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Beijing is more important to Australia than its new prime minister

June 26, 2013
June 26, 2013

In the second about-face in almost three years, Australia’s Kevin Rudd took back the post of prime minister from Julia Gillard after winning leadership of his party in a snap election. The move was an attempt to shore up support for the ruling Labor party ahead of a national election this fall.

The market reaction? So far, zilch.

The Australian dollar remains at US $0.9310, up slightly due to improving sentiment in Asian stock markets. Australia’s stock market, the ASX All Ordinaries, closed 1.6% higher.

The indifference suggests that the real concern for investors is not Canberra but Beijing. Australia depends on its raw material exports to its top trade partner China, a relationship worth almost US $116 billion a year (p.4). Both Rudd and Gillard have tried to boost economic ties with the country. In April, Gillard pushed through a strategic partnership with Beijing, which laid the groundwork for annual direct meetings between the two countries. She also paved the way for direct currency trading between the Australian dollar and the renminbi.

Rudd, who once lived in Beijing and speaks Mandarin, likes to cast himself as a China hand. And he’s been praised as one of the first world leaders to really understand China. Yet during his short time as prime minister from 2007 to 2010 he also irked Beijing. He welcomed an exiled Uighur leader into Australia who Chinese officials said was stirring unrest in the western region. Under his watch, China’s state-owned aluminum producer Chinalco was blocked from buying a stake in Australia’s Rio Tinto.  According to a leaked WikiLeaks cable, Rudd once told former US secretary of state Hillary Clinton that he approached relations with China as a “brutal realist.”

What would be more worrisome to investors is if opposition leader Tony Abbot, who is favored to win the upcoming election, takes over from Rudd. Abbot wants to curb investment by China’s state-owned companies in Australia and could push China harder on political reforms.

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