China relations: ‘National security cowboys’ put nation’s interests at unnecessary risk

Anti-Beijing rhetoric from national security hawks is fuelling dangerous lines of thought.

Dennis Richardson in Canberra: “Putting most things under a national security umbrella would significantly dilute the quality of advice and expertise going to ­government.” Picture: Kym Smith

Australia risks talking itself into a strategic and financial dilemma — more convinced than ever of a dangerous threat from a China ­destabilising the region at the precise time our national budget spending is shot to pieces from the pandemic.

The COVID-19 legacy both weakens Australia’s financial position and intensifies its deepening tension with China. That contradiction demands a selective and tough-minded national security policy, unlike much of the wild rhetoric of the past fortnight. What counts are the tools to manage an assertive China along with telling the public the price it might have to pay for an antagonistic China relationship.

In an interview with Inquirer, former head of both the Defence Department and Foreign Affairs and Trade Department, a former ASIO chief and Washington ambassador, Dennis Richardson, outlines the principles to follow and the traps to avoid. His core message is to beware the flawed prescriptions of the national security hawks.

Richardson warns government cannot be turned over to a sweeping national security agenda ­fuelled by anti-China sentiment, pandemic-induced multiple security alarms, protectionist industry policy and changes to elevate security over economic and foreign investment necessities.

He says reviews to enhance Australia’s resilience are necessary post-pandemic and backs an increase in defence spending beyond 2 per cent of GDP. But he delivers three stark warnings — self-reliance is counter-productive if it weakens the economy; substantial Australian self-reliance only comes with a high financial cost; and no justification exists for ­recasting foreign investment through a lens that prioritises national security. Richardson warns against a “mono-dimensional view of government” when, by contrast, the success of Australia’s democracy has long been the ­balance it has struck across competing public needs.

“A strong economy is foundational to national security,” Richardson says. “But when it comes to putting a whole range of things under the national security banner, my response is ‘no way’. First, it is unnecessary. Second, it would unduly hinder economic growth after the pandemic. You don’t want people with national security expertise to be put over and above economists when it comes to economic policy or above medical experts when it comes to pandemics. Putting most things under a national security umbrella would significantly dilute the quality of advice and expertise going to ­government.”

This is relevant given the emerging debate led, in many ways, by the Australian Strategic Policy ­Institute and its director, Peter Jennings, with his call for a new national security strategy that “includes health and biosecurity, ­climate, human security, critical infrastructure, security of supply of petrol, oils and lubricants, the ever-expanding range of cyber-­security challenges, university and industry R&D, and more traditional defence, intelligence and foreign policy concerns”.

Richardson says this conception is unworkable and unjustified. He says: “The underlying assumption is simply far-fetched — that Australia’s circumstances are so dire, almost at the point of war, that we need a national security focus dominating the totality of what the government does.

“Such a security framework is going to be inward-looking, not outward-looking. This argument assumes that at present we have a muddle of policies that don’t align with one another. The reverse is, in fact, the case. Indeed, that is why we have a single set of ministers who address these issues across the board — it’s called the national security committee of cabinet.

“And if you have climate change in the mix, you are throwing a domestic political hand grenade into it. That merely highlights the point — you cannot put everything into a single pot and create a consistent product.”

This is also relevant given an April 5 written submission by NSW Liberal senator Jim Molan to Scott Morrison, calling for the creation of an office of national ­security within the PM’s portfolio. Molan says because of the COVID-19 crisis “it is no longer necessary to establish the need for change” but rather “to progress ­directly to how change should be led”.

Molan advises Morrison the nation should “sustain its sovereignty by improving every aspect of national security”. While the bushfires and COVID-19 have been handled with competence, future risks “could involve aggressive events short of conflict (supply chain manipulation, health system destabilisation, weaponised oil, theft of IP, espionage, challenging trust in institutions and in allies, terror, transactional crime, cyber attack) possibly leading to regional war”.

Molan, influential in 2013 in devising Operation Sovereign Borders for Morrison, says the missing element now is “a national security system”. He recommends “the co-ordination of security policy over a much wider area of government” with a national security ­adviser backed by a 20-strong staff to assist the PM.

Richardson did not comment on Molan’s submission as such. But his remarks — as one of the nation’s most experienced former defence and security officials — reveal a fundamental dissent from the national security conception sought by Molan, Jennings and other conservative Liberals claiming COVID-19 has transformed our security world. Indeed, Jennings’s view of the national security adviser position is that it must transcend co-ordination and “drive policy development”.

“This is not a first-order ­priority,” Richardson says of the proposal. “The easiest thing in government is to restructure. But structure is rarely the answer. We already have a secretaries committee on national security chaired by the secretary of Prime Minister and Cabinet, and that secretary has a broad remit across all areas of government.” Richardson says if the proposed national security adviser had the authority to sit “over and above” functional experts dealing, for example, with health and the economy, that would be a “mistake” and he would “question its worth and question its need”.

The security issue is on Morrison’s table, not as a first-order priority. While some things will change a lot, more will stay the same. One option for the government is to decide upon a regular statement of national security strategy each two years. But there is very little support in the PM’s office either for the major bureaucratic revamp sought by Molan and Jennings or for compromising economic policy. Molan has proposed an expansion of the national security state, saying the pandemic has ended a “particular phase” of globalisation and Australia must “take care of its own needs in vital areas including food, medicine, energy, IT, fuels, industry, transportation and defence” by growing “our domestic capacities in these vital areas”.

Jennings, a former deputy in the Defence Department, offers the most detailed blueprint for an expanded security state in his contribution to ASPI’s “After COVID-19” book, when he says: “Scott Morrison’s task is to push his security advisers into breaking current policy paradigms.” Jennings offers a series of steps that “break” the current mould including a radical change in foreign investment — provoking Richardson’s strong dissent.

Jennings calls for the Foreign Investment Review Board to be moved from Treasury, created as a statutory authority and report to the PM via the national security adviser. This would be the prelude to reversing a long list of past FIRB decisions because they have compromised national security, notably with China. It would constitute a near revolution in foreign investment policy with huge ramifications for Australia’s liberal foreign investment regime.

“These proposals completely overlook the fundamental importance of foreign investment to the Australian economy,” Richardson says. “It is important that the treasurer remain the decision-maker for foreign investment and it is important that all arms of government feed into that decision-making process. The national security apparatus is singularly unqualified — I say singularly unqualified — to be the prime vehicle for consideration of foreign investment.”

Unsurprisingly, Treasurer Josh Frydenberg agrees. Frydenberg is heading in the opposite direction. The Treasurer will soon announce a strengthening of resources and compliance to give the FIRB more powers of scrutiny — better eyes and ears — yet retain its current alignment in the Treasury, where its chair is former security chief and diplomat David Irvine.

The aim, in short, is to keep Australia’s pro-foreign investment stance but strengthen its capacity to identify investment proposals that contain security implications. In his March 29 statement Frydenberg said the strictly temporary change to foreign investment policy meant all proposals above a zero threshold will be assessed — to ensure cheaper assets are not snatched up by foreign entities during the pandemic. But the Treasurer highlighted the importance of putting conditions on approvals where necessary.

Irvine says one in five jobs is trade-related. Firms with foreign direct investment support one in 10 jobs. “Rejections are rare,” Irvine said last year of investment proposals. In practice, foreign entities test the waters and if rejection is likely they do not apply. About 99 per cent of applications have no national security implications.

But since 2015 the direction of policy has been to better equip FIRB to identify and act upon national security risks — the main method being imposing conditions on approvals. China is the fifth-largest holder of FDI stock in Australia after the US, Japan, the UK and the Netherlands. But in recent years China has been our largest source of proposed foreign investment, year on year. This makes security assessment pivotal. In the past questionable decisions were made, giving China too much ownership over energy assets.

More recently, a number of China’s proposals have been rejected informally and, as a consequence, not pursued. Infrastructure is critical but, as Richardson says, “not all infrastructure is equal”. He says: “There is no contradiction between one piece of infrastructure being given the tick and another piece of infrastructure being denied foreign investment takeover.”

Jennings’s prescription strikes at the heart of the liberal, open economic order Morrison and Frydenberg champion. Jennings says: “A key task for government will be to work out how to unpick the consequences of past FIRB recommendations to allow foreign purchases of large parts of the electricity grid, gas infrastructure, seaports, medical facilities and farmland.” This would inevitably undermine investor confidence in Australia.

Richardson says: “If you’re going to shut the gate in respect of China, well, that’s fine, provided we are prepared to accept that puts at risk more than $100bn of exports that will impact on the living standards of Australians. This is the problem when you try to wrap the totality of government under an umbrella of national security.” He says that over the past 10 years there have been big changes in foreign investment decision-making taking account of national security issues, and the “apparatus had shown a distinct capacity to evolve”.

Jennings agrees the national security strategy will come at a cost. But he says “a view is hardening that economic dependence on an authoritarian China is dangerous and that steps must be taken to reduce that dependence”. He recognises this will involve “turf battles” within the bureaucracy given the recent creation of the Department of Home Affairs under Peter Dutton, with its range of security roles. Richardson’s message is that proven policy experts must be recognised, not surrounded by a security apparatus. They need to have direct access to government — witness Brendan Murphy as Chief Medical Officer, Shane Fitzsimmons as former head of the NSW Rural Fire Service or Irvine as FIRB chair.

Jennings says Beijing’s handling of the pandemic “has been to extract maximum advantage for itself at the expense of every other country in the world”. He warns that geopolitics is heading “towards a potential crisis towards the end of this year and early next year”. For Australia, the prime security task is the need for a “clear approach in dealing with the PRC”.

Richardson has a different emphasis — he says Australia needs clear boundaries in dealing with China, from foreign interference to the South China Sea. “The relationship we had with China between 1972 and 2012 is gone. But we should approach China very pragmatically. We need to work harder to find areas where we can operate constructively. It is not in our interest to have a US-lite approach to China and, in fairness, I don’t think the government or opposition are in that space. In this domestic debate over China nobody’s patriotism should be called into question.

“The pandemic has brought home the need to look at supply chains, at what’s critical, what’s not critical. The government is spot-on saying it won’t retreat to a protectionist framework. That would lead to lower living standards over the next 10 to 20 years and a diminution of our economic strength. It makes sense to review supply chains but we need to be far more selective than what the national security cowboys want. Heaven forbid if we put a national security umbrella over the totality of government … there just isn’t the skill set in the national security community for that anyway.”

Richardson believes defence spending needs to increase into the 2-3 per cent of GDP zone from the current 2 per cent target. He says: “With the demands on the future defence budget from Australian-built submarines, Australian-built frigates, Australian-built patrol vessels, maintenance for the Joint Strike Fighter, plus re-equipment cost for the army, I doubt 2 per cent of GDP will buy all that.

“Over the next 10 years we’re going to be faced with decisions either to cut back on the defence capability we require or to increase defence spending beyond 2 per cent. The classic trade-off between guns and butter will apply inevitably after the pandemic. But there are balances you need to strike. For example, if you want self-reliance and if you want everything to be Australian-made you’re going to need to increase the defence budget very significantly but you won’t get more capability for it because, by and large, what you get in Australia will cost more than what you can get elsewhere.”