As China's Li visits Down Under, Trump on Australian PM Turnbull's mind

Australian Prime Minister Malcolm Turnbull is expected to keep his relationship with the U.S. in close focus as China's Li Keqiang becomes the first Premier in eleven years to visit Down Under.

Li is expected to discuss bilateral economic, trade and investment during his five-day stay, with particular focus on China's 'One Belt One Road.' Recently renamed to 'Belt and Road' (B&R), the ambitious program aims to establish a modern-day 'Silk Road' between Asia, Europe, and Africa.

Australia's Prime Minister Malcolm Turnbull looks at China's Premier Li Keqiang on March 23, 2017. Australia urged China on March 23 to press ahead with economic reforms as Li began a trade-focused visit amid growing fears of a U.S. slide towards protectionism.
MARK GRAHAM/AFP/Getty Images
Australia's Prime Minister Malcolm Turnbull looks at China's Premier Li Keqiang on March 23, 2017. Australia urged China on March 23 to press ahead with economic reforms as Li began a trade-focused visit amid growing fears of a U.S. slide towards protectionism.

Beijing has invited Canberra to align the Northern Australia Infrastructure Facility — a A$5 billion ($3.82 billion) government program — with B&R. Chinese President Xi Jinping first floated the idea last year and Foreign Minister Wang Yi reiterated it last month.

But no formal agreement will be signed during Li's visit, Australian government officials told media outlets ahead of Li's arrival on Wednesday.

Investing in the name of B&R makes it easier for mainland entities to pursue overseas deals. As the world's second-largest economy cracks down on outbound investments in an attempt to halt capital outflows, Beijing will only encourage transactions in approved sectors, such as B&R.

From an economic point of view, China's invitation makes sense seeing as northern Australia is in desperate need of capital, but geopolitics plays a key role in Canberra's reluctance, explained Jane Golley, associate director of research institute Australian Centre on China in the World at the Australian National University.

The U.S., one of Canberra's oldest allies, may be sensitive to growing Chinese influence in northern Australia as it maintains a military presence there — since 2012, U.S. Marines have been deployed to Darwin, the capital of Australia's Northern Territory, for joint exercises, training and exchanges with the Australian Defense Force. Last year, Washington expressed concern that the leasing of Darwin Port by Shandong-based Landbridge Group could result in Chinese intelligence collection on U.S. and Australian troops.

Washington may not be pleased if Canberra accepted China's invitation, and following President Trump's recent scolding of Turnbull, the PM may not wish to further strain ties with the world's largest economy, Golley told CNBC.

Thanks to Trump's 'America First' agenda, Australia and other U.S. allies in Asia-Pacific have been faced with the prospect of greater Chinese engagement to make up for a reduced American presence in the region. But Turnbull's administration appears reluctant to turn its back on Washington, with Foreign Minister Julie Bishop recently asking the U.S. to play a greater role "as the indispensable strategic power in the Indo-Pacific."

And given the contentious nature behind B&R — it's seen as a means for Beijing to assert its economic and political clout in its quest to become a global superpower — experts believe Australia will proceed cautiously.

"Defense hawks essentially see Belt and Road as a containment strategy by China to keep the U.S. out of the region," said Golley. But Australia's alliance with America is strong enough that it will prioritize that relationship first, she continued.

Concerns over Chinese investment may be another factor behind Canberra's hesitation to incorporate B&R into its state fund.

China is one of Australia's largest foreign investors and while the majority of Chinese deals to date have been approved, episodes of rejection last year prompted warnings of Australian protectionism from Beijing.

Li will likely raise the issue during his trip as he tries to clear up a few misunderstandings, said Merriden Varrall, director of the East Asia program at the Lowy Institute, in a note on Wednesday.

"The Chinese are perplexed as to why Australia is so critical about Chinese investment in Australia, and would like to clarify whether this is because of a concern around China's economic transformation or because Canberra is being pressured by the U.S. to resist Chinese influence."

At a speech to Australia's Parliament House on Thursday, Li reiterated his nation's anti-protectionism stance, saying Beijing would resolve its $50 billion annual trade imbalance with Australia by expanding, not reducing, trade, according to the Associated Press.

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