a weaker than expected first quarter GDP figure.  

Premier Li emphasised the government was confident of its ability to maintain economic growth at the reasonable zone, which means stable unemployment, low inflation at 3.5 per cent and GDP growth around about 7.5 per cent.

Beijing’s policy priorities for the future will be around reform, structural change and improving people’s livelihoods. These policy measures will include initiatives to curb officials’ administrative power and further opening up of the country’s financial services to international investors.    

Prime Minister Tony Abbott is attending the Bo'ao Forum for the first time with the largest ever Australian business delegation including the 30 most senior chairmen and CEOs and all state premiers. 

A company controlled by the family of Asia's richest man Li Ka-shing has sold a landmark Beijing property for more than $US900 million, it said, adding to speculation he is cashing out of Chinese property.

Pacific Century Premium Developments - a firm chaired by Richard Li, the tycoon's younger son - signed an agreement on Tuesday to sell Pacific Century Place for $US928 million ($A991.77 million), the firm said in a statement filed with the Hong Kong stock exchange.

The deal is nearly 30 per cent lower than the asking price reported last year for the well-located Beijing property, made up of two office towers, two serviced apartment blocks and a shopping mall, China's Dongfang Daily newspaper said on Thursday.

The deal is the fourth Chinese property disposal by Li's family since August, it said, adding that the sales have fetched a total of nearly 18 billion yuan ($A3.10 billion).

"Li's investment strategy since 1970s shows that he will always sell his assets two to three years ahead of crises to reallocate (the resources)," the newspaper quoted an unnamed industry insider as saying.

Li has already sold properties in major Chinese cities including Guangzhou in the south and the financial hub of Shanghai.

Speculation that the Hong Kong-based 85-year-old was pulling out of China mounted so high that he met the press for 90 minutes in late February to emphasise his confidence in the country's property market and its slowing but still strong economic growth.

China's economy grew 7.7 per cent in 2013, the same as in 2012 - which was the slowest rate of expansion since 1999.

The world's second-largest economy has shown signs of weakness recently with a string of disappointing indicators, including on trade, industrial production and consumer spending, raising further concerns about its health.

A new online database mapping Chinese investment in Australia is the latest tactic the federal government is using to fast-track talks on a free trade deal with Beijing.

Trade Minister Andrew Robb on Thursday launched the interactive resource in Shanghai as Prime Minister Tony Abbott schmoozed business leaders at the Boao Forum on the southern island of Hainan.

Mr Abbott has been struggling to convince China that Australia wants its business, with concerns in Beijing about foreign investment rules holding back talks on a free trade agreement.

He wants an FTA with Australia's largest trading partner as soon as possible, and is optimistic he can achieve one by year's end.

The latest initiative to spur talks contains detailed analysis and animated infographics of Chinese investment in Australia by year, industry, geography, dollar value and investor type.

It will serve a dual purpose by also informing Australians about the realities of Chinese investment at a time when concerns around farm buy-outs and housing purchases is rife.

"This online resource increases knowledge about Chinese investment in Australia and will help inform public debate," Mr Robb said.

So far the resource - soon to be in app form - has recorded more than 180 deals worth $60 billion involving Chinese enterprises in Australia between September 2006 and December 2013.

Mr Abbott has used his visit to North Asia to reassure China it can live with the rules governing foreign investment in Australia, saying more proposals have been approved than rejected.

Mr Abbott has brought a massive business and political delegation to China to impress on its leadership how badly he wants to finalise an FTA with China.

Talks have been dragging on for nearly ten years, and the elusive deal with Beijing remains the missing piece in Mr Abbott's "trifecta of trade" - the other two countries being Japan and South Korea.

But the message seems to be getting through, with Premier Li Keqiang personally assuring Mr Abbott that China is also keen to fast-track a deal.

In a speech at the Boao Forum attended by Premier Li and business leaders, Mr Abbott stressed he wasn't just in China to talk business.

"We don't just visit because we need to but because we want to," he said.

In a sign of deepening ties beyond trade, both leaders also agreed to a series of high-level defence exchanges later in the year.

Prime Minister Tony Abbott is trying to seal a historic trade agreement with Australia’s most important trading partner: China. It is a deal that has eluded three of his predecessors, including his mentor John Howard and Mandarin-speaking Kevin Rudd.

He is in a triumphant mood after inking two trade deals with Japan and South Korea, Australia’s second and third-largest trading partners. China is a much tougher deal to close and the asymmetric power relationship does not favour Australia.

China is fast becoming the world’s most important consumer market, and banks and fund managers are lusting over an estimated $5.3 trillion worth of gross domestic savings, which will re-shape the global financial capital once it is unshackled.

One of the biggest stumbling blocks to stitching together a deal is Australia’s foreign investment policy, especially in relation to the treatment of Chinese state-owned enterprises.

When Abbott was still the opposition leader, he told the Chinese that investment from state-owned enterprises was not necessarily in Australia’s national interest.

Needless to say, that didn’t go down very well in Beijing. This question will be in the limelight again after the government is reportedly preparing to offer the $1bn threshold to private Chinese enterprises but will maintain tight control over state-owned enterprises.  

So what’s the fuss about state-owned enterprises?

Many people see them as Beijing’s stooges doing the bidding for their political masters, the Communist Party of China. Many elements of Australia’s foreign investment policy require state-owned enterprises to invest at an arm’s length from the government.

Under the existing government policy, all investments from state-owned enterprises or sovereign wealth funds need to be vetted, regardless of their values.

However, since the introduction of the policy under former treasurer Wayne Swan, no proposals from Chinese state-owned enterprises have been rejected -- at least according to official statistics -- but some deals have been amended quietly.

In fact, both recent rejections have been non-Chinese deals: Swan’s rejection of Singapore Stock Exchange’s bid for ASX and Hockey’s rejection of Archer Daniels Midland’s takeover attempt of GrainCorp.

Let me explain why it does not make sense to treat state-owned enterprises separately.

In China, the boundary between the state and private sector is often not clearly demarcated. Think about Huawei, a private enterprise and the largest telecommunications equipment maker in the world, which has been blocked from tendering for the NBN for its alleged links to Beijing.

Some Chinese tycoons have strong ties to the state and even have seats at some powerful official bodies, such as the Central Committee of the Party. So under the new rules, it means Huawei can buy Australian companies under $1bn, without the need to submit to Foreign Investment Review Board.

On the other hand, you have Chinese state-owned companies with largely Australian management like MMG, which has a good record of corporate citizenship here and is listed on a stock exchange. Yet, they need to apply to FIRB for small things like buying an extra floor of office space.

So this artificial distinction can lead to perverse results. People also think the Foreign Investment Review Board is the last line of defence against unwanted foreign investors.

This could not be further from the truth. They are subject to a host of other regulators, arguably much better resourced and more effective agencies like the ATO, the ACCC, ASIC, environmental agencies, not to mention Australia’s court system.

So even if we allow all state-owned companies to operate here in Australia, they are subject to Australian laws and regulations and will be punished if they step out of line. Chinese executives from Hanlong were made examples for their insider trading activities.

So how do we liberalise Australia’s foreign investment screening system while maintaining vigilance over certain investment deals that could have adverse impacts on Australia’s national interest?

We can take a leaf or two from the Committee on Foreign Investment in the United States. Under the American system, foreign investors need to apply for approval in certain sectors, but otherwise are free to invest without the need to get regulatory approval. And the American law only focuses on national security-related issues.

However, the committee retains the right to ‘request’ an application if it finds a transaction problematic. So potentially Australia could offer the $1bn threshold to Chinese state investors with an American-style safeguard.

Investment in sensitive sectors such as agriculture, telecommunications, media, and aviation still need to be cleared, but other investments can proceed without vetting fewer than $1bn. However, FIRB reserves the right for state investors to submit their deals for approval if it sees a problem. 

This flexible arrangement not only retains FIRB’s discretionary power to intervene, but at the same time offers Beijing what it wants the most from the deal.

In return, Abbott can ask for significant concessions in agricultural sectors for Australian farmers who have been short-changed in the free trade agreement with Japan. 

The Prime Minister has impeccable conservative credentials to pull off a deal like this. And he can explain to voters back home that state investors can be effectively managed under our existing regulatory framework.

It took an evangelical anti-communist like Richard Nixon to reach out to Red China. Abbott can and should use his authority to clear the stumbling block for the free trade agreement with China. We need Abbott to have a ‘Nixon in China’ moment.