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Growing trade and investment between their highly complementary economies ensures that Australia and China have a common interest in maintaining healthy bilateral relations. To be sure, Canberra and Beijing say “no” to one another every day of the week on consular matters of one kind or another. From time to time Canberra also vetoes Chinese investments. While some of these denials have led to awkward moments none has had an appreciable bearing on the underlying relationship or entailed serious consequences for the trade and people-to-people ties that bring Australia and China closer together year by year.

Among the matters on which Australia and China beg to differ none is more central to Australia than its security relationship with the United States. Canberra maintains a firm line on its alliance with Washington and routinely rebuts suggestions that it may need to choose between its economic relations with China and regional military cooperation with the United States. 

On this critical issue, Beijing has not really tested Canberra’s resolve. Judging from recent events it may be only a matter of time. Beijing responded angrily when Foreign Minister Julie Bishop ignored strongly-worded hints that she should refrain from commenting on the South China Sea dispute in the wake of the findings of the Philippines’ South China Sea arbitration case. Further, a series of widely-reported incidents since mid-year has led to dawning recognition within Australian government circles and among the Australian public at large that Beijing is pushing hard for a policy shift on the South China Sea dispute; it may be preparing to press Australians to choose between Washington and Beijing on a key matter of regional security. If push comes to shove, on an issue that really matters, can Australia still say “no”?

Throughout the resource-boom years, leaders in industry, media, and government reassured one another that Australia could pursue shared interests in trade and investment with China without ­invoking the differing values and security interests that otherwise divided the two countries. This formula served a couple of purposes. On the up side, Canberra could proclaim its values and alliance partnerships while landing big trade and investment deals with China.¹ On the down side, however, the formula had a number of perverse effects. One was to erect a Chinese wall between big business and the national security establishment in Australia. The claim that Australia would never be compelled to choose between doing business with China and maintaining its security alliance with the United States encouraged national business and security elites to spin their separate fantasies in parallel universes without regard to what the other was saying or doing. Big business remains confident it has the ear of the federal government, while national defense and security agencies, anchored to the US alliance, pay little regard to the weighty political clout of big business over government decision making in Australia. 

A second perverse effect was to mislead Beijing into thinking that Australia’s determination to keep trade and values separate was itself a statement of values. One of China’s leading Australia experts told me a decade ago that he read Australians as saying that, unlike Americans, Australians were pragmatic and flexible. Values and principles were a peculiarly American obsession. And this is what he was reporting to authorities in Beijing.

The net effect has been to leave both countries poorly equipped to manage unanticipated shocks in the bilateral relationship. Australia and China have been talking at cross purposes for so long that Canberra has been taken aback to discover the extent of Chinese government influence in Australia’s institutional fabric, and Beijing is equally surprised to discover that Canberra could say “no” on a major investment decision on grounds of national security. 

The Chinese wall separating business and security was ruptured in August when an authoritative bilateral report calling for closer economic engagement, Partnership for Change: Australia-China Joint Economic Report, was presented to President Xi Jinping and Prime Minister Malcolm Turnbull in the very week that federal Treasurer Scott Morrison blocked a massive Chinese investment in Australia on grounds of national security.²

The report predicts that if Australia and China seized the moment and lifted relations to a higher level, embedded in a treaty and overseen by a bilateral commission, Australian exports to China could rocket ahead 120 percent in real terms within a decade. The key lay in Chinese investment, including investment in major Australian infrastructure. This grand vision of a broad economic and strategic alliance bumped up hard against Morrison’s abrupt veto on China’s Stategrid purchasing a regional electricity network in New South Wales.

The shock was amplified over the following weeks as media reports exposed Chinese government influence reaching into Australia’s core political and civic institutions. ABC journalist Chris Uhlman reported that China-linked sources were responsible for the largest share of foreign-sourced donations to Australian political parties, over $5.5 million from 2013 to 2015.³ On August 31 the Australian Financial Review reported that promising young Labor Senator Sam Dastyari “pledged to respect China’s position on the South China Sea at an election campaign press conference he held with a Chinese political donor who had previously paid his legal bills. He has also urged Australia to drop its opposition to China’s air defence zone in the contested region.”⁴ Senator Dastyari was obliged to step down as shadow minister and head of opposition business in the Senate.

Public disdain over the venality of Australia’s political elites was quickly matched in China by festering anger about Australian institutions failing to deliver on their promises. The Stategrid investment veto added fuel to widespread anti-Australian sentiment already flaring on-line over a spat in the Olympic swimming pool and simmering in the Chinese press over Canberra’s publicly-stated position on the South China Sea. In mid-July, China’s Foreign Ministry expressed dismay at Bishop’s endorsement of the Arbitral Tribunal decision on the Philippines’ South China Sea case. China’s popular press was more forthright. One paper in the People’s Daily network issued a provisional declaration of war:

China must take revenge and let it know it’s wrong. Australia’s power means nothing compared to the security of China. If Australia steps into the South China Sea waters, it will be an ideal target for China to warn and strike.⁵

Back in Australia, the hostility of Chinese responses reinforced concerns regarding Beijing’s grip over Australian institutions, raising the prospect that far from needing to deepen economic relations as the Partnership for Change report suggested, Australia needed to pull back if dependence on Chinese trade and investment truly risked compromising national security, and the principles and values that underpin it. The pivotal question driven home by the bilateral report, concluded The Australian’s senior editor Paul Kelly, is “whether this vision would make Australia more vulnerable to China’s strategic leverage and whether this is the inevitable consequence of closer economic ties.”⁶

As the Dastyari controversy unfolded, public attention was riveted by more far-reaching claims that Beijing was engaging in a concerted long-term strategy to influence the behavior of Australian institutions across a broad front of media firms, community organisations, big businesses, and educational institutions, in order to secure policy outcomes at the federal level favoring Beijing’s position on the South China Sea. In September these loose claims were confirmed by Newscorp journalist Greg Sheridan’s disclosure of a federal inter-agency investigation into the extent of Chinese government influence in Australian institutional and personal patronage networks in 2015. The findings disclosed “the most sophisticated and sustained efforts in our history by the Chinese government and its agencies to penetrate and direct Australian elites in a way that favors Chinese state policy.”⁷ The findings are said to have alarmed the federal government.

This has not come about by accident. Beijing has been appealing for a decade and more to the commercial self-interests of Australia’s free-wheeling business, political, and media elites to persuade influential Australians to do its talking for them, on the understanding that Australians place business first. John Garnaut of Fairfax media has noted that ­casino tycoon James Packer, media and equipment magnate Kerry Stokes, and mining billionaire Andrew “Twiggy” Forrest have been warning Canberra for years to tread cautiously in relations with China for fear of risking lucrative business deals with China.⁸

Companies aligned with Beijing also contracted retired Australian government ministers to lobby on their behalf. Former foreign minister Alexander Downer accepted a board position with Huawei and spoke on that company’s behalf in the face of national security concerns. Another former foreign minister, Bob Carr, founded the Australia-China Relations Institute at University of Technology, Sydney, with funds from a Chinese businessman committed to ­advancing Beijing’s policy positions in Australia. The journalism program that Carr runs under the auspices of the Chinese Communist Party’s Central Propaganda Bureau has been effective in conveying Beijing’s message sympathetically through Australia’s mainstream media. The Australian’s Glenda Korporaal wrote that it would be naïve to imagine Australia’s economic interests would not be damaged by disagreements on sensitive security matters. “People do business with people they like and trust.” If Australia wanted to be liked and trusted—who does not?—Canberra needed to remain silent on Beijing’s claims. Going to the heart of the matter, Korporaal hinted that alienating China as democratic Taiwan had recently done by holding free and open elections would cost Australia dearly:

Take tourism, for instance. China has rapidly become a major source of tourism revenue for Australia with more than 1 million Chinese visiting here last year, with expectations that this year’s tourists will spend some $11.5bn in Australia….. The China Daily noted this week that Chinese tourism to Taiwan had fallen away since the election of a new leader two months ago.⁹

Translations of Korporaal’s writing and Carr’s comments challenging Australian government positions on the South China Sea circulated widely in China in articles ridiculing Canberra’s stated position on the issue.¹⁰ 

Bob Carr’s program is one of six commercial media agreements signed between Chinese and Australian entities in Sydney under the auspices of the visiting head of the Central Propaganda Bureau of the Chinese Communist Party, Liu Qibao, and Gary Quinlan, deputy secretary of the federal Department of Foreign Affairs and Trade, on May 26. For a price, all major Fairfax Media titles in Australia and New Zealand now carry monthly eight-page inserts of China-friendly stories and occasionally stern warnings on territorial issues. Separately, a cable TV network part-owned by News Corp agreed to host an anti-Japanese documentary on Beijing’s behalf.¹¹

As these six agreements were in preparation, Australia’s taxpayer-funded national broadcaster, the ABC, was caught censoring its Chinese-language content to maintain a commercial relationship with another Chinese media partner, Shanghai Media Group. In the lead up to the agreement, the ABC eliminated all news and current affairs from its Chinese-language programming. Media Watch reported that the ABC also censored its own journalists’ commentaries relating to the South China Sea during Malcolm Turnbull’s visit to China apparently to comply with the expectations of its Chinese partner.¹²

Federal politicians were also targeted. As noted, businesses and individuals linked to Beijing donated over five million dollars to Australian political parties over the two years to mid-year 2015. More potently, political donations to the Labor Party were reported to have been withheld to punish the party for not delivering favors to Beijing. Fairfax journalist Peter Hartcher reported that “big Chinese donors withheld $450,000 in payments that otherwise would have been given to Labor” if the party had softened its position on China’s claims on the South China Sea. “By offering, or withholding, money, this is an attempt at deep, strategic corruption, an effort to pay politicians to change Australian foreign policy.”¹³

Looking back, China’s leadership cannot be faulted for failing to give advance warning of its intention to leverage economic power for strategic advantage in its relations with Australia, even if Canberra was in denial. Recent events point to growing frustration that Beijing’s efforts are being ignored. In recent months, China’s media has been routinely lampooning Australia as an uncouth, unprincipled, and ungrateful country, caught between fear and greed, lacking in clear strategic direction, and in need of a harsh lesson. 

Beijing’s impatience is candidly voiced in the Global Times, part of the official People’s Daily stable. Global Times invited Bob Shan, editor of Melbourne’s United Times, to confirm its view that Australians lacked principles and worshipped money. “The West has a saying that ‘the customer is god,’” Shan responded. “It’s difficult to ­imagine how some Australians, contrary to everyday reasoning and common knowledge, would behave in this way towards their ‘god’, China.” The Australian representative of the China Council for the Promotion of International Trade, Chen Min, was also invited to comment. “Australians worship strength,” he told Global Times, not principles. “All they ever talk about is interests.” This Australian approach was “far removed” from the enlightened principles that govern policy in China. “Only by continually building up its own strength will China have greater room to influence Australia.” ¹⁴

Global Times also featured articles by Australian businessman Huang Xiangmo. Using a Chinese expression commonly understood to mean paying highway bandits for protection en route, he told his Chinese language readership that Chinese Australians saw political donations as “unavoidable ‘road toll’” paid in return for “safety.” ¹⁵ In addition to funding major political parties – over $1 million in five years – Huang bankrolled the creation of Carr’s Australia-China Relations Institute. "My philanthropic donations don’t come with any hidden agenda," he told Fairfax Media in February 2016.¹⁶ In his Chinese essay, however, Huang set out an agenda seeking to link donations more effectively to requests. ¹⁷ Huang felt obliged to step down from leadership and management roles in the Australia-China Relations Institute on September 22.

Huang blames his problems on White Australian racism. Referring to concerns expressed by former Deputy Prime Minister Wayne Swan that foreign political donations may be “skewing” Australian democracy,¹⁸ Huang described such concerns as “baseless and racist.”

Parts of the mainstream media still find it somewhat unfamiliar and cling to the prejudices of ‘White Australianism.’ They hope that the Chinese community will remain a ‘silent community’ and not secure its rightful political voice. ¹⁹

In fact it is not racism that is in play, but values. Chinese Australians speak openly in a variety of voices, some friendly towards Beijing, others echoing a resounding “no.” The Embrace Australian Values Alliance, a Chinese-Australian organisation, came together in August to protest plans to stage memorial concerts in the city halls of Melbourne and Sydney to mourn the death forty years ago of Mao Zedong.²⁰ The values alliance succeeded in securing cancellation of the Mao memorials, and anticipates “saying no” again in the face of further challenges in the Australia-China relationship. At the same time, revelations of the depth of Chinese government influence in Australian institutional and personal networks have raised awareness among leadership and management across Australia that their resolve will be tested in the months and years ahead.