Since late August, Chinese telecom firm Huawei, along with another Chinese telecom, ZTE, has been banned from providing 5G equipment to Australia. The Australian government didn’t directly name the companies, but said that ‘the involvement of vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorised access or interference’.

Huawei later issued a statement, saying that:

Chinese law does not grant government the authority to compel telecommunications firms to install backdoors or listening devices, or engage in any behaviour that might compromise the telecommunications equipment of other nations. A mistaken and narrow understanding of Chinese law should not serve as the basis for concerns about Huawei’s business. Huawei has never been asked to engage in intelligence work on behalf of any government.

The problem is, Huawei’s claim doesn’t respond adequately to the evidence-based scepticism on which the Australian government based its decision.

For Chinese citizens and companies alike, participation in ‘intelligence work’ is a legal responsibility and obligation, regardless of geographic boundaries.

This requirement is consistent across several laws on the protection of China’s state security. For instance, Article 7 of the National Intelligence Law (国家情报法) declares:

Any organisation and citizen shall, in accordance with the law, support, provide assistance, and cooperate in national intelligence work, and guard the secrecy of any national intelligence work that they are aware of [emphasis added]. The state shall protect individuals and organisations that support, cooperate with, and collaborate in national intelligence work.

Similarly, Article 22 of the 2014 Counter-Espionage Law (反间谍法) states that during the course of a counter-espionage investigation, ‘relevant organisations and individuals’ must ‘truthfully provide’ information and ‘must not refuse’. The implementing regulations, released in November 2017, clarified the law’s provisions:

When State Security organs carry out the tasks of counter-espionage work in accordance with the law, and citizens and organisations that are obliged to provide facilities or other assistance according to the law refuse to do so, this constitutes an intention to obstruct the state security organs from carrying out the tasks of counter-espionage work according to law.

The scope and parameters of what Chinese authorities might deem to be ‘intelligence work’ and ‘counter-espionage work’ are not clearly defined in these laws—which are, at best, ambiguous and open to varying interpretations.

So, even if Huawei may be technically correct in saying that Chinese law doesn’t explicitly ‘compel’ the installation of backdoors, there are still reasons for concern. China’s intelligence and counter-espionage activities tend to be so expansive that these provisions could be used to justify activities extending well beyond China’s borders.

Moreover, these recent laws only codify and formalise existing practices, and the Chinese Communist Party has often advanced a ‘rule by law’ (法治) rather than a true ‘rule of law’ (法制) approach that places its own power and interests clearly above the law. Indeed, as the Australian government pointed out, the nature of the ambiguous but tightening relationship between the Chinese party-state and the tech companies that it claims as ‘national champions’, including through its party secretaries and committees, means there’s real potential for ‘extrajudicial directions’ beyond such formal frameworks of laws in this context.

The Chinese party-state’s view of intelligence is tied to the CCP’s expansive conception of national security or, more accurately, ‘state security’ (国家安全), which differs markedly from the US and Australian approaches to their own national security challenges.

The idea that ‘everyone is responsible’ for ensuring state security is a central feature of this concept. According to China’s 2015 State Security Law, ‘Citizens of the People’s Republic of China, every state organ and the armed forces, each political party, the militia, enterprises, public institutions and social organisations, all have the responsibility and obligation to maintain state security.’

The ‘responsibility’ requirement doesn’t stop where China’s geographic borders end. There is ample evidence that the state applies its laws and policies with extraterritoriality, in ways that can infringe upon the sovereignty of other nations and the civil liberties of individuals entitled to those nations’ freedoms.

As Huawei’s reach and access expand around the world, the opportunities for Chinese intelligence to leverage its products and infrastructure for espionage will only increase. Given the opacity of these issues and inherent uncertainties, the ‘case’ against Huawei may not meet the strictest of evidentiary standards in a legal sense, but there are enough red flags to raise serious questions about the potential for risks that cannot be mitigated satisfactorily without greater transparency.

Beyond the core features of the CCP’s approach to intelligence, Huawei itself has been linked to data theft, allegedly for intelligence purposes. As ASPI’s Danielle Cave has revealed, Huawei was the primary provider of ICT infrastructure to the African Union headquarters, which an investigation by Le Monde showed had been the victim of data theft over a five-year period.

If Huawei is given the full benefit of the doubt, its apparent involvement in this case demonstrates negligence at best. However, in light of the scope and scale of the alleged data theft, it’s difficult to imagine that the company wasn’t aware of, or perhaps even complicit in, these activities.

Is this an isolated incident, or might there be other cases in which Huawei’s networks and products have been linked to data theft and cyber espionage undertaken by Chinese intelligence agencies? That question may not have easy answers, given the opacity of these activities, but it’s worth asking —and investigating further—nonetheless.

Ultimately, what matters isn’t whether Huawei can be ‘proven’ to be ‘guilty’ or ‘innocent’, but whether it’s prudent to let a company that is constrained and influenced both by CCP priorities and by Chinese laws and extralegal mechanisms to build or operate the next generation of Australian critical infrastructure.

With Huawei’s aspirations to provide infrastructure for Australia’s 5G network dashed, attention must now shift to another major foreign investment proposal: the planned acquisition of APA Group, an Australian-owned and -controlled company, by Hong Kong’s CK Infrastructure Holdings (CKI). APA Group is a vital part of Australia’s national energy infrastructure. It owns more than 15,000 kilometres of gas pipelines, including the crucial South West Queensland Pipeline that acts as a conduit for north–south gas transmission on Australia’s eastern seaboard.

With the principal exception of ASPI’s Executive Director Peter Jennings, most of the commentary surrounding the proposed acquisition has focused on its economic dimensions. The terms of CKI’s offer provide a very favourable deal for APA’s shareholders. The $13-billion all-cash bid, unanimously endorsed by APA’s board, represents a 30% premium over the company’s recent trading value.

Though attitudes towards foreign investment in Australia’s critical infrastructure are changing, it’s still the case that investment proposals are too often examined through the narrow lens of economic costs and benefits. In that view, the criteria for considering foreign investment proposals are economic, principally whether the terms offered are acceptable to shareholders. Any factors outside the economic merits of a proposal tend to receive scant attention.

The increasingly obvious problem with this economistic view of foreign investment is that it’s unable to perceive larger, more important dynamics beyond the narrow calculus of economic costs and benefits. It doesn’t appreciate the surrounding geopolitical context through which foreign investment proposals acquire significance. In recent years, this perspective has proven a liability for Australia’s security interests.

The context that should influence Australia’s response to CKI’s bid for APA Group is China’s aspirations for regional hegemony. As Jennifer Lind describes in a recent issue of Foreign Affairs, China is pursuing the strategies of previous regional hegemons: working to establish itself as the region’s dominant military power, interfering in the domestic politics of other nations (including Australia), and engaging in a ‘soft power’ offensive to shape popular opinion.

Of prime importance, however, is that aspiring hegemons seek to establish their economic centrality to the neighbours they strive to control. As Lind describes it, ‘economic dominance lets regional hegemons use economic coercion to advance their agendas’ of political domination.

Though the idea isn’t explicated by Lind, historical experience shows that hegemonic powers seek control over natural monopolies like transportation, communications and energy. Because of their unique qualities, often related to very high infrastructure costs or other barriers to entry, natural monopolies have no ready substitutes. They are therefore powerful pressure points that hegemons can manipulate to coerce subordinate states. The hegemon can use its control of an asset to deny or disrupt client states’ access when they’re not sufficiently compliant. In many cases, the mere threat of being able to do so is enough to deter a subordinate state from ‘misbehaving’.

The increasing importance of economic instruments in the relations between states has been analysed by Robert Blackwill and Jennifer Harris in their 2016 book War by other means. They detail the growing centrality of economic measures, pertaining to such areas as trade, investment and exchange rates, to 21st-century statecraft—a phenomenon they label ‘geoeconomics’.

Blackwill and Harris identify energy as a particularly vital geoeconomic asset that states ‘enlist’ to advance their geopolitical interests. As an illustration, they detail Russia’s acquisition of energy infrastructure in nations of its ‘near abroad’, such as Gazprom’s purchase of Kyrgyzstan’s gas network in 2013. That investment, according to the authors, wasn’t made in accordance with economic criteria, but strategic calculations relating to Russia’s regional preeminence.

Blackwill and Harris decribe China as the ‘world’s leading practitioner of geoeconomics’. The Chinese state directly controls tremendous economic resources, and can also influence private actors through the coercive power wielded by the Chinese Communist Party. China has a unique capacity to advance unified policies by bringing together private and state organisations. As a consequence, it has the ability, and willingness, to direct and oversee international economic transactions of strategic significance.

That applies no less to private organisations based in Hong Kong, such as CKI. CKI’s considerable operations on the Chinese mainland mean that it must maintain a cooperative relationship with the CCP. CKI’s capacity to refuse the directions of the CCP cannot be guaranteed, and Australia would be mistaken to presume the CCP’s benevolence.

Australian policymakers cannot afford to neglect these factors when considering Chinese proposals to acquire natural monopoly assets. APA Group is a textbook natural monopoly. Its assets provide the primary means of moving gas along the eastern seaboard.

Permitting CKI to acquire APA would mean giving a Chinese organisation control over a key component of Australia’s energy infrastructure. It would provide the Chinese state with a pressure point that could be exploited in a future crisis, giving leverage to compel Australian acquiescence.

That could take the form of cyberattacks that manipulate the software that regulates the pipeline system, interfering with the operation of control valves, pressure monitors or other vital components. Such an attack could cause explosions, spills or other physical damage, and could disrupt gas distribution along the entire eastern seaboard. These are not abstract concerns—in April a cyberattack on a shared data network in Texas demonstrated the vulnerability of gas pipelines, though no physical damage resulted.

If Australia is to resist China’s hegemonic aims, we can no longer afford to let the economic merits of foreign investment proposals obscure their national-security implications. There are encouraging recent signs of our ability to resist China’s advances—namely, the establishment of the Critical Infrastructure Centre, the updating of laws covering espionage and foreign interference, the introduction of the foreign influence transparency scheme and, most recently, the 5G decision. Just as importantly, an ideational shift is underway that is changing Australian attitudes towards deepening engagement with China.

Rejecting CKI’s bid to acquire APA Group is a vital next step for the government to affirm its willingness to resist China’s hegemonic aims.

After years of negotiations, China and ASEAN have agreed on a single negotiating text for a code of conduct in the South China Sea and a path for future rounds of negotiations. While those are definitely achievements worth commending, the impression of peace generated by recent developments says a lot about China’s changing strategy in the South China Sea.

By now, most seasoned observers would be familiar with the ongoing argument between China and the United States about who is militarising the South China Sea. Earlier this year, the US Department of Defense disinvited the Chinese navy from the 2018 Rim of the Pacific exercise, citing China’s continued militarisation of disputed features in the South China Sea. That move understandably annoyed Beijing.

Since the 2016 Permanent Court of Arbitration ruling in favour of the Philippines, China has actively engaged in a campaign to restore its image among ASEAN countries by affecting a more cooperative stance on the issue. In April 2017, China reopened the Scarborough Shoal to Philippine fishing vessels, which had been barred from the area following a tense two-month standoff in 2012. Economic initiatives for Southeast Asia were liberally poured out through the Belt and Road Initiative.

China also agreed to restart negotiations for the code of conduct, which had been stalled since the signing of the Declaration on the Conduct of Parties in the South China Sea in 2002. Earlier this month, the table-top phase of the inaugural ASEAN–China maritime exercise was held in Singapore. These olive branches from Beijing were generally well received in the various ASEAN capitals, and China is keen to maintain the goodwill it has generated over the past year.

At the same time, many ASEAN countries have begun to question the US commitment to the region. America’s withdrawal from the Trans-Pacific Partnership and initiation of a trade war with China were not well received in the region. Beijing has skillfully capitalised on Washington’s negative publicity to portray itself as the more constructive power in the region.

It was no surprise, then, that at the 25th ASEAN Regional Forum meeting, Chinese Foreign Minister Wang Yi once again took aim at US freedom of navigation operations (FONOPs). He counteraccused the US of being a destabilising force in the region, saying that ‘some countries outside the region willfully show off their military power in the South China Sea, thus becoming the biggest driving force behind the regional militarization’.

Meanwhile, many issues remain to be ironed out during subsequent negotiations on the code of conduct, including its legal status and geographic coverage. If the history of the negotiations for the 2002 declaration is anything to go by, the road to finalising the code is likely to be a long one.

But it’s unlikely that China will try to draw out the negotiations. Chinese island-building in the South China Sea appears to be almost complete, and there’s no reason for China to obstruct the negotiation process further. Beijing has arrived at a crossroads in its approach to the South China Sea.

Although China will continue deploying more hard weaponry to the artificial islands, it has already started using softer, more subtle means of asserting sovereignty over the disputed features. On 5 July, the Department of Ocean and Fisheries of Hainan Province released the approval mechanism for the development of uninhabited islands in the South China Sea. Units and individuals will be allowed to apply for development of these islands, for purposes ranging from aquaculture to the construction of ports and shipyards, for periods of 15 to 50 years. By granting rights to development, China has in fact normalised its jurisdiction over these features. The lack of open protest from the ASEAN claimants arguably helps strengthen Chinese claims.

Non-military measures are slowly becoming a core strategy for China in its attempt to alter the status quo in the South China Sea, as it moves from a pure military approach to a dual-pronged approach. The strategy of strengthening the civilian presence in the South China Sea dates back to 2012, when the city of Sansha was established. This approach attracts less criticism, allowing China to achieve the same objective without risking its image. Focusing on civilian development also helps strengthen the narrative of US FONOPs as the main culprit of militarisation.

In the future, we’re likely to see more of China’s soft aggressiveness in the South China Sea, including cruise tourism to the disputed areas. As regional countries get caught up with the code of conduct negotiations, there’s a risk that Southeast Asia will lose sight of the broader picture in the South China Sea. ASEAN can’t neglect this developing trend.

The gun barrels had barely cooled after fighting in South Sudan a year ago when a tentative truce coincided with the arrival on Juba’s streets of Chinese workers in their high-vis vests.

In cars or on the open backs of trucks, the Chinese workers are engaged on all sorts of projects—energy, engineering, construction, telecommunications, medical services, hotels, restaurants and retail. Their vehicles stand out because they’re not armoured and don’t bear the logos of the United Nations or a non-government organisation.

South Sudan gained its independence from the Republic of Sudan in 2011, but the latest in a series of civil wars has continued there since 2013. Despite the violence, Zhong Jianhua, China’s former special representative on African affairs, once called the new country a ‘paradise for investors’ and by 2013 close to 100 Chinese companies were registered there. China sees the young nation as a vital source of raw materials, especially oil, but it’s also an opportunity for Beijing to demonstrate its commitment as a good international citizen through its UN peacekeeping deployment.

China has contributed successive contingents of peacekeepers to South Sudan and two of its soldiers were killed there in July 2016. China helps run camps for internally displaced people and its soldiers rarely venture out onto Juba’s streets. Unlike many Western nations, China doesn’t have an independent NGO operating in South Sudan and there’s concern locally that its presence there is driven more by self-interest than by humanitarian goodwill.

China’s footprint dates back two decades to the discovery of oil in the region that is now South Sudan. In what has been considered China’s riskiest economic gamble in Africa, it constructed oil pipelines in the midst of the south’s war for independence. Now, the China National Petroleum Corporation controls around 40% of the country’s two main oil producers.

In 2015, a Chinese attempt to broker a peace deal between the warring parties failed, but Beijing came out a winner by securing pacts from both sides not to attack oil infrastructure. During the war with the south, China provided weapons to Sudan to help it protect the southern oil fields, but since the south’s independence, Beijing has become the leading provider of weapons to South Sudan’s national forces. It’s used its veto on the UN Security Council to shield both South Sudan and Sudan from Western-sponsored sanctions against the leaders of both countries.

Beijing has an embassy in Juba and has worked hard to portray itself as driven by humanitarian motives rather than self-interest. It’s built a US$6 million hospital in Rumbek, renovated Juba Teaching Hospital and established many more health facilities elsewhere, while providing relief supplies such as rice, blankets, mosquito nets and tents.

For the South Sudanese government, desperate to recover from the damage done by years of civil war, the help is heaven sent. Parts of the country are still embroiled in conflict and half of its population has fled fighting and the fear of starvation to live in sprawling UN camps in Juba and other cities, or left South Sudan altogether.

The situation has provided an opportunity for China to increase its influence on the massive continent and its access to Africa’s abundant resources, and to expand its strategic footprint.

China’s practice of offering huge loans with obscure terms and conditions has been criticised in the West, with fears African countries will become trapped in a cycle of debt. The recipients of such loans are often defensive when issues about their lack of transparency are brought to light in the media. Huge reserves of raw materials may be regarded as collateral, giving China unlimited access to untapped resources if nations are unable to repay loans.

President Xi Jinping’s trip to Africa last month highlighted how much the continent matters to China. Economically, no country now has greater depth and breadth of engagement there than China. It’s estimated that more than 10,000 Chinese-owned firms operate there and different scenarios project revenue of between US$250 billion and US$440 billion by 2025.

China is Kenya’s largest creditor and owns approximately 70% of its external debt. In 2014, China loaned US$3.2 billion for a new railway between Mombasa and Nairobi which was built by the state-owned China Communications Construction Company and China Road and Bridge Corporation.

Beijing may feel, as its investment in the region grows and its dependence on Africa’s resources increases, that it needs a greater military presence to safeguard its economic interests and to protect the growing numbers—now up to 1.1 million—of its citizens living in Africa. China has established a military base in Djibouti and it may seek similar facilities as its economic interests grow in countries like Sudan and Kenya.

Beijing has also shown strong interest in the small archipelagic nation of Sao Tome and Principe, which the World Bank says has ‘no single economic activity that serves as a driver for growth’. China has dispatched Foreign Minister Wang Yi to the nation, which is well located to become a transport hub and strategically situated for a naval facility.

For the citizens of South Sudan, Beijing’s help brings mixed blessings. A report by the South Sudan Council of States in 2014 found a lack of regulation and oversight of oil companies operating in the Upper Nile regions of Paloch, Pariang, Meluth and Adar. Poor waste disposal procedures by a Chinese oil company and spillages forced the displacement of communities. The pollution has been blamed for miscarriages, stillbirths, and babies born with illnesses and severe deformities, and livestock are reported to have died after drinking the water.

As its Belt and Road Initiative accelerates, Beijing will want Africa to play a greater role in China’s economic growth. Chinese investment will help build economic infrastructure and improve service delivery and Africa will provide a market for Chinese goods. But many on the continent fear that as long as there are minerals in the ground, there’ll be the risk that hasty extraction will cause the sorts of environmental problems and community disruption that’s occurred in South Sudan and elsewhere.

Australia’s international security outlook is starting to look very threatening. The White House is undermining the international order, has started a trade war with China and the EU, and is threatening the unity of NATO. At the same time, China and Russia are becoming increasingly assertive.

The former director-general of the Office of National Assessments Allan Gyngell has stated that the international order we’ve known for the past 70 years has ended.

America’s belief in the system and willingness to invest in it with an effective network of alliances are now in doubt.

Beijing and Moscow are aligned in their contempt for a set of international rules and norms of behaviour that they see as having been invented by Washington. They are actively challenging the international security system.

Russia wants to see the end of NATO and a weak and divided Europe, a goal that has been aided by the attitude of US President Donald Trump. Trump has said that he sees Russia as a competitor, not an enemy. That is not the view of European members of NATO. At the same time, he describes the EU as a ‘foe’ invented to take economic advantage of the US.

Trump’s meeting with Vladimir Putin in Helsinki last week was an utter disaster. In a stunning alignment with America’s major adversary, Trump described Putin as ‘extremely strong and powerful’ in his denial and accepted his advice—over that of his own intelligence community—that Russia hadn’t interfered with US elections. He backed down after returning to Washington, saying he misspoke. Even so, the meeting with Putin effectively ended Russia’s international isolation.

Beijing is using coercion to bully the countries of Southeast Asia to accept a Chinese sphere of influence—a strategy it seems to be largely winning. China wants to be acknowledged as the natural hegemon of Asia and to see an end to America’s alliance system in the region, including ANZUS.

Importantly, we’re experiencing an increasingly unpredictable—some would say seriously unbalanced—President Trump. He boasts of having a trade war not only with China, but also with the EU and Canada. The world will stumble into a period of great uncertainty if a fully blown trade war results.

Trump has threatened the leaders of NATO countries with a US withdrawal from the alliance, saying that if they don’t spend more on defence ‘we are going to do our own thing’. That raises the question of whether a serious breach of trust in the transatlantic relationship is occurring.

We can take no joy in speculating that Trump might be gone in a little over two years. There are enduring grievances in America about the impact of globalisation and foreign trade on employment that support his popularity.

We are in a period of strategic transition in which the comfortable assumptions of the past are over. I’m not one of those who believe that America is about to pull out of Asia, but I do think we need to give serious thought to what Australia should do if the US made it clear that it expects us to do more for our own defence.

We need to take several actions to bolster our own security.

First, we need to focus more on our region of primary strategic concern, which includes Southeast Asia (including the South China Sea), the eastern Indian Ocean and the South Pacific. We should aim to reassert our influence in these areas as China moves increasingly to challenge our strategic space.

Second, we need to ensure that we continue to have access to highly advanced American military equipment, combat systems and weapons so that we maintain a technological edge in our own region. We have no credible defence future without the US alliance.

Third, we need to undertake a fundamental analysis of our relationship with China and determine where its limits should lie. We have become far too dependent on China for our economic wellbeing. We need to consciously diversify our trade, investment, tourism and international student businesses with other countries. They should include Japan, South Korea, India, Vietnam and Indonesia—as well as Europe, which is experiencing its own problems with China.

Fourth, the time has come for some serious long-term defence planning for Australia’s strategic future. It should include crisis situations in which the US may look to Australia to join it in military contingencies such as the South China Sea, Taiwan, the Korean peninsula, the Indian Ocean and the South Pacific. We must avoid being caught by surprise by such events.

Above all else, we must recognise that we now face the prospect—for the first time since World War II—of a potential major-power adversary, with whom we do not share fundamental values, operating in our neighbourhood and capable of threatening us with high-intensity conflict.

The key issues here are whether we’re now entering strategic warning time regarding future conflict, and whether our capabilities are sufficient to sustain a credible deterrence posture in a deteriorating strategic environment.

Events could now become much more serious, much more quickly. More thought should be given to planning for the expansion of the ADF and its capacity to engage in sustained high-intensity conflict in our own defence—in a way that we haven’t had to consider for several generations.