Remember the de-coupling debate? No not the one on the renewable energy bill, the one about whether Asian economies were no longer dependent on US growth?

The anti-decoupling crowd declared victory during the financial crisis as major Asian and SE Asian economies turned up their toes and went into recession despite the absence of the sort of structural problems in their financial sectors witnessed in the US and Europe. Japan, for example, was about as decoupled as a caboose plunging into a ravine along with the rest of the train.

Some might now suggest that as far as China is concerned the proclamation of victory was premature. The time may be right for an anti-non-decoupling school of commentary.

We now have our very own de-linking debate, in the guise of a discussion about whether the Government’s stimulus should be wound back because the economy is doing so much better than expected.

There’s an element of disingenuousness in this debate. We appear to have forgotten the emergency conditions in which both the first and second stimulus packages were crafted. Pull out that 7.30 Report episode from last year when a near-hysterical Kerry O’Brien encouraged Steve Keen to tell us just how many decades of depression we faced and you’ll get the panicked environment policymakers were operating in. To the extent that the economy is doing better than expected, it’s testimony to how right the RBA, Treasury and, yes, Wayne Swan and Kevin Rudd were in their response.

But that tumultuous environment that overtook us last year was in its way a reasonably simple policy challenge. Now the challenge, and that of the next two years, is far more complicated. Given that growth in the US, Europe and other developed countries is continuing to be flat or negative, and is unlikely to be more than anaemic for the next year or more, how do Kevin Rudd and Wayne Swan — or for that matter Glenn Stevens and the RBA Board — manage the three forces of their own stimulus, that coming from China, and whatever dribbles in from the rest of the world?

Remember that we are now into the second stage of the Government’s stimulus package, aimed at educational infrastructure and social housing. The third stage, of investment in major infrastructure, is still in preparation and in any event is widely considered as necessary regardless of economic conditions (a view many share about social housing too, by the way). The second stage has a way to run, well into next year.

China, as last night’s $50 billion LNG deal illustrates, is likely to provide a continuing source of external stimulus, and not just on a small scale. This is the sort of deal that provides the context for Ken Henry’s little-reported comment earlier this week that Australia was likely to strongly attract international capital in coming years because we combined the stability and governance of a developed country with the resource base of a developing country. The Gorgon deal with Exxon Mobil illustrates that perfectly. The project, and associated investment, is now very likely to go ahead — there’s no way Peter Garrett won’t find a way to approve it.

According to Henry, China in 2008 accounted for 15% of our exports in 2008, a massive figure — especially compared to a decade ago. But sluggish world growth will still be a heavy drag on the Australian economy.

So who wants to make the brave call about when policymakers should decide that they should pull back on the one factor they can control — fiscal stimulus — because the two factors beyond their control — China and the rest of the world economy — are giving us sufficient net stimulus — particularly when the stimulus from China is pretty much confined to the resources sector?

It’s the toughest policy call since an inexperienced and under-informed Reserve Bank and the Hawke Government tried to manage the eighties boom and produced a savage recession that ruined hundreds of thousands of lives. Maybe tougher than that. How much has Australia de-linked from the rest of the world and linked to China?

The policy task doesn’t get easier beyond that. An eventual world recovery will send us right back into the sort of resources boom we were enjoying before the financial crisis. We could’ve handled that one a lot better and the onus will be on whichever Government we have to better manage the fiscal proceeds of the boom and keep improving our regulatory framework across any number of key sectors. The RBA, which is already concerned about — though not predicting — a housing bubble, will have to resolve its position on managing or leaning against asset price booms.

And there’s the inconvenient truth that every project like Gorgon is a carbon frolic. LNG is nowhere near as emissions-intensive as coal but it doesn’t have to be to make a substantial addition to Australia’s greenhouse emissions. And in any event, China has predicted it will continue to rely on coal to fuel its rapidly-expanding energy needs despite undertaking quite extraordinary levels of investment in renewable energy, particularly wind, where it will soon be a world leader.

Australia is already one of the biggest carbon dealers in the world and this will only increase significantly as our resources-based relationship with China grows. All our economic priorities right now are aimed at ramping up our level of carbon exports, and we will do very well economically out of it.

Good luck changing that.