The China espionage crisis is Australia’s biggest spy scandal. It is even bigger than the Petrov Affair, which struck like a thunderbolt at the height of the Cold War in the mid-1950s. Massive as it seemed at the time, the Petrov Affair has been dwarfed by a tangled web of cyber attacks, spying, pressuring the Chinese diaspora, and influence peddling among politicians, business figures and journalists.
However, the current scandal is also more complex. The murky, contested details of the “spy” stories and the occasional slagging-off of those who take a different view on China has made considered assessment of an extremely disturbing miscellany of facts, reports and allegations, problematic.
Back in the ’50s era of the white picket fence, the White Australia policy and Holden cars, even spying was simple, or at least its public image was simple. It pretty much boiled down to binary “you’re with the reds or against the reds” slogans. The dramatic announcement of the defection of Soviet diplomat and intelligence agent Vladimir Petrov by Liberal prime minister Robert Menzies in a hushed House of Representatives, the night before Parliament was prorogued ahead of the 1954 federal election, fanned alarm about the Cold War and contributed to Labor remaining in the political wilderness.
Fast forward 65 years to a multicultural Australia enjoying astonishing rates of growth in its exports to China, and the air is thick with claims that, at their most extreme, point to a possible clandestine Chinese takeover of Australia at some point in the future. If that sounds like an exaggeration, consider that former ASIO chief Duncan Lewis has reportedly warned that the Chinese government is seeking to use “insidious” foreign interference operations to “take over” Australia’s political system.
“Espionage and foreign interference is insidious,” he has been quoted as saying. “Its effects might not present for decades and by that time it’s too late. You wake up one day and find decisions made in our country that are not in the interests of our country.”
The atmosphere has become charged in the past two weeks. Stories have appeared in The Age, The Sydney Morning Herald and Channel Nine’s 60 Minutes program about alleged Chinese spy networks in Australia and a claimed foiled plot to install a “Manchurian candidate” Liberal Party candidate in Parliament. Despite denials and attempts by the Chinese state media and some local media outlets to discredit the stories, they have rocked local political, business, media and university circles.
Howard government minister Warwick Smith, who is chairman of the National Foundation for Australia-China Relations, told AFR Weekend: “Business is concerned about these matters. We are in dialogue with the security services of Australia and we will be dealing with it appropriately.” Concerning the details of the spy allegations, including a claimed plan to bribe and/or blackmail a Chinese-Australian into seeking Liberal Party preselection, he said: “One has to be careful about overreach on conclusions when so much is yet to be determined.”
The irony is that at the same time as stories about Chinese spying and influence peddling dominate the media, news has also emerged that Australian exports to China have in the past year rocketed. According to the latest figures, exports to China have increased in value by 36 per cent, are worth more than $200 billion a year, and represent an astonishing 41 per cent of the total value of Australian exports.
However, the way forward is not clear. The deep divisions over China in Foreign Affairs, intelligence agencies, media figures, and in business and academia were reflected in views about the matter trotted out in front of three separate think tank gatherings in Sydney on Thursday.
Looking elegant and sharp, former foreign minister Julie Bishop spoke to a rapt audience at a lunchtime meeting in the conservative Centre for Independent Studies auditorium. The venue is in historic Macquarie Street, opposite Sydney’s magnificent Royal Botanic Garden and Conservatorium of Music. A sense of civility and refinement was reinforced by the tasty lunches in cardboard containers.
Speaking without notes, Bishop referred to the “unprecedented scale and scope” of foreign intelligence activity in Australia – how foreign interference posed an “existential threat” and could even lead to a “loss of faith in the democratic process”. To defend the Australian way, “we need to harden up our technical infrastructure against cyber intrusions, beef up the Australian Signals Directorate and the Cyber Security Centre in Canberra. We must develop the best practice to resist the kind of cyber attacks that we have seen,” Bishop said.
She was speaking at the Sydney launch of the Quarterly Essay titled Red Flag: Waking up to China’s Challenge by Peter Hartcher, international and political editor of The Sydney Morning Herald, and a one-time Tokyo and later Washington correspondent for The Australian Financial Review.
To capture a flavour of his Quarterly Essay’s content, Hartcher included an anecdote he has himself previously reported. It exemplifies the essay’s general alarm about the rise of Chinese power in Australia. He related a meeting between then Australian treasurer Joe Hockey and Chinese finance minister Lou Jiwei in Bali. Lou started the meeting by demanding to know why Hockey had prevented the Chinese from moving to buy effective control of Anglo-Australian mining giant Rio Tinto.
He reportedly told Hockey through an interpreter: “All I want is to buy 15 per cent of your top 200 listed companies.” Assuming Hartcher’s report is accurate, the obvious question is how much further China Inc would have to go to effectively take over the entire ASX group of companies, and, after that, Australia.
Meanwhile, back at the CIS, Bishop and Hartcher were kept on their toes by some pointed questioning from think tank boss and former journalist Tom Switzer, who interspersed his sharp questions with recordings of various comments on Australia and China, including by former Labor PM Paul Keating.
Less than a kilometre away, former Liberal PM Tony Abbott was calling for sanctions against China if it cracked down hard on pro-democracy demonstrations in Hong Kong. “It will not be possible for a credible Australian government to ignore any abrogation of the ‘one country, two systems’ arrangement for Hong Kong,” Abbott said.
He said future possible Chinese actions – such as, for instance,excluding from Hong Kong’s Legislative Assembly all politicians who have not declared allegiance to China’s Communist Party, or the state-directed kidnapping of pro-democracy demonstrators – would, or at least should, serve as triggers for sanctions similar to those imposed on Russia after its seizure of the Crimea from Ukraine.
A few hours later, former Reserve Bank board member, author, journalist and one-time adviser to banks such as HSBC and Macquarie, John Edwards, addressed a packed audience in a large lecture hall on the University of Technology Sydney campus. Edwards, who once served as an adviser adviser to Keating, has worked on an extensive study on the US-China trade war for the Lowy Institute and published reports on the matter.
Far from throwing rhetorical accelerant on the China crisis flames lit earlier in the day by Bishop, Abbott and Hartcher, the enigmatic Edwards adopted a somewhat more emollient demeanour. ”So far,” he assured his attentive audience, “the effect” of the US-China trade war on Australia’s economic ties with China, “is not very evident at all”.
He swatted away alarmist claims about a “fracturing” of the world economy between US-led and China-led camps. “The US and China are not decoupling. If you want to decouple, if you want to injure China, you have to do a lot more,” opined Edwards, who has also extensively researched the operations of the US Federal Reserve.
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Later that evening I dined in a French restaurant close to Broadway, the thoroughfare that borders the southern tip of the sprawling UTS campus. The atmosphere was reminiscent of a Bernardo Bertolucci film, with a rich blend of people – Asian, Eurasian and Caucasian – luxuriating in the matchless pleasure of eating good French-style food and quaffing French wine. There were rivers of people, mainly Asian, in the alleys nearby. The noise, bars, restaurants and colourful lights made it feel like an Asian city rather than the site of a large Tooth’s brewery, as it was a generation ago.
But the talk was tough. A consensus among well-connected China watchers is that the Chinese are intensely annoyed with Australia. They may be delaying the implementation of phase two talks relating to the free trade agreement between both countries, and there are delays in negotiations on more chilled beef imports.
However, at this stage China is not signalling it will use its command economy controls to sharply reduce imports from Australia. The issue is obviously crucial for Australia, but, longer term, it’s just one part of a deeply troubling Chinese puzzle.