This article reviews the development of the Australia–Japan partnership in building regional institutions such as the Pacific Economic Cooperation Council and the Asia–Pacific Economic Cooperation over the last three decades since the NARA Treaty was signed in 1976. In a unique partnership, academics, business people, politicians and officials in both countries were central to establishing these regional economic institutions. This article, however, argues that while both countries had shared understandings on regional issues during the first two decades after the treaty, the last decade has seen divergent regional understandings, especially over the rise of China. Japan sees the growing influence of China as a political obstacle due to growing bilateral tensions arising from historical and territorial issues, while Australia finds it a great economic opportunity to promote its trade with and attract investments from China. This differing understanding on China between both countries may act as a major hurdle to the effective and functional partnership in East Asian regionalism. [ABSTRACT FROM AUTHOR]