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A major disruptive crisis can force countries to adapt in ways that are deeply uncomfortable to the authors of the old order. That is what is happening with the Covid-19 pandemic.

The world is being pushed into a deep economic depression. Political systems everywhere are struggling to cope with a medical emergency but have yet to grapple with the second-order and third-order effects of the pandemic that could reshape the global strategic balance.

For Australia, it’s a wonderful outcome that we have—so far—‘flattened the curve’ and can start to plan for a slow return to normality, but that’s unlikely to be the story in our region. Who knows what Covid-19 will do to Papua New Guinea or Indonesia?

So, to say that national security is ‘not a first-order priority’ for government, as Dennis Richardson told Paul Kelly in the Weekend Australian last Saturday, is a failure of strategic imagination. There will be no snapback to the previous, more comfortable order.

A brief historical detour will help explain my point. As the head of the Department of Defence’s strategic policy branch in 1998, I was given the job of writing a classified assessment of regional security. This was in the aftermath of a murderous civil war on Bougainville Island, the Sandline crisis, which came close to triggering a coup in Port Moresby, and rising violence in East Timor.

I wrote in the assessment that Australia was facing the consequences of a deterioration in regional security. That judgement was set upon by others. The Department of Foreign Affairs and Trade took it as a criticism of its diplomatic skills, and the intelligence agencies saw it as a negative judgement about their predictive abilities.

As 1998 turned into 1999, it became clear that the assessment would never see the light of day. The Canberra bureaucracy could not conceive that the world was changing faster than its pragmatic incrementalism could handle. The report was shelved. Soon after, I was helping to run a new group called the East Timor policy unit in the weeks before Australia’s biggest military operation since the Vietnam War. Some deterioration!

The Timor crisis looks like a mosquito bite compared with the strategic changes now underway. Richardson dismisses as far-fetched the idea 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’.

The risk of conflict is not far-fetched. The Chinese Communist Party is pushing the boundaries of acceptable international behaviour in the skies and seas around Taiwan, Japan and South Korea, and in the South China Sea. This is not a state secret. It’s readily observable by reading Chinese newspapers that the party is stoking nationalist sentiment, diverting attention away from its mismanagement of the virus, and setting the groundwork for a crisis over Taiwan.

I hope a military crisis doesn’t happen, but it is the responsibility of national security agencies in Australia to think through the consequences of high-risk scenarios.

This is why Australia needs a national security strategy. Even if it were possible for Australia to avoid direct military involvement in a Taiwan crisis (a big if), we would certainly feel the impact of fuel supply chains from north Asia shutting down. Would China be supplying us with medical equipment as normal? If China is locked in a hostile standoff with the US over Taiwan, will we still be welcoming the PRC’s purchasing of our critical infrastructure?

These questions point to the inadequacies of current policy approaches that were designed for a more benign era, when more people bought the fiction that a wealthier China was going to become a more open country to deal with. We do indeed have ‘a muddle of policies that don’t align with one another’, as Richardson puts it. But don’t expect many in Canberra to acknowledge that, because they own the muddle.

In calling for a national security strategy, I am not saying that we should put a ‘national security umbrella over the totality of government’—whatever that means. Australia still will trade, take foreign investment, train overseas students and establish research links with other countries, but we need to understand what these actions mean from a national security perspective.

I agree with Richardson when he says the national security community lacks the skill set to handle these wider tasks. The deficit comes about because we have failed to take these broader challenges seriously.

Nowhere is that more apparent than in our failure to manage foreign investment with greater attention to national security. When I was in Defence, the line was ‘Treasury never says no’ to foreign investment.

The Foreign Investment Review Board has toughened its stance somewhat, meaning appalling stuff-ups such as leasing the Port of Darwin to a Chinese company for 99 years hopefully will never happen again. But it persists in claiming that investment from communist China is no different to investment from democracies. After Covid, does anyone still believe that?

I will happily accept Richardson’s mantle of being a ‘national security cowboy’. Right now, Australia needs more cowboy and less kowtow, more principle and less of the ‘pragmatism’ that has brought us to this sorry point.

Australia’s ‘step-up’ program in the South Pacific may already be having an impact, at least in Papua New Guinea.

The program was developed to enable Australia to work with other nations, including New Zealand, the United States and Japan, in part to counter the escalating influence of the People’s Republic of China in the region.

There are signs that it’s bringing results.

The PNG government’s decision to effectively nationalise the Porgera Gold Mine raised immediate concerns (which I shared) that China might seize the opportunity to acquire the mine from the PNG government or to claim the right to run the mine.

However, the extraordinarily strong reaction to the decision by one of the Porgera Joint Venture partners, the Chinese-owned company Zijin Mining, which has close links to the Chinese Communist Party, suggests that’s unlikely to happen.

Zijin chairman Chen Jinghe wrote to PNG Prime Minister James Marape condemning the decision not to extend the lease and warning that it could seriously affect future Chinese investment in PNG.

Zijin’s response was even tougher than that of its partner in the joint venture, Canada-based Barrick Gold Corporation, which also condemned the decision. Legal proceedings brought by the mine’s operator, Barrick (Niugini) Limited, against the PNG government are now underway in the national court.

There are three reasons why Zijin has taken the position it has, despite the fact that it will cause great displeasure in Port Moresby.

First, the PNG government’s Porgera decision damages Zijin’s 47.5% equity in the project, one of the company’s most important international investments.

Second, it must worry the operators of the Chinese government-owned Ramu Nickel Mine in PNG’s Madang province. The provincial governor, landowners and conservation groups have been agitating for some time for the Ramu mine to be closed on environmental grounds. As a consequence, the mine’s majority Chinese owners have deferred a $1 billion expansion.

The third reason is more complex, but equally important.

In November 2018, China sought to hijack the APEC Leaders’ Summit in Port Moresby. The summit was the largest international event ever held in PNG and one the Australian government provided substantial funding and administrative support for. Prime Minister Scott Morrison led a long overdue fightback.

Australia, New Zealand, the US, Japan and South Korea took a coordinated approach to help meet PNG’s significant infrastructure, economic security and social welfare needs with wider support for the island nations of the South Pacific. PNG’s prime minister at the time, Peter O’Neill, publicly embraced the approach, which included one of his pet projects, extending rural electrification throughout his country.

China’s intervention was effectively countered.

Since then, there has been a change of government in PNG. The new government has accepted a $380 million long-term soft loan from Australia. That has removed the need for a similar loan from China.

PNG is also negotiating a structural adjustment, fiscal management, and economic and social development program with donor agencies and nations. There are signs that this initiative will be even more multilateral than was first expected, with the World Bank now becoming involved.

The Chinese government may still have some involvement in the package, but its role seems to be significantly diminished.

China has provided some support for PNG to help meet the Covid-19 threat, but its support has been minor compared with that of Australia, which has responded comprehensively and generously.

So, is Australia’s robust Pacific step-up program, supported by other nations, mitigating China’s influence, at least at the national level?

It’s clear that China remains very active at the provincial and local government levels, especially on Bougainville, which, in itself, is a major concern.

But at the national level, its efforts appear to be more restrained, at least in the short term. There’s no doubt that the fallout from China’s behaviour at the APEC summit is a factor.

The positive impact that the step-up and the engagement of other countries is having on PNG can’t be discounted.

That should encourage the Australian government, even given our own difficult fiscal and economic circumstances, to ensure our development assistance program, and step-up, continue. Both need to be more focused than ever on enhancing our unique country-to-country and people-to-people engagement and our broader relationship.

And we need to encourage New Zealand, the US, Japan and South Korea to contribute to the overall program.

If the response to the Porgera mine nationalisation is a guide, it just might be that the step-up and related measures are having the right impact.

It’s early days, and China doesn’t appear to be lessening its activity elsewhere in the South Pacific, notably in Solomon Islands, Vanuatu, Tonga and Samoa. But we might just be seeing the first positive signs that properly targeted programs delivered by Australia and its partners are having the desired effect.

The mine decision is very harmful to PNG’s international standing. One ratings agency has already downgraded its credit rating.

That will mean our assistance, if properly targeted and spent, is even more important than it is already. And when one looks at the critical state of the PNG budget, the economy, and social indicators, our help is desperately needed. It just has to be developed and delivered even more effectively.

The continued strength of the iron ore price is surprising, given the collapse of oil, which traders have recently been willing to pay buyers for if they’ll agree to offload full tankers.

Oil and iron ore are the two most basic commodities of industrial economies and, through much of their history, their prices have moved in tandem along with the underlying health of global industrial production.

But iron ore has been holding comfortably above US$80 a tonne throughout the Covid-19 crisis, delivering a continuing run of fabulous profits to Australia’s big miners, BHP, Rio Tinto and Fortescue, which can all dig it up at a cost of less than US$15 a tonne.

The current price is about 35% higher than the federal government expected when it cast its mid-year budget outlook last December.

The short explanation for iron ore’s strength is China. China buys almost three-quarters of all seaborne iron ore and is the dominant influence on prices. China is seen to have emerged from the public health crisis and there’s an expectation the government will respond to lingering weakness in its economy with public spending on infrastructure that will boost steel demand.

By contrast, China accounts for only around 14% of the global oil market, which has abruptly contracted. The International Energy Agency estimates oil demand globally will be down 6% this year, equivalent to subtracting India’s entire consumption.

With the Covid-19 crisis still acute across the major Western economies, it is too soon to know what the global economy will look like on the other side of it.

It may be that once social-distancing restrictions are eased, everyone will go back to eating at restaurants and then, once travel is allowed, resume their long-delayed holidays and business trips. It will all pass like a bad dream. A pointer in that direction is that cruise ship operator Carnival, which in many ways epitomises the reputational damage from the Covid-19 crisis, is taking bookings for ships departing Sydney in August.

But a more pessimistic scenario of a long-lasting downturn in global demand cannot be discounted. Unemployment will remain high, banks will face large debt write-offs and will be reluctant to lend, and companies will defer investment decisions.

The backlash against globalisation that has been building since the 2008 financial crisis may intensify, with the renewal of hostilities between the United States and China and pressure on companies to repatriate their supply lines. The World Trade Organization has forecast a fall in trade this year of anywhere from 13% to 32%. The post-Covid-19 world could be more like it was in the 1930s, when trade halved as a share of global GDP.

The resilience of the Chinese economy and its demand for commodities would be severely tested. The modernisation and development of the Chinese economy over the past 30 years has been driven by globalisation and the rapid growth of world trade. China has had some success in reducing its dependence on exports and fostering domestic consumption, but trade still underpins its manufacturing industry and it looks troubled.

In the first three months of the year, China’s exports to the US were down by 25% and its sales to the European Union were down 16%. Bigger falls are likely in the second quarter.

To some extent, the strength of the iron ore price relative to oil is a function of the leads and lags in the respective supply chains. Oil storage is limited and, if the producing nations keep pumping it at a faster rate than consumers are using it, the available space fills to the brim. The oil market is at that point.

By contrast, China’s manufacturers, construction companies, traders and producers all keep stocks of steel, and prices have been supported by buyers adding to inventories in anticipation of a revival in economic demand. The latest readings on Chinese industrial production for April show that, while businesses are slowly getting back to work, the loss of export markets is reducing overall output.

As is well understood, China’s appetite for Australian commodities has underwritten our prosperity for the past 16 years. The resource sector now accounts for almost a quarter of all business capital stock, double its share in 2004 when the great boom began.

This has made Australia the pre-eminent supplier of mineral and energy resources to the world. The high cost of Australian labour has been more than offset by the world-beating efficiency of our resource companies, by the intrinsic quality of the reserves they exploit and by the strength of Australian governance. Those attributes have been rewarded with prices that have been higher for longer than at any point in Australia’s history.

An economic variable that has a big impact on living standards is the ‘terms of trade’, or the prices we receive for our exports versus the prices we pay for our imports.

During the technology boom of the late 1990s, the prevailing wisdom was that Australia had backed the wrong horse: the technology we imported would go up in value while the resources we exported would go down. As treasurer, Peter Costello was advised to subsidise the construction of an Australian microchip plant to shift the balance.

But the China-led resource boom meant that the average price for Australia’s exports since 2004 has been about 60% higher relative to the average cost of imports than was the case over the preceding 20 years. This has helped to sustain strong growth in living standards in Australia despite relatively poor productivity.

The long-term history—and there’s good data going back to the 1870s—is that booms in the terms of trade are followed by busts. Export prices drop well below their long-term average (relative to import prices) before returning to it.

Reserve Bank of Australia analysis of terms of trade booms and busts over the past 150 years shows that downturns are associated with weak per capita income growth and high unemployment and that it’s typically around five years before income growth recovers.

While the future is in flux, policymakers should be considering this as one of the potential outcomes from the crisis.

One point that should be made is that a sustained fall in iron ore prices would not be accompanied by a reduction in China’s demand for Australian supplies, which have the lowest production costs. In any commodity, prices will only fall as the highest cost producers are knocked out of the market. In iron ore, the highest cost producers are China’s own.

If China’s demand falls, it will be China’s iron ore mines that are rendered uneconomic and forced to close, while its dependence on seaborne trade will increase.

As the novel coronavirus has spread from its original epicentre of Wuhan into a global pandemic, China’s ruling communist party is pushing a new narrative.

After some initial missteps by local officials, this narrative goes, the central government took charge and defeated the virus with tough, resolute measures. Western countries are now suffering because of their lax response and the inferiority of their cacophonous democratic systems compared with China’s one-party model. Other countries should learn from China’s success, and the Middle Kingdom is now generously sending expertise and badly needed equipment to the hardest hit places. China’s healthcare workers are heroes. And by the way, the virus may actually have originated with the US military, not in China.

It’s a message being slavishly promoted in the party-controlled state media, parroted by Chinese diplomats around the world, and perhaps even believed by a significant percentage of Chinese citizens subjected to decades of brainwashing by relentless propaganda and an education and indoctrination system that extols the virtues of party rule.

But around the world, this narrative is being met with derision and outright hostility.

The alternative narrative, gaining increasing currency, is that China’s central leadership in Beijing knew early on about the severity and extent of the mysterious new virus in Wuhan and lied to the world in a massive cover-up. In those early crucial days, China barred experts from the World Health Organization and the US Centers for Disease Control and Prevention. President Xi Jinping received a grim assessment on 14 January about the Wuhan virus becoming a pandemic, according to reporting by the Associated Press, but the public was not warned until a week later. The late January lockdown of Wuhan came far too late, after more than half the city’s 11 million residents were allowed to leave for the Lunar New Year holiday.

Even now, according to this view, China’s leaders continue to lie and to obfuscate. Many believe China’s death toll from Covid-19 is far higher than the country is willing to admit, and that people with virus symptoms are simply no longer being tested. Most new infections are being blamed on ‘imported’ cases from abroad, even though the vast majority are Chinese nationals returning home from overseas.

The deliberate implication is that foreigners are now carrying the virus, stoking Chinese nationalism, xenophobia and racism, evidenced by the sickening scenes of Africans in Guangzhou being forced from their apartments or locked into forced quarantine. Some restaurants, including McDonald’s, displayed signs saying black people would not be allowed inside.

The coronavirus controversy, and Chinese diplomats’ ham-handed triumphalist tone, now threaten to disrupt the world’s relationship with China for years to come, long after the immediate crisis has abated. The country’s carefully cultivated global image, backed by huge infrastructure projects like its Belt and Road Initiative, will take a heavy blow.

Leaders of countries long friendly to China because of economic concerns—and willing to turn a blind eye to its atrocious human rights record and abuses like holding a million Muslim Uyghurs in concentration camps—are demanding Beijing be held to account.

Australia’s foreign minister, Marise Payne, called for an independent investigation into the Chinese origins of the virus and how it spread. German Chancellor Angela Merkel and French President Emmanuel Macron called on China to be transparent about the virus.

In the US, President Donald Trump, already embroiled in a trade war with China, hinted the virus may have been spread purposefully while calling for a probe. ‘If it was a mistake, a mistake is a mistake. But if they were knowingly responsible, yeah, then, sure, there should be consequences’, Trump said. He had earlier announced a suspension of US funds to the WHO pending an investigation of its dealing with the early stages of the outbreak, when officials praised China’s response and advised against travel restrictions.

In Africa, Obiageli ‘Oby’ Ezekwesili, a former vice president for Africa for the World Bank and a former Nigerian cabinet minister, wrote an op-ed in the Washington Post demanding China pay compensation to African countries for the virus, including a complete write-off of US$140 billion in debt. ‘China should demonstrate world leadership by acknowledging its failure to be transparent on Covid-19’, she wrote.

This came after several African foreign ministers summoned the Chinese ambassadors in their countries to decry the inhumane treatment meted out to black Africans in Guangzhou, something that prompted a tough video rebuke to Xi from a former African Union ambassador to the US and a warning from the State Department to black Americans to avoid Guangzhou.

China has spent decades and billions of dollars developing its ties with Africa, and the hard work of that dollar diplomacy now seems upended by a virus.

Meanwhile in the US, the state of Missouri filed the first lawsuit in federal court against the Chinese government, accusing Beijing’s leaders of an ‘appalling campaign of deceit, concealment, misfeasance, and inaction’ over the coronavirus and claiming Chinese officials are ‘responsible for the enormous death, suffering, and economic losses they inflicted on the world’. Two Republican members of Congress have introduced legislation making it easier for private American citizens to file suits against China for deaths and economic hardship unleashed by the virus.

All of this comes without any evidence so far that the virus may have accidentally emerged from a virology laboratory in Wuhan, a suspicion initially embraced by conspiracy theorists.

Chinese officials have deflected the finger-pointing, blaming others for trying to ‘politicise’ the crisis and insisting that Covid-19 is a scientific and medical issue best left to the experts.

Beyond the blame game, the coronavirus crisis is likely to reorder global supply chains to China’s detriment. When China first began its lockdowns in January, multinationals—from South Korean car companies to American toy makers—were forced to halt or delay production because they relied on crucial components or parts from mainland Chinese factories. Many will not want to again be caught so dependent.

Countries worldwide now will become more cautious about allowing China to be their chief supplier of medical equipment like facemasks and pharmaceuticals. In the past, globalisation’s mantra was ‘build it where it’s cheapest’, and most often that was China. But post-Covid-19, for crucial medical supplies, the new motto is likely to be, ‘make it at home’.

There is little doubt the world is set for a reordering whenever the pandemic finally fades. China would like it to be one on its own terms, in the absence of American global leadership, where the country’s leaders can showcase the superiority of their authoritarian model.

But what seems more likely is a new world order with China increasingly cast as an international pariah, a regime that placed its own pride and prestige over transparency about a pending pandemic. The communist party’s cover-ups, suppression of information and dissemination of disinformation will likely have cost hundreds of thousands of lives and plunged the world into a colossal global recession. And its xenophobia and racism have been laid bare.

The virus will eventually be contained, either through a vaccine or more widespread infection that eventually builds herd immunity. But in the world’s post-pandemic relations with China, it will no longer be business as usual.

Beijing is declaring success in its control of Covid-19. It’s a funny kind of success, though, because on closer examination it looks more like what Australia, Taiwan, South Korea and New Zealand are doing now.

What we would call ‘lockdown’ is still in place across much of the country.

In a country of 1.4 billion people, the Chinese government’s reported number of Covid-19 cases is 83,403, a figure which has pretty much flatlined since late February. That’s less than 0.006% of the Chinese population.

If you believe these official figures, then 99.994% of China’s population is still at risk of infection (not counting under-reported and unknown asymptomatic cases).

In comparison, Australia’s 6,462 cases make up 0.026% of our population, so 99.974% of our population is still at risk of infection. Our prime minister and chief medical officer are looking at ways to open some things up very slowly, but they’re not about to reopen the economy based on these figures. They can’t unless they want a pandemic that overwhelms our health system.

In China too, without a vaccine or way to control the spread of the virus other than tight physical lockdowns, the epidemic will simply accelerate through other parts of the country.

This pandemic started with a single infection in a wet market in Wuhan. It could get out of control again if just one infected individual slipped through Beijing’s control measures. Asymptomatic cases mean this is very likely to happen if controls are really lifted in meaningful ways.

So, any idea that the Chinese Communist Party has triumphed over Covid-19 is sadly wrong.

The only way China can get chunks of its economy back to business is by maintaining constraints on people’s movement or by sacrificing people’s health and lives in pursuit of production. That second path would mean tolerating outbreaks and the deaths they bring, which would be a cynical move demonstrating that the regime valued power and perceived success over the lives of its people.

Chinese officials were told by the party that in the ‘people’s war’ against Covid-19, rising infection numbers in their province or city would be a sign of failure. Since then, the official numbers across the country have fallen remarkably, with many areas now reporting no new cases.

Some of this is driven by ruthless suppression measures that are what we all know now as social distancing—although in China’s authoritarian system, that includes security personnel in hazmat suits whacking people with batons and dragging them into vans, as well as welding people into their apartments.

Remember, though, that it was local officials in Wuhan who supressed early reporting of cases, so it’s not a shock to see under-reporting of cases, given the pressure from the top.

The CCP is also setting the scene to blame foreigners coming into China for any second wave of infections, rather than the more likely source—community transmission within China itself.

Under the headlines touting President Xi Jinping’s success, we see a different story. A spokesperson for Beijing’s municipal government has announced that ‘epidemic control and prevention will probably become a long-term normal’ in China’s capital.

Beijing has become a biohazard fortress protected against its own citizens and against foreigners flying in—as we saw in footage of a UK Sky News crew returning to Beijing recently.

And Chinese authorities are putting out guidance like ‘3 tips for restaurants’: develop new menus for individual diners, sell food and vegetables online, offer takeaway.

None of this sounds like the economy is back to anything like business as usual.

In Wuhan itself, success looks a long way away, despite the central government’s announcement of the end of the lockdown there, during a curated tour of senior leaders, all wearing masks.

Tall barriers surround many housing compounds. Some people in ‘epidemic free’ residential compounds are now being allowed to leave their homes for up to two hours a day. Schools and universities are still closed; masks, temperature checks and identity checks are mandatory; and the city is sprinkled with ‘front line prevention and control positions’. Some travel in and out of Hubei province will now be permitted, but with rigorous checks on a tightly controlled number of travellers.

The measures in place in Wuhan look tighter than those in Australia—and they’re almost certain to remain so until a vaccine can be developed and rolled out.

Why the propaganda and the pretence?

The CCP wants to create the picture that China is managing the epidemic better than anyone else.

That’s for two reasons, one domestic and one strategic.

Domestically, the party needs the Chinese people to believe that it’s doing a great job, to get past the nasty truth that party mismanagement and repression let the virus spiral out of control first in China and then globally. The party also needs to the Chinese people to believe that only its rule can protect them.

Strategically, Xi’s success narrative is all about contrasting China with the US: authoritarianism is good, democracy is bad and weak. If it can deceive the world with this false narrative, Beijing thinks it can gain global power and influence.

As with all narratives, there has to be at least a tenuous connection to reality; it is true that the US isn’t managing the epidemic well.

Unfortunately for the party’s narrative, however, there is a global best practice beacon of governance and Covid-19 control in North Asia—and it’s not on mainland China. It’s the democracy of Taiwan, which, with a population about the size of Australia’s, has 395 confirmed cases and 6 deaths.

Taiwan shows that global best practice for pandemic control doesn’t come from Xi’s authoritarian regime but from a true ‘democracy with Chinese characteristics’.

That’s a confronting truth that is just not reportable or even sayable in mainland China.

Other best practice countries are South Korea, New Zealand and Australia. And, like Taiwan, we’ve been able to get our populations’ cooperation without government thugs hitting them with batons or welding apartment doors shut.

That’s the narrative—and the truth—the world needs to hear, including the 1.4 billion Chinese citizens living under party rule.