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Australia is China's largest destination for FDI, most of it directed to the resource sector. The scale and speed of the surge of Chinese investment into Australia, largely from stateowned enterprises (SOEs), has raised the question of whether investments by SOEs require special scrutiny. In China, the question is about the treatment of Chinese investment compared with investment from other countries. Clearly, Australia has had a policy environment that is very open to foreign investment, including investment from China. Nevertheless, it is questionable whether measures recently introduced in Australia to review investment by SOEs will restrict Chinese access to the Australian market or encourage a change in the nature of investment projects. How will Chinese enterprises need to adjust to the disciplines and rules in foreign markets? Will the Chinese Government need to take the regulations of host countries like Australia into account in its supervision of SOEs? Australia remains more open to Chinese investment than any other country in the world. Although the issue of SOE investment raises important new questions for policy-makers in Australia and other countries, Chinese investment in Australian resources is very beneficial and, with appropriate institutional and policy initiatives, will continue its strong growth.

This paper examines factors contributing to the faster economic growth in East Asia relative to other APEC economies. A simple but popular model is applied using purchasing power parity income estimates. Contrary to the view recently advanced by Krugman, we find that productivity improvement was an important factor contributing to the rapid East Asian growth. For many East Asian economies such as Japan, Korea, Taiwan and Hong Kong, a large proportion of higher than average growth is attributable to technological progress.

According to these properly adjusted income data, China's current export-to-GDP ratio is slightly above 6 per cent. China still has great potential for export growth. In what follows, the method used by Drysdale et al. (1998) to evaluate the efficiency of China's bilateral trade with individual countries will be applied. In a stochastic gravity model framework, trade efficiencies can be measured and their determinants identified. This will not only provide some idea about the efficiency performance of China's bilateral trade relative to other countries, but also suggest some policy measures to improve efficiency. Bilateral trade flows have been the focus of an important part of the literature on international trade. In a comprehensive review of methodologies analysing bilateral trade flows in a many-country world, Drysdale and Garnaut (1982) identified two types of barriers (or resistances) to trade-objective and subjective resistances-and examined two analytical approaches-the gravity model and trade intensity analysis-which recur in this literature. The gravity model, pioneered by Tinbergen (1962), offers a simple but useful framework for empirical studies identifying important factors influencing bilateral trade flows. In the studies by Tinbergen and many of his followers (such as