This article seeks to explain why the Free Trade Agreement negotiation between Australia and China has been extremely difficult, despite political goodwill from Beijing and Canberra. It first argues that the reason for the slow progress of the negotiation is not caused by lack of motivation from the Chinese government. It then lists the differences in negotiation between China and Australia, focusing on their respective selective vs. comprehensive, border vs. behind-the-border, flexible vs. rigid and state vs. market approaches. It then looks into domestic politics in China to explain why China has taken such a stance, underlining domestic resistance from sectors like agriculture and services in a dynamic domestic political environment on the one hand, and the structure of the policy making institution that constrains the power of trade negotiators on the other. It concludes by pointing out where the potential for a breakthrough in the FTA negotiation lies.