Both PMs discussed closer cooperation between their expanding militaries against the backdrop of a recent extraordinary Chinese live-fire exercise near their shores.

Luxon said his country wanted closer military cooperation with Australia, a country he describes as New Zealand’s “only ally”.

“A big focus for us has been interoperability with Australia. We want to be a force multiplier,” Luxon told reporters.

“We want to be one, sort of, essential Anzac force essentially operating within our region,” he added, referring to the Australian New Zealand Army Corps in which the two nations’ soldiers first fought together during World War I.

Albanese and Luxon recognised their countries face the most unpredictable and dangerous strategic environment in decades and their alliance plays a critical role in protecting and advancing their shared interest in the region, they said in a joint statement.

The prime ministers also commended progress over the past year to intensify defence cooperation and integration.

The summit follows a Chinese naval flotilla firing weapons in February in the Tasman Sea, which separates the two countries.

The exercise forced commercial airlines to divert flights.

The Chinese navy rarely ventures so far south and the mission that partially circumnavigated Australia was seen as a demonstration of China’s growing military reach.

Albanese said last month that he complained to China’s President Xi Jinping during a state visit to Beijing about the lack of notice the Chinese had given of the live-fire exercise.

Xi replied that Australia also engaged in exercises, referring to freedom of navigation missions conducted by Australian military in the disputed South China Sea.

While the statement did not mention China, the prime ministers confirmed their most important trading partner was discussed.

“Of course, the geostrategic competition, in particular between the great powers, is something that countries like Australia and New Zealand do discuss together and we cooperate politically,” Albanese said.

Luxon said “both countries have followed pretty much the same playbook” in their bilateral dealings with China.

“China’s an important world power. It’s important that we can engage,” Luxon said.

“We genuinely are able to have a conversation — I think a very mature one now — to say, look, we do have very different histories, we do have different systems, we do have different values, that does mean we do have differences. Good partners should be not afraid to talk about those things,” Luxon added.

Luxon announced in April a plan to make the New Zealand Defence Force more combat capable that would double defence spending to more than 2 per cent of GDP.

He described the rise from around 1 per cent over the past two decades as “a big step up for us.”

In a demonstration of Tokyo seeking deeper strategic ties in the South Pacific, Japanese warships docked in New Zealand on Friday for the first time in almost 90 years.

Australia announced this week Japan’s Mitsubishi Heavy Industries will build a fleet of 11 Australian naval frigates with a contract expected to be worth $10 billion.

Australia’s most expensive defence expansion is the AUKUS submarine deal with the United States and Britain that is expected to cost up to $375 billion. Under the trilateral partnership, Australia will acquire a fleet of eight submarines powered by US nuclear technology.

US President Donald Trump has urged western countries to increase their defence budgets and rely less on the US for their security.

Today the Pentagon said Australia would be unable to fulfill its AUKUS submarine commitments without an increase of at least 3.5 per cent GDP.

“If people argue that we should increase our defence spending, we are,” Albanese told reporters today.

Albanese also delivered on his promise for closer economic ties between the two nations almost immediately.

The PM met with senior business leaders from Australian and New Zealand companies, meeting CEOs from the likes of Qantas, BlueScope and AMPOL petrol this afternoon.

Before heading home tomorrow, Albanese will lay a wreath at a war memorial and enjoy a helicopter tour with Luxon and Maori elders.