An Australian watchdog may reject a tieup between Qantas Airways and a Chinese state-owned carrier, saying it would hurt competition, in a potential embarrassment for Prime Minister Tony Abbott’s efforts to beef up trade with Beijing. In a draft decision on Tuesday, the Australian Competition & Consumer Commission (ACCC) said it may refuse to approve a Qantas plan for a joint venture with China Eastern Airlines. It said the deal could give the pair undue control over the potentially lucrative Sydney-Shanghai route. The ruling, to be finalised after submissions by interested parties by April 5, could not only hamper Qantas’ efforts to beef up international operations. Rejection of a deal sealed in conjunction with a Australia-China trade accord, signed by PM Abbott and Chinese President Xi Jinping at a landmark ceremony last November, could also be a setback for Sydney’s drive to boost commerce with its biggest trading partner. Shares in Qantas fell as much as 3 per cent to a near two-week low after the ACCC’s initial ruling. The two carriers will work together with the regulator as it approaches a final decision, Qantas said in a statement. Qantas defended the joint venture, saying it would boost bilateral trade - worth around A$150 billion (US$118 billion) in 2013 - increase services and ultimately open up new routes between the two countries. Australia needs China’s help to transition from reliance on minerals exports to expanding food and agriculture to serve a growing Asian middle class. "There are more than 20 airlines already providing services between Australia and mainland China, and the sharp pricing on these routes demonstrates that the market is highly competitive," Qantas International CEO Gareth Evans said in the statement. But the ACCC said the range of options for travel beyond Shanghai may not increase as a result of the accord. "They are the two major airlines on the route and the only airlines offering daily flights, and so the major competitive constraint on each other. Competition between them will be greatly reduced under the proposed agreement," ACCC Chairman Rod Sims said in a statement. Last month, Qantas reported its best first-half earnings in four years, reporting a profit at its international divisions for the first time since the global financial crisis. Qantas has struggled in recent years thanks to high fuel costs, a strong Australian dollar, increasing international competition and a domestic price war with rival Virgin Australia Holdings. In-bound Chinese tourism could be a future growth engine for Qantas, said Ben Le Brun, an analyst at optionsXpress. "If the joint venture is called into question, it could result in a little bit of downside risks to their earnings capabilities."