Australia and China have agreed to considerably expand defence ties following the visit of Prime Minister Julia Gillard to Beijing, which also saw both countries elevate their relationship to a “strategic partnership” — a level of engagement Australia shares with few countries, including India and Indonesia.

Ms. Gillard, who left Beijing on Wednesday, proposed holding three-way defence exercises with the United States and China. With Australia’s close ties with the U.S. recently emerging as somewhat of an irritant in ties with China, — the agreement last year to host 2,500 U.S. marines in Darwin was criticised by Chinese officials and viewed by many analysts here as being aimed at Beijing — Ms. Gillard’s proposal was seen as looking to assuage Chinese anxieties.

The Australian Prime Minister, who met with new Chinese President Xi Jinping and Li Keqiang, her counterpart, told reporters at an interaction on Tuesday evening both countries had discussed holding a “policy-level” dialogue to boost trust between their militaries, in addition to their standing military-to-military dialogue.

During her China visit, Ms. Gillard has been careful to strike a balance. While she has pushed for deepening economic ties with China, Australia also maintains a close strategic relationship with the U.S., and has often stressed its commitment to issues such as ensuring freedom of navigation in the region, seen as sensitive topics for China particularly in the wake of disputes over the South China Sea.

Both countries this week signed a landmark agreement to directly trade in their currencies — China has similar arrangements only with the U.S. and Japan — and agreed $3 billion worth of investment deals, which are set to further boost the sizeable $120 billion bilateral trade that has propelled resource-hungry China to become Australia's biggest trading partner. The new strategic partnership “makes sense as a way to elevate Australia’s political relations with China a little closer to the level of our close economic relations”, said Rory Medcalf, Director of the International Security Program at the Lowy Institute in Sydney, who has written extensively about security issues in the Indian and Pacific Ocean regions.

“But I am sure the Chinese are pragmatic and under no illusions about Australia’s much deeper strategic commitment to the U.S. alliance,” he added, in an interview with The Hindu.

Asked if the increasingly close commercial ties had assumed greater importance for Australia over its stand on more sensitive security issues such as the South China Sea, which found no mention during Ms. Gillard’s Tuesday briefing, Mr. Medcalf said a “strengthened Australia-China leader’s dialogue” would actually expand the scope to raise “tough issues” in a frank way.

“Third countries like Japan, India or Southeast Asian nations should not be troubled at all by a deepening Australia-China relationship,” he said. “After all, this comes in a context of Australia strengthening its alliance with the United States and publicly supporting a rules-based regional order.” “It would have been unrealistic to use a China visit as a way to promote an exclusive democratic regional architecture,” he added. “Australia will continue to deepen its ties with democracies like India, Japan and Indonesia, but that is compatible with a mature dialogue with China.”

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