Nothing Found

Established in 2012, the 17+1 initiative was Beijing’s flagship effort to promote China’s economic relations with the nations of Central and Eastern Europe (CEE). It’s largely perceived as an extension of China’s Belt and Road Initiative. Some in Europe are worried about the subversive effects the 17+1 might have on the European project, while others think that it’s already unravelling. After a decade of cooperation between the CEE countries and China under the 17+1 mechanism, many of the CEE countries now have strong misgivings about partnering closely with China due to three key trends that are taking shape.

First, despite its major promises at numerous 17+1 summits, China has invested little in CEE countries. In 2012, Beijing pledged to provide the CEE with an A$17 billion credit line to drive new development in infrastructure, technology and renewable energy. Its failure to deliver any significant investment has turned the tide for most CEE countries. To date, only four of the 40 or so projects conceived under the 17+1 proposal have been successfully executed: the Port of Piraeus in Greece, the Pupin Bridge and expansion of the Kostolac power plant in Serbia, and a major highway in Montenegro.

After several years of 17+1 summits, few tangible outcomes have materialised for most CEE nations, and many have expressed disenchantment at the prospect of future economic engagement with Beijing. In January 2020, the Czech Republic decided to snub the ninth summit scheduled for April, citing lack of actual investments by China—a major blow for Beijing as Czech President Milos Zeman once hailed the initiative as ‘the flagship of Chinese investment’ for Prague. The summit was later postponed indefinitely due to the Covid-19 pandemic.

The 17+1’s leading project, the Budapest–Belgrade high-speed railway line, is still slated to proceed. The clear absence of major projects actually coming to fruition has elevated distrust between China and the CEE countries. The economic downturn resulting from the pandemic will make it more challenging for Beijing to commit to CEE projects as it prioritises its own domestic recovery. BRI projects are likely to reduce in size as the focus moves towards targeted strategic acquisitions. China may also recompense CEE countries that have remained supportive.

Second, most of the CEE countries are re-evaluating the political consequences of their interdependence with China. At the 17+1 initiative’s inception, the EU expressed concerns that enlisting CEE countries could potentially split Europe. At one point, China alarmed several members of the EU by hosting the Visegrad Group of the Czech Republic, Hungary, Poland and Slovakia and praising these nations as a ‘dynamic force’ despite their clashes with Brussels over immigration and fundamental rights. With its growing economic power, China had accumulated enough clout to exercise considerable influence over the CEE countries’ policies towards Beijing. For example, the EU’s statement to the UN denouncing China’s human rights abuses was blocked by Hungary and Greece, with Athens characterising it as ‘unconstructive criticism of China’.

But CEE countries are now increasingly shifting the focus of their engagement with China from economic opportunities to potential political and security risks. In May, Romania terminated its joint venture with a Chinese firm to construct a nuclear power plant. Latvia declared China a national security threat after its intelligence agency announced its concerns over cyber spying. These and other developments led most of the CEE countries, with the exceptions of Greece, Hungary and Serbia, to opt out of a BRI videoconference in June. In August, Beijing was infuriated by Czech Senate speaker Milos Vystrcil’s trip to Taiwan to promote business links, suggesting that Prague will pay a ‘heavy price’.

Third, the tension between the US and China has prompted many of the CEE countries to re-evaluate the risks of alienating their other allies. The technology war between Washington and Beijing has concentrated minds on China’s 5G strategy in the CEE region. So far, Croatia, the Czech Republic, Estonia, Romania, Serbia and Slovenia have put in place measures to restrict Huawei from building their 5G networks. The US has encouraged allies to join its ‘Clean Network’ program, which is intended to protect the US from cyber intrusions by the Chinese Communist Party. In September, the Polish government put forward a draft bill to exclude telecommunications suppliers regarded as a potential threat to its cybersecurity. If passed, the legislation would effectively ban Huawei from constructing Poland’s 5G infrastructure.

The CEE countries’ loss of confidence in their future engagement with China could spell the end of the 17+1 framework. If that happens, Beijing will certainly have difficulty reconciling the costs incurred in its failure to capitalise on the opportunities and benefits the initiative might have delivered.

Globally, there’s increasing interest in the development of central bank digital currencies, driven by a wide range of policy motivations. A survey published by the Bank for International Settlements in January 2020 found that, out of 66 central banks, 80% were engaged in researching, experimenting with or developing a digital currency. The People’s Republic of China is a significant actor in this arena, not least because it is years ahead of the world in research into the development of its central bank digital currency, known as ‘digital currency/electronic payment’ or simply ‘DC/EP’.

DC/EP is progressing rapidly and, if successful, would have major international implications that haven’t yet been widely considered by policymakers. DC/EP would have ramifications for governments, investors and companies, including China’s own technology champions. It has the potential to create the world’s largest centralised repository of financial transactions data, and while it may solve some financial governance challenges, such as money laundering, it would also create unprecedented opportunities for surveillance.

The initial impact of a successful DC/EP project will be primarily domestic, but little thought has been given to the longer term and global implications. DC/EP could be exported overseas via the digital wallets of Chinese tourists, students and businesspeople.

A new report from ASPI’s International Cyber Policy Centre, The flipside of China’s Central Bank digital currency, seeks to improve baseline understanding of DC/EP’s mechanics and place the project in its political and bureaucratic context. The aim is to catalyse and contribute to an informed conversation about what the rollout of DC/EP may mean for China and for the world.

Over time, it’s not far-fetched to speculate that the Chinese party-state will incentivise or even mandate that foreigners also use DC/EP for certain categories of cross-border RMB transactions as a condition of accessing the Chinese marketplace. DC/EP intersects with China’s ambitions to shape global technological and financial standards, for example, through the promotion of RMB internationalisation of the renminbi and fintech standards-setting along sites of the Belt and Road Initiative. In the long term, therefore, a successful DC/EP could greatly expand the party-state’s ability to monitor and shape economic behaviour well beyond the borders of the PRC.

At the technocratic level, DC/EP is designed to ensure that the central bank can monitor all financial flows and exercise greater control over China’s financial system and capital accounts while displacing anonymising cryptocurrency alternatives that can’t be readily controlled. Recent reporting has also indicated that the People’s Bank of China aims for DC/EP to erode the dominance of Alipay and WeChat Pay in the digital payments sector, levelling the playing field between the technology duopoly and commercial banks.

At the leadership level, DC/EP is being driven by the financial ‘risk management’ and ‘supervision’ imperatives of Chinese Communist Party General Secretary Xi Jinping. DC/EP will offer no true anonymity, as the central bank will have both complete visibility over the use of the currency and the ability to confirm or deny any transaction. There are also no express limits on the information-access powers of the party-state’s political security or law enforcement agencies, such as the Central Commission for Discipline Inspection, which has a keen interest in the technology.

While DC/EP could enable more effective financial supervision and risk management that any government might seek to embed in a central bank digital currency, the PRC’s authoritarian system embeds political objectives within economic governance and otherwise reasonable objectives. Terms such as ‘anti-terrorist financing’, for instance, take on a different definition in the PRC that is directed at the CCP’s political opponents.

DC/EP is being developed and implemented domestically first, but could allow China to shape global standards for emerging financial technologies. It also creates opportunities for the PRC to bypass the US-led financial system, which it perceives as a threat to its security interests, potentially disrupting existing systems of global financial governance. Through DC/EP, Beijing could over time move away from the SWIFT system and bypass international sanctions.

To date, policymakers in the democratic world have taken a whack-a-mole approach to the security challenges presented by Chinese technologies, if they have taken action at all. Those actions—such as those pertaining to Huawei and 5G over several years and TikTok and WeChat more recently—have been taken long after the relevant brands and technologies have entered the global marketplace and established dominant positions, and they don’t solve root problems.

Early efforts to establish and coordinate norms, rules and standards will reduce any subsequent need to resort to blunt and arbitrary measures that are economically, socially and diplomatically disruptive. By acting now to build a baseline analysis of the DC/EP project, decision-makers have an opportunity to anticipate challenges and build a consistent and coherent policy framework for managing them.

Welcome to the third edition of ‘China military watch’. This month, we take a look at China’s burgeoning missile and space capabilities.

Ballistic missiles on Chinese merchant vessels?

On 15 September, China successfully launched the Long March-11 solid propellant launch vehicle off a merchant vessel in the Yellow Sea. This was the second such sea-based launch of a rocket conducted by China, with the first taking place on 5 June last year.

The launch, overseen by the Taiyuan Satellite Launch Centre (太原卫星发射中心) in conjunction with leading ballistic missile producer the China Academy of Launch Vehicle Technology (CALT, 中国航天科技), was significant as the solid propellant technology used in the in the Dongfeng-21 and Dongfeng-26 is reportedly similar to that used in the Long March-11. The launching of the Long March-11 from a civilian vessel raises the prospect that China’s merchant fleet could be used to fire ballistic missiles in wartime.

While the Long March-11 is not a missile platform, reporting from the People’s Liberation Army Daily on the flight test noted that launching rockets off surface vessels has several strategic advantages. The report argued that a sea-based launch ‘increas[es] launch efficiency and rocket carrying capacity’ because it can occur closer to the equator, and allows for ‘the freedom to choose launch sites, [which can] effectively offset unwanted risks’ such as debris falling on populated areas. The report added that sea-based launch provides tactical flexibility, as land-based ballistic missile and rocket systems are fixed, easily targetable and require significant logistical support.

That said, problems linger in China’s capability to conduct sea-based rocket launches. Another report from the PLA Daily made clear that ‘the communications support [needed] for sea-based launch missions are extremely heavy-duty and face many challenges, including long transmission distances, highly complex equipment and tight schedules’. Overcoming these difficulties is likely to be a priority for China’s defence industrial base, as companies like CALT continue developing China’s capability to conduct sea-based launches of carrier rockets and ballistic missiles.

Towards Chinese spaceplanes

China has successfully launched its own reusable military spaceplane. On 4 September, from the Jiuquan space centre in the Gobi Desert, the Chinese spaceplane was launched on a Long March-2F rocket. The Chinese spaceplane apparently follows the US X-37B in its design and operation, and  successfully returned to earth two days after its mission began, landing at a runway next to the Jiuquan launch site, but not before it deployed an unidentified object into low-earth orbit.

The spaceplane marks an important step forward for China’s space capability and particularly Beijing’s military space capability, in the same way the X-37B has enhanced the US’s ability to undertake prolonged missions in orbit for secretive purposes. There are very few details of the Chinese spaceplane available, and it seems clear that China could simply emulate the US system if it chose to do so.

Perhaps more interestingly, there’s informed speculation that, unlike the US vehicle, the Chinese spaceplane may actually be the second stage of a ‘two stage to orbit’ system, with a winged, reusable and potentially crewed first stage under the ‘Tengyun Project’. This vehicle would transport the spaceplane as the upper stage to a place high in the atmosphere, where it would then be launched into orbit. Such a system would be more effective in terms of rapid and responsive space launch than a rocket-based one like that employed for the X-37B, and there would be no reason why China couldn’t develop a number of such vehicles.

A CALT official suggested in 2017 suggest that the system would be capable of carrying both crew and material, and in 2018, China Aerospace Science and Industry Corporation said that, ‘unlike rocket recycling adopted by SpaceX, the spaceplane can take off from an ordinary airport to transport spacecraft into orbit. It will bring about a revolution for the future aerospace transportation.’

A series of spaceplane projects are underway in China. A fully reusable space capability based around a ‘two stage to orbit’ spaceplane, with perhaps a larger and more capable upper stage than that tested in September, could be a game-changer. The US considered such a capability back in the 1970s when it was first conceptualising its space shuttle and ultimately settled on a vertical launch system using an expendable fuel tank and two external boosters, along with the shuttle’s main engine, to reach orbit. It was a less elegant, more expensive and, ultimately, more dangerous approach than two stage to orbit, with the crews of the space shuttles Challenger and Columbia paying the ultimate price for that design choice.

Might China be about to exploit second-mover advantage—leapfrogging over a flawed design that characterised the US shuttle and embracing a more sophisticated, two-stage-to-orbit vehicle? Such a vehicle could transform military space competition, prompt a response from the US Space Force and intensify debate over that organisation’s rationale and future role, including the contentious issue of crewed military space missions.

Australian specialist in Russian polar strategy Elizabeth Buchanan has urged lawmakers in the United States to reconsider key assumptions about the impact of the China–Russia relationship on strategic issues in the Arctic.

The following is an edited summary of Dr Buchanan’s evidence to the US House Committee on Foreign Affairs and the Congressional Energy and National Security Caucus in which she argued that three widely held assumptions about Russia, China and the Arctic were wrong.

Strengthened commercial engagement between Russia and China on Arctic energy ventures is driving a notion that there’s a Sino-Russian alliance in the region.

The reality is that mutual mistrust, centuries-old territorial tensions over the Russian Far East and hangovers from the Sino-Soviet split in the Cold War are all permanent features of the China–Russia relationship. They’ll continue to shape the strategic outlook, to an extent curtailing the two states’ ‘axis’ potential.

Moscow and Beijing have both learned that nations don’t have allies, or partners. Secure, successful states seek merely mutually beneficial relationships. That sentiment frames Sino-Russian engagement in the Russian Arctic.

Of the eight members of the Arctic Council, Russia took the most convincing to grant China its observer status in 2013. Moscow approved membership, and with it legitimacy, on the basis that Beijing explicitly acknowledged the sovereignty of Arctic-rim states and reaffirmed its commitment to the legal architecture of the Arctic region—the United Nations Convention on the Law of the Sea.

Since 2014, with Western sanctions over Russia’s annexation of Crimea and sustained aggression in Ukraine, Moscow has had a cashflow problem. When sanctions targeted energy projects in the Russian Arctic, China wasted no time in offering capital injections and technology for offshore exploration.

This doesn’t mean that Beijing is tying all energy security plans to the Russian Arctic zone. Chinese Arctic engagement is driven by energy insecurity. Beijing diversifies its energy imports across the globe, and the Russian Arctic energy ‘pot’ is but one more source.

China is also engaging in a mutually beneficial arrangement with Russia to access the Northern Sea Route, which slashes transit between Asia and Europe by roughly half and presents attractive savings for Chinese shipping. Russia hasn’t given China privileged use of the route. Chinese vessels have been refused entry, and those that pass abide by Russian transit laws—vessels must be piloted by Russian pilots, tolls are charged, and Russia must be pre-warned about trips. China is actively engaging with other Arctic-rim powers and has commercial ventures, investment plans and entrenched soft-power strategies in Norway, Canada, Iceland and Greenland.

China is also driven by the prestige a polar footprint brings, supported by its icebreaker-building capabilities. Russia is aware of the rationale behind China’s Arctic strategy. Any efforts by Beijng to move beyond the agreed terms of its arrangement with Moscow or failure to uphold its observer status commitments will no doubt encourage deeper cooperation among the Arctic-rim states. How closely China adheres to the legal and sovereign Arctic arrangements will signal the limits to its relationship with Russia.

Another assumption, that Russia has an expansionist agenda in the Arctic, is generational but strategically incapacitating. It follows the notion that Moscow’s military modernisation and securitisation of Arctic policy and planning are indicators of neo-imperialist ambitions there. This concern is sharpened by the Kremlin’s public affairs stunts like planting the Russian flag on the seabed of the North Pole.

Russia’s northwest Arctic zone has historically housed its nuclear-armed Northern Fleet. This military capability, as well as the strategic location and Soviet-era bastion policy of area denial, never really went away with the fall of the Soviet Union. It fell into disrepair and, under President Vladimir Putin, the military has undergone a vast modernisation program. Moscow has reopened military bases along its Arctic frontier. Geographically, Russia is the largest Arctic player, and more than 50% of the Arctic Ocean is Russian coastline.

A 2008 US geological survey indicated that most of the region’s oil and natural gas lies in the Russian Arctic. Russia under Putin has renationalised energy as its future economic base. Resource deposits in the Russian Arctic zone (onshore and offshore) have immense economic potential and thus national security primacy. Russia’s Arctic strategy is built on both economic security and frontier border security objectives.

Securitising economic interests and increasing activity on the Arctic border fall short of an expansionist agenda. Peel back the posturing and the Arctic ‘arms race’, and Russia’s Arctic priority remains stability. Continued regional cooperation with its NATO-member and Western Arctic neighbours remains a central strategic objective. Keeping the arena free of conflict is crucial to ensuring the Northern Sea Route remains open and commercially viable. Russia needs to be able to deliver secure, trusted and unimpeded energy supplies from its northern frontier to Asian energy clients.

Of course, opportunities to ‘grab’ territory beyond the Russian Arctic zone have yet to be seized by Moscow. This expansionist expectation refers to the broader continental shelf debate—who ‘owns’ the North Pole. Arctic-rim powers Russia, Denmark (by way of Greenland) and Canada have submitted claims to formally extend their exclusive economic zones, which overlap in the high Arctic Ocean.

Russia’s territorial and maritime disputes—notably with Norway in the Barents Sea and the US in the Bering Strait—have long been resolved. So, where in the Arctic is Moscow looking to expand? It’s well within Russia’s interests to uphold the international legal architecture of the Arctic, particularly UNCLOS, as agreed by stakeholders. This is a simple case of revenge of geography.

A final assumption is that Russia has fallen into Beijing’s debt-trap diplomacy and that it is overreliant on Chinese capital and ownership in joint ventures for energy projects in the Arctic. In reality, Russia has worked to offset Chinese investment and the risk of overreliance in energy ventures. That’s a delicate balance. On one side of the energy security ‘coin’, Russia relies on Chinese demand for Arctic LNG, but Moscow has worked to diversify its capital pools. Saudi Arabia, Japan, India and South Korea are all linked to Russian Arctic energy ventures.

Russian law stipulates that while private Russian energy firms can develop in the Arctic zone, they may not cede controlling stakes to foreign firms. Neither of the two key LNG projects on the Russian Arctic’s Yamal Peninsula is ‘owned’ by China. Beijing’s share in the Yamal LNG venture is 29.9%, Russia’s Novatek holds 50.1% and France’s Total holds 20%. In the Arctic-2 LNG project, China holds 20%, Novatek holds 60%, Total holds 10% and the remaining 10% is held by a Japanese consortium. We can expect Russia’s upcoming Arctic energy projects located near the Yamal Peninsula ventures to attract diverse capital pools.

Sino-Russian Arctic ties will continue to be predictable. The relationship built upon an energy security foundation will remain mutually beneficial—until it is not. Russia’s foreign energy strategy and broader Arctic security agenda rely on predictability. The Russian Federation’s economic base is predicated on the Arctic remaining a zone of low tension to ensure the Northern Sea Route—an economic artery—remains conflict-free.

Moscow is unlikely to plunge into conflict the region it holds the largest stake in, and which it has tied its future economic and social security to. Any Arctic tensions will come from a misreading of Russian interests or a misunderstanding of basic geography or of how international law applies in the region.

So what if a small Chinese tech company called Zhenhua Data holds personal information on at least 2.4 million people—including government, corporate and media leaders and influencers—from countries across the globe? Isn’t this just open-source data available on the internet? And anyway, what can we do? This is just China doing its thing, isn’t it?

This response to these nasty revelations has a whiff of the passive and cynical. And it is wrong.

We shouldn’t—and don’t have to—let China off the hook or just shrug and say ‘that’s the internet’. Particularly as Zhenhua is just one of a number of Chinese entities collecting and analysing masses of global data, with the intention of assisting the Chinese government in its political warfare and united front work.

Compiling profiles of powerful individuals from data found on the internet, added to confidential data that’s been procured—like bank account details, spending and browsing behaviour, and psychological health—helps a foreign intelligence agency exploit and manipulate people.

So, large datasets like this can boost conventional espionage operations significantly. They give levers to obtain cooperation willingly or unwillingly. When those levers include not just personal foibles and vulnerabilities, but information about a target’s children, relatives or friends, it starts to look uglier, even malign.

The data Zhenhua collected—or, rather, the partial dataset that was leaked to the media—is mostly ‘open source’, meaning it is not classified or otherwise protected but is floating about somewhere on the internet.

So, what’s the problem?

The problem is that the Chinese government and its corporate assistants will be using the insights from this giant data pool to obtain political, commercial, strategic and military advantage for the Chinese government and Chinese companies right now, including in ways that break other countries’ laws and rules. They will not be storing up the data like a squirrel storing nuts for the winter; they’ll be getting value from it daily—and adding to it as they do so.

The leaked Zhenhua dataset is just one of the large-scale datasets that the Chinese state is building and accessing—and it’s probably not the most impressive. ASPI analyst Samantha Hoffman’s Engineering global consent report sets out the data collection and aggregation work of another Chinese technology firm, GTCOM. The company focuses on global big data, facial recognition and artificial intelligence, which it supplies for Chinese government use.

The insights from these datasets are valuable for powering foreign interference by Chinese actors in other states and societies. They are the fuel for Chinese state entities’ covert and corrupting activities, and give these entities an advantage over others. Companies armed with these insights from government can use them to take advantage of competitors and business partners.

But the data is open source, so doesn’t that mean it’s okay?

No. The data may be ‘on the internet’ but it’s likely that laws on data access and sharing—such as the EU’s General Data Protection Regulation and privacy principles like those here in Australia, as well as commercial policies and terms—have been wilfully broken to assemble the datasets. Data obtained from the dark web is the most likely to have breached such laws and rules. It’s even more likely laws will be broken by Chinese state entities using the datasets.

And, even if the data is all out there on the internet, aggregating it is a whole different thing. Aggregating lets you see meaning and patterns that are invisible when the information is fragmented and scattered around the globe.

Cambridge Analytica did something similar, but for a narrower if still powerful purpose and with mainly US data. Once its practices were exposed, the company was shut down and several of its leaders and key employees have suffered career reversals. We shouldn’t give China a free pass for something we find essential to act on in our own countries and jurisdictions.

The consequences of Google or Facebook having masses of data about you are serious and rightly a topic of public debate and potential further regulation. But they are quite different to the consequences of the Chinese Communist Party and its technology companies having huge amounts of personal information about you and your family—because the intent about using the insights from these mass data holdings is different. It’s a case of values and interests—and the CCP has a lot of interest in using the data in ways many of us wouldn’t like or enjoy.

Coercive economics and pressure on governments and companies to say and do what Beijing wants is one clear use. Another is being able to influence political debates and even national decision-making.

Think about telling a key participant in a high-level government decision that if they don’t do what you want, you’ll reveal a distressing and compromising thing about one of their children to the world. Think about supplying, even selling, some of this data to political operators in a country you want to influence or divide and letting them do your dirty work. Think about enticing influential people to do what you want by paying off the large legal or medical bills you know they have because of the data you hold about them.

The fact that the Chinese government and its military and security services have access to this type of data matters, and so does what can be done to make it harder for them to get it.

The only good news here is that there are things that Australia and others can do to help reduce the risk of this behaviour and raise the costs to Beijing for operating in this way.

The biggest is to see this as a call to action as the world looks at redesigning the internet. This work is happening in obscure global bodies like the International Telecommunications Union, whose Chinese corporate participants are pushing hard to set the direction of the future internet, no doubt with the full backing and clear direction of the Chinese government.

Australia and other open democracies need to pile in on the new internet standards and governance if we aren’t to get a redesigned internet that’s even easier to use covertly and corruptly for authoritarian purposes than the one we have now.

We also need to work with like-minded governments and international human rights organisations to call out this Chinese government-connected activity for what it is: covert—and immoral—particularly when it comes to personal health data and data on children, and when many of its uses are likely to be covert and corrupting.

And we might also turn some of the open-source power of the internet back on Chinese government leaders—revealing, for example, details about the billion-dollar family fortunes of figures like Xi Jinping, despite their being paid annual salaries of around US$22,000—and get this data into the hands and minds of as many of China’s 1.4 billion citizens as possible—consistently and repeatedly.

That’ll give these ultra-wealthy leadership elites the chance to explain how their wealth fits with socialism with Chinese characteristics and with Xi’s anti-corruption campaign, which the party tells the world sets a model globally for dealing with corruption.

Right now, luxury consumption in China is hitting new heights, while some 600 million low-paid workers are either struggling to get paid or being forced back to their home provinces to get by. The nasty truth about the huge disparities in Chinese wealth distribution is high on Beijing’s radar of concern—to hide, as much as to address.

With the Zhenhua revelations, we have another chance to take some more steps in getting Beijing to do what it professes to be its current policy—and reduce its egregious interference in other societies as part of shoring up the position of the CCP.

Lastly, we might recognise that our own governments continue to undervalue the power of open-source collection and data in their own agencies and budget plans, particularly when combined with unique classified data sets.

It’s time that changed. Our own governments should be investing at scale in open-source data, wrapped up in the practices and norms of open societies that are governed, as the ABC’s Bill Birtles said on landing back in Australia, ‘with genuine rule of law’.