LNG deal shows strength of Australia-China trade ties

Political ties between Australia and China may be at a low, but news of a huge gas deal on Tuesday underlined that it would take a lot more than diplomatic tiffs to derail their increasingly inter-dependent trade relationship.

The Australian government said U.S. major ExxonMobil Corp (XOM.N) had inked a deal to sell liquefied natural gas from its share of an LNG project in Australia to PetroChina (0857.HK) in a deal worth about A$50 billion ($41.29 billion).

Analysts said while political relations had soured in the wake of the arrest of an Australian mining executive in China, commercial deals in the resources sector should be largely unaffected because both countries needed each other too much.

Canberra called the 20-year LNG agreement a reflection of the strength of Australia's investment relationship with its biggest trade partner.

The agreement is Australia's largest ever trade deal with China, the fastest-growing major economy in the world. Two-way trade last year was worth $53 billion.

In a sign that all is still not well on the diplomatic front, Australia earlier said Beijing had scrapped a visit by Vice-Minister for Foreign Affairs He Yafei because Canberra gave a visa to exiled Uighur leader Rebiya Kadeer.

China blames Kadeer for instigating last month's ethnic riots in Xinjiang province.

"Australia very much regrets that China has decided to effect that response," Australian Foreign Minister Stephen Smith said. "From time to time in any bilateral relationship there will be difficulties."

Political ties have come under strain since Chinese authorities in early July detained four staff of Anglo-Australian mining giant Rio Tinto (RIO.AX), including Australian Stern Hu.

They were formally arrested last week on suspicion of obtaining commercial secrets and bribery.

"Clearly Australia-China relations have gone downhill in a major way," Alison Broinowski, a former Australian ambassador and Australia-Asia expert at Wollongong University, said before news of the LNG deal was announced.

Australia's Mandarin-speaking Prime Minister Kevin Rudd had warned that the world was closely watching how China dealt with the Rio Tinto case.

The detentions coincided with wrangling between Australian miners and Chinese steel mills over iron ore prices and came after a failed $19 billion bid by China's state-owned aluminum group Chinalco for a strategic stake in Rio.

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