Australia left floundering after shift in relations with China

A poster of Xi Jinping looms large during a parade marking the 70th anniversary of Japan’s surrender in World War II.

It has been a bumpy few months for Australia-China ties, reflecting no great credit on officials, business people, academics and others who purport to steer Australia’s ­relationship with Beijing.

The difficulties encountered over sales of critical infrastructure, Australia’s meek opposition to Beijing’s militarisation of the South China Sea and the Chinese media’s rancid insult-throwing in response to both point to a much more difficult relationship. Gone are the years of China’s peaceful rise, when business people in both countries could happily agree on the importance of making money.

Now we’re in different times under the China of President Xi Jinping. With a nationalism ­relentlessly stoked by state media, China is increasingly assertive ­internationally: aggressively using cyber power to steal Western ­intellectual property and building a sophisticated military establishment that’s co-operating more closely with Russia. China is also putting much greater emphasis on what might politely be called ­“influence building” in countries where Beijing wants to exert pressure on decision-makers.

The Chinese embassy in Australia monitors and channels the political activities of Chinese students at universities and training institutions. “Patriotic” Australian-Chinese community groups lobby politicians not to criticise Beijing’s aggression in the South China Sea. Chinese money fin­ances ­“research” from lobbyists ­advocating policies advantageous to Beijing. The Chinese language press in Australia, predominantly owned by interests of the People’s Republic of China, runs Beijing’s lines or risks losing advertisers who come under commercial pressure. Fairfax readers now have their wraparound monthly dose of the Communist Party’s newspaper, the People’s Daily.

I know senior individuals from both sides of politics who are ­deeply worried about the extent of financial donations to Australian political parties from Chinese business sources. The extent of this funding is difficult to assess ­because of opaque rules around donations for parties, but the sums are not trivial.

It used to be that Australian ­officials looked at similar Chinese influence-buying in small South Pacific island states, thinking that less sophisticated societies were vulnerable to carpet-bagging and coercion. We should stop sneering. The same thing is starting to happen here. In Dorothy’s famous words from The Wizard of Oz: “Toto, I’ve a feeling we’re not in Kansas any more.” This is a newly emerging world of harder strategic competition. Here I have to make a partial concession to my colleague Hugh White, who has ­argued for some years that Australia would have to make a tough choice between our strategic ­alliance relationship with the US States and our unacceptably high level of economic dependence on trade with China.

Like most Australian officials working in defence and security, I argued against that, saying Australia could balance its US and Chinese equities. There is no doubt that achieving this balance is getting harder. But contrary to White’s view, the solution is not to loosen our alliance with the US and make strategic concessions to China. In fact, the opposite ­approach is necessary.

The most significant recent change has been China’s increasing assertiveness in the region, a reality that seems to have ­bypassed many of Australia’s economic commentators. Beijing’s military takeover of the South China Sea is the most obvious example of Xi’s muscular politics. Behind that is China’s hardline diplomacy ­designed to split the Association of Southeast Asian Nations as a stabilising factor in the region. Beijing’s behaviour in these capitals is not pretty.

There is also China’s ubiquitous use of cyber power as an ­instrument of espionage to reap the rewards of foreign research and development. And now China’s large-scale acquisitions of many countries’ critical infrastructure — ports, electricity generation and distribution, gas pipelines and the rest — could provide easy front-door access to the cyber backbones of internet-­enabled industrial control systems on which they rely.

A second change in the region’s strategic balance has been the disappointing second-term performance of the Obama admin­istration which, for too long, dismissed the South China Sea as a second order dispute over rocks and shoals.

In the two years it took Canberra to write a defence white paper, China transformed three of these rocks into military-grade runways and is now building all-weather hangars able to support a permanent presence of more than 60 combat aircraft.

What Washington dismissed as “rocks and shoals” now potentially gives China dominance of the airspace from the eastern approaches to the Straits of Malacca right up to the Chinese mainland. This is a strategic game changer giving Beijing direct control over the ­security of its Middle East oil supply after it passes Singapore.

More worryingly, it gives Beijing control over Japan’s oil and liquid natural gas supply routes. Tokyo won’t be dismissing that emerging reality as a spat over rocks. In fact, it presents a deeply worrying crisis to Japan, which is totally dependent on ­energy imports.

A Rand Corporation study released last week, War With China: Thinking Through the ­Unthinkable, points to the extent of US concern about the growth of Chinese military capabilities. It concludes that the balance of military forces ­between the US and China means “neither country is able to control, win, or afford a ­future war”. Rand judges that the US would emerge less damaged than China after a conflict — cold comfort indeed — and that China has strong incentives to use pre-emption mixed with cyber strikes deep into US critical infrastructure in an effort to damage Washington’s capacity to respond.

None of this could be further from Australian thinking. Many economic commentators writing about Scott Morrison’s decision not to allow the sale of Ausgrid to a Chinese or Hong Kong business show absolutely no understanding or interest in the broader direction of Chinese strategic policy.

One commentator concluded last week that a cyberattack on Sydney’s electricity grid would do no more than shut down the internet for a few hours — but this is not about accessing Netflix. Others persist in the delusion that the only possible motivation to curb Chinese investment is racism. Since when is it xenophobic to be concerned about the defence of multicultural, pluralist and rule-abiding Australia? While the strategic outlook is disturbing, the positive news is that Australia does have options to adopt a stronger set of policies that should allow us to protect our key security interests and still maintain a beneficial economic relationship with China.

Some key new policy decisions need to be taken urgently. First, the government should direct that its economic departments, intelligence agencies and Defence ­develop a shared baseline understanding of China’s growing power in its economic and strategic dimensions.

It is simply not good enough that the only part of our government system that’s charged with balancing economic and strategic policy decisions is the part-time Foreign Investment Review Board. The split between economic and security disciplines ­explains why one part of Canberra produces dreamland reports such as the Asian Century white paper while defence white papers are more pessimistic about the security outlook.

Second, government needs to find a way to make our strategic outlook explicable to Australians. Saying nothing because of security classifications will not build public confidence in foreign investment decisions.

Next, to boost the FIRB’s credibility, it needs to be separated from Treasury and made a statutory authority ­defined by an act of parliament that requires it to advise government based on assessments of national security and economic benefit. As far as possible the FIRB’s work should be based on publicly explained criteria. Just as China does, we should consider excluding key categories of critical infrastructure from foreign sale unless stringent security requirements can be met.

This raises a difficult question about the sales of previous critical infrastructure, including parts of the South Australian and Victorian grids. Here, government needs to audit the cybersecurity of all critical infrastructure using ­internet-enabled industrial control systems. It’s not Australia’s fault that these systems are emerging as a ­national vulnerability to cyberthreats. The error would be to do nothing now that we have a growing understanding of the risks and opportunities coming from the “internet of things”. Two big FIRB decisions loom: the privatisation of the ports of Fremantle and Melbourne. Hopefully we have learned from the experience of leasing the Port of Darwin to a Chinese company for 99 years.

Let’s think through our own long-term defence needs. Believe it or not, we are planning to build more ships and submarines than can be docked in existing navy bases. That, and ­future US alliance needs, should be factored in before agreeing to 50 or 100-year port leases.

The measures set out above ­require some tough strategic planning and the crunching together of the security and economic areas of government. In developing a harder-eyed approach to our ­security interests, rather than crouching in wait for the next nasty Chinese newspaper editorial, we should be setting our strategic bottom lines to China.

Australia will be respected more by China for taking a clear but firm approach. By contrast, every concession we make will be accepted while an opportunistic Beijing pushes for more.

Peter Jennings is executive director of the Australian Strategic Policy Institute.