Arm in arm with Xi Beware 'bad outcomes' Julia Strategic and Defence expert Hugh White warns PM Julia Gillard she has to do 'much more' to stop Australia's interests from being 'stretched' between China and the US China's President Xi Jinping wants to take the relationship with Australia "to a new level" despite background misgivings about Australia being "used" as a military staging post for the United States. The progress is taking place despite PLA concerns that Australia has allowed itself to be the southern "fulcrum" of America's "pivot" towards Asia, a strategic realignment that China sees as being aimed at containing China's rise. Air Force Colonel Dai Xu said Australia had long enjoyed a strong friendship with China but it was being tested by what he saw as the US-initiated move to state up to 2500 marines near Darwin. Addressing forum: Julia Gillard and Xi Jinping. "Australia is one of the links in America's encirclement of China," said Colonel Dai, an outspoken strategist at the People's Liberation Army's National Defence University. "The first step of [America's] strategic eastward move was to send troops to Australia," said Colonel Dai. Ms Gillard told reporters on Sunday night she had a "very positive discussion" with Mr Xi and was impressed by his intellect and policy substance. She told reporters that Mr Xi wanted to take relations "to a new level" although both sides appear to have different views on how the enhanced arrangements should proceed. "There's every reason to be very optimistic about the way we can build for the future," she told reporters, saying they had met for just under 45 minutes. But she is touring China at a delicate time when Australia's dominant security and economic partners are wrestling for influence in the Asia Pacific. Earlier Sunday she told Mr Xi and other regional leaders that rapid economic growth and military modernisation were changing the strategic order of region. "This does not make major power conflict inevitable - all countries in the region share a deep interest in strategic stability - but the consequences of conflict are ever more severe for us all," she said, at the opening of the Bo'ao Forum for Asia. Japan, South Korea, the Philippines, Vietnam and other Chinese neighbours have all drawn closer to the US as a response to increased Chinese military strength and assertiveness. China, however, blames the US for meddling in the region. It sees the US as turning its military attention towards China in an effort to protect its "hegemony" against a trend of long-term American decline. It sees Japan in the north and Australia in the south as crucial to American plans. "The US [is] forming a strategic system with military alliances as strategic support, with the strategic objective of controlling the Pacific and the Atlantic, with the strategic fulcrums of north-south anchors," wrote one of the PLA's top strategists and intelligence chiefs, General Qi Jianguo, in an article in the Communist Party's Seeking Truth magazine earlier this year. Ms Gillard and other leaders have consistently said the US troop rotation near Darwin is not a "base" and that they have no interest in "containing" China's rise. But Chinese scepticism remains. "She can of course say that but in China we say 'listen to what they say, watch what they do,"' said Colonel Dai. The US is taking [Australia] as a base and who is that aimed against? "This move of yours lets us feel that you are not a loyal friend," he said, noting that other nations such as Singapore and New Zealand did not have permanent American troops. China's official Xinhua news agency said Monday the respective "prime ministers" would meet for annual talks, which would mean Ms Gillard would be paired with China's second ranked leader, Li Keqiang, rather than the president, Xi Jinping. "The two countries have also pledged to build an annual meeting mechanism between their prime ministers," it said. Ms Gillard sidestepped a question Monday about the Xinhua report and declined to answer a follow up question. It is understood that Australia is reluctant to agree to a "strategic dialogue" that does not involve Australia's most senior foreign policy official, Foreign Minister Bob Carr, pairing directly with China's most senior foreign policy official, Yang Jiechi. In similar negotiations with other nations, China has insisted on enlisting the lower-ranked official who holds the "foreign minister" position in the Chinese system, currently Wang Yi. Earlier, Ms Gillard said she and Mr Xi did not discuss military ties, which are progressing with exchanges, exercises and navy ship visits despite Chinese misgivings about Australia's role in alleged American moves to "contain" China.