Great while it lasted: Chinese demand for Australian minerals is sagging

Australia’s 20-year-long economic party, funded by China, may be drawing to a close, with consequences for federal and state budgets, superannuation returns and living standards generally.

The iron ore price is the most obvious pointer to China’s declining demand for Australia’s raw materials: it has come down from an extraordinary peak of US$144 a tonne at the beginning of January to a spot price of US$92 this month, and the fall is expected to continue.

It is amazing that it has remained high for as long as it has, given that the construction of housing in China—traditionally accounting for 30 percent of its domestic steel use—has turned down since the biggest builder, Evergrande, struck financial trouble in 2021.

The subsequent collapse of Evergrande and other major builders has sapped Chinese consumer confidence, since housing is by far the biggest destination for household savings. Authorities sought to offset the housing decline by advancing further support to manufacturing and seeking growth in export markets.

China’s exports rose from an annual average of US$2.5 trillion between 2018 and 2020, reaching US$3.4 trillion over the past three years. While this has brought protest and retaliatory tariffs in many advanced nations, Australia was able to piggy-back on China’s export boom.

The prices Australia receives for its exports, relative to what we pay for our imports, have never been better than over the last two years. Our returns from trade have been even greater than during the peak of the resources boom in the early 2010s. The only other episode in Australia’s history that comes close was the wool boom during the Korean War in 1951, but that lasted barely a year.

The benefits of the bonanza have been widely spread. The resource companies and their shareholders, including most Australian superannuation funds, have achieved extraordinary returns. Resource company tax payments have delivered healthy budget surpluses to the federal government, despite its spending rising to the highest level in almost 40 years. Royalties have boosted the finances of the West Australian and Queensland governments.

The public at large gains not only from the spending on government services but also from cheaper imported goods with the strength of export prices boosting the value of the Australian dollar.

These extraordinary returns to Australia from trade have occurred while global trade has been flat. There has been no growth in world trade volumes since the beginning of 2022, and average trade prices are lower.  The International Monetary Fund attributes the weak global trade performance to the rise of protectionism and fragmentation, as trade within geopolitical blocs rises while trade between them falls.

The strength of Australia’s returns from trade over the past two years was not expected. Treasury has repeatedly predicted an imminent slump in iron ore prices to US$55 to US$60 a tonne (with similar falls in coal prices) in every budget since at least 2017.

But the Chinese authorities’ preference for stimulating their economy through subsidies to manufacturers, rather than through tax cuts or payments to consumers, has kept the rivers of cash flowing to Australia’s miners.

Although the past few years have been exceptional, Australia’s Chinese bonanza is now into its 20th year. Until the early 2000s, China’s economic growth was driven by light industry, but huge investments in infrastructure and heavy industry brought explosive growth in demand for Australian resources from 2004 onwards.

Until then, it was thought that Australia’s dependence on resource exports would bring ever-weaker returns from trade: from the mid-1970s until the early-2000s, the average returns from exports were gradually falling while the average cost of manufactured imports was rising. This was the outlook facing the Howard government for much of its term.

Instead, there has been a remarkable rise in Australian living standards. In 2004, Australia’s income per person ranked 23rd, behind the United States, all the major countries of Europe, Britain and Japan.  It now ranks ninth and has overtaken every larger country except the US (excluding tax havens), according to World Bank data.

But China is now bumping up against the limits of its export-driven economic model. Export growth is slowing and steel production is falling. Steel output in July was down 9 percent from the previous month leading the chair of China’s biggest steelmaker, Baowu Steel Group, Hu Wangming, to warn staff at the company’s half-year meeting that conditions were like a ‘harsh winter’ that will be ‘longer, colder and more difficult to endure than we expected’.

It is a chill that will likely be felt in Australia.  Already, Treasurer Jim Chalmers is warning that the federal budget balance will deteriorate, while the impact of weaker exports will flow through to superannuation returns, the value of the Australian dollar and the cost of imported goods. Living standards will suffer.

For the most of the past 20 years, it has been a seller’s market for Australia’s resources. The many efforts of China’s authorities to weaken the markets for major commodities have failed. How China will exploit its market power once it becomes a buyer’s market is an open question.

China may be putting the Great Firewall into orbit

The first satellites for China’s ambitious G60 mega-constellation are in orbit in preparation for offering global satellite internet services—and we should worry about how this will help Beijing export its model of digital authoritarianism around the world.

The G60’s inaugural launch on 5 August 2024 carried 18 satellites into low-Earth orbit (LEO) on a Long March 6A rocket. Led by Shanghai Spacecom Satellite Technology and backed by the Shanghai Municipal Government, the project aims to compete in the commercial satellite internet market with SpaceX’s Starlink, providing regional coverage by 2025 and global coverage by 2027.

The G60 is one of three mega-constellations that China is planning, alongside the Guowang project, run by state-owned China Satellite Services, and the Honghu-3 constellation, led by Shanghai Lanjian Hongqing Technology Company. These constellations provide the infrastructure to support China’s rapidly growing commercial space sector, including its satellite internet initiatives which are making rapid advances.

China launched the world’s first 6G test satellite into LEO in January. GalaxySpace recently made headlines by deploying satellite internet services in Thailand, the first time Chinese LEO satellite internet had been deployed overseas. In June, the Chinese company OneLinQ launched China’s first civilian domestic satellite internet service, indicating it would expand through countries that had signed up to China’s Belt and Road Initiative.

Yet through these efforts, China is not only securing its position in the satellite internet market but laying the groundwork for expanding its digital governance model far beyond its borders.

Central to China’s ambition is the concept of cyber sovereignty—the notion that each nation has the right to govern its digital domain. In practice, China has used this principle to build a heavily censored surveillance system supporting the Chinese Communist Party’s power, widely condemned for violating human rights.

China’s satellite internet services would enable other governments to adopt similar practices, as the nature of satellite internet makes it susceptible to state control.

Satellite internet is more controllable due to its centralised infrastructure, where data is routed through a limited number of ground stations or gateways. This enables censorship and surveillance as service providers and authorities can more easily monitor, block and filter content.

In contrast, traditional internet infrastructure relies on a decentralised network of sub-sea cables and terrestrial networks managed by many stakeholders with thousands of data exchange points. This decentralised structure makes it difficult for any entity to exert complete control over the flow of information, as countries such as Russia — which initially welcomed the open internet, unlike China or North Korea—have learned.

Countries that use China’s satellite internet service providers could more easily control what information is accessible within their borders, much as the Great Firewall of China operates domestically. This could mean blocking politically sensitive topics, monitoring user activity, or shutting down the internet during unrest. While satellite internet has often been hailed as a means for dissidents and activists to bypass restrictive governments, the reality under China’s model, which would place it in the hands of nation-states, would be starkly different.

China is already exporting its digital authoritarianism through such initiatives as the Digital Silk Road, providing technologies and governance models that enable censorship, surveillance and social control to other countries. These efforts come amid a rise in the global spread of authoritarianism as governments seek to exert control over online spaces. Adopting Chinese satellite internet services would accelerate this trend, empowering other countries to implement similar controls and restrict human rights globally.

Offering satellite internet worldwide has other benefits for Beijing. Countries relying on China’s infrastructure for connectivity may risk being pressured to comply with Beijing’s demands, including censoring content critical of China, sharing sensitive data or suppressing domestic dissent in China’s interests. For example, a journalist in a country that relies on China’s satellite internet services might find his or her connection reduced or severed when reporting human rights abuses in China.

The centralised nature of satellite internet may also make countries more vulnerable to cyber espionage by the Chinese government or malicious actors. Chinese satellite providers may also be subject to China’s stringent data localisation policies, such as the Cybersecurity Law, which requires companies to store data within China and make it accessible to the Chinese government. As China’s satellite projects are intended to provide global coverage, the data of international users—spanning communication, location, and internet activity—would be subject to Chinese data laws. Chinese authorities could potentially access any data transmitted through Chinese satellite internet services.

The global deployment of China’s internet satellite services is still some way off and faces significant challenges. However, if China’s satellite internet services are adopted, the world may witness the rise of a new digital Iron Curtain extending from space, dividing the free flow of information and imposing state control on a global scale.

Ten years after Islamic State, Yazidis await justice

Ten years since Islamic State’s genocide against them, the justice that the Yazidi craved still eludes them.

In August 2014, Islamic State adherents in Syria and Iraq began committing mass murder, forced religious conversion, enslavement and the most egregious sexual violence against Yazidis, a distinct ethno-religious minority. Tens of thousands of people from 89 countries were involved in these crimes, but only two have been prosecuted.

During the weeks of commemorative events held by Yazidi communities in northern Iraq this month, hundreds of families have been chased from refugee camps with hate speech from their Muslim neighbours. Many have described the experience as similar to what happened a decade ago when Islamic State was in charge.

The Iraqi army launched operations this month against a Kurdish militia group, renewing violence in the Sinjar region, the home of many Yazidis. Thousands have fled to the nearby semi-autonomous Kurdish region. The army says the offensive was aimed at dismantling militia checkpoints. Nobel Peace Prize Laureate Nadia Murad has called for an end to the violence. Many Yazidi villages have also experienced aerial attack from Turkey over recent years.

Members of the International Criminal Court, such as Australia and Britain, have an obligation to investigate and prosecute perpetrators of crimes against humanity, war crimes  and genocide in their own court systems.

Britain has long advocated for an end to impunity of the kind of sexual violence Islamic State used in Syria and Iraq. It supported UN Security Council resolutions calling for justice for the crimes perpetrated by Islamic State. But more recent British governments made the decision not to prosecute British foreign fighters, saying they should be prosecuted closest to where the crime occurred.

In Australia, successive governments have implemented legislation revoking the citizenship of nationals who joined Islamic State, making prosecuting them harder. Even when foreign fighters, such as Neil Prakash, have returned home, they have been charged with only terrorism offences, not genocide-related offences.

Revoking citizenship of foreign fighters leaves them out in the world able to continue perpetrating crimes in places where protective security and justice systems are not as strong as in Australia. When Turkey began offensive operations against Syria, many Kurdish controlled prisons where many of these criminals were held were destroyed, and prisoners ran free.

The public abuse that Yazidis are experiencing now is emblematic of the systemic discrimination they experience in Iraq. This is why they don’t feel Iraqi courts will ever give them justice. When cases do come before Iraqi courts, individuals are only charged with membership of Islamic State, never genocide.

Germany is the only country to have prosecuted anyone for genocide of the Yazidi, including sexual violence.

There is good reason why the UN Security Council considers ending impunity for conflict-related sexual violence a matter of international peace and security. Throughout the world, the use of sexual violence during armed conflict undermines social stability and long-term peace. According to my research, sexual slavery contributed US$111 million to the economy of Islamic State.

Peace and justice are inextricably linked. Women’s security is fundamental to global security.

This year, the mandate will expire for the UN investigative team that has been gathering evidence of Islamic State crimes in Iraq.

Countries such as Australia, France and Britain, which so often stand firm at the UN Security Council in support of the Women, Peace and Security agenda, need to put their money where their mouths are. They need to undertake the investigations and prosecutions of their nationals who perpetrated sexual violence as crimes against humanity, war crimes and genocide while fighting with Islamic State and other extremist groups in Syria and Iraq.

Justice delayed is justice denied. The Yazidis have waited long enough. They can wait no longer.

No, China isn’t really suppressing its production of fentanyl precursors

China has announced new controls over the production of precursor chemicals used to make fentanyl, the deadly illicit drug that’s killing thousands of Americans every year. But the new controls do nothing to dismantle the domestic policies that have led to China’s fentanyl dominance, and they apply to only three precursor materials out of hundreds produced, promoted and exported by China over the past two decades.

On 7 August, The Financial Times reported the change in China’s regulation of the three precursors: 4-AP, 1-boc-4-AP and Norfentanyl. But, as the newspaper noted, UN member states agreed to those restrictions back in 2022. For almost two decades China has been a major global source country for synthetic illicit drugs or their precursors. Almost all of the methamphetamine is manufactured using precursors from China.

The new controls—a result of a cooperative agreement reached by presidents Joe Biden and Xi Jinping in November 2023—may appear to signal a commitment to counter narcotics, but China’s government has been subsidising the production of fentanyl through longstanding tax rebates.

Fentanyl, a synthetic opioid 50 to 100 times more potent than morphine, is a central driver of the US overdose crisis. In 2022, it was linked to around 71,000 of the more than 100,000 reported US drug overdose deaths. Even a 2 milligram dose can be fatal.

While fentanyl and other synthetic opioids are trafficked into the US by Mexican cartels, almost all the global supply originates from China. Fentanyl is also not an outlier. As reported in a paper by the US congressional Select Committee on the Chinese Communist Party, Chinese companies are the major global supplier for methamphetamines, ketamine, tramadol, nitazenes and xylazines.

That market dominance is the result of the promotion and protection of illicit pharmaceutical industries by the CCP.

The Financial Times article, written by Demetri Sevastopulo, reported that China’s new controls on three precursors signal improved cooperation with the US. On the Biden–Xi agreement, a Chinese Embassy spokesperson in Washington, Liu Pengyu, said, ‘China has always attached great importance to international counter-narcotics cooperation and is willing to co-operate with countries worldwide including the United States. We hope that the US side can work with China in the same direction and continue our cooperation based on mutual respect, managing differences, and mutual benefits.’

The Financial Times and Liu Pengyu overlook two inconvenient facts.

First, the CCP has not only allowed fentanyl and precursor exports but promoted them. It’s alleged that, in some cases, the manufacturing operations appear to have direct government links. In leaked documents, companies boasted that the CCP owned them and that their illicit products were tax-exempt.

China has a value-added tax (VAT) system that reduces or eliminates the tax on exported goods through a ‘refund rate’ mechanism, incentivising companies to manufacture and export certain products. It’s a trade policy tool to regulate export prices and boost international competitiveness. As far back as 2018, the VAT system is alleged to have incentivised the export of at least 17 illegal narcotics that are Schedule I controlled substances and have no legitimate purpose, including 14 fentanyl analogues. Analogues are chemically similar to existing substances, designed to mimic or alter the effects of the original while varying slightly in structure to evade legal restrictions or to enhance specific properties.

The CCP provided unusually high VAT rebates of 13 percent for synthetic narcotics, compared with the standard rebates of 3 percent, 6 percent and 9 percent for most other commodities. The select committee’s report of April 2024 on the US fentanyl epidemic reported that those subsidies remained in place as recently as that time.

Further, the CCP’s new controls address only three chemicals out of the hundreds produced and exported by China to make fentanyl. Synthetic opioids, such as fentanyl, can be made through various chemical processes that require specific precursors. The CCP subsidises, and has no control measures on, NPP and ANPP—the two precursors most valued by Mexican drug cartels. Not only that, but the US has begun to intercept higher volumes of boc-4-piperidone (the other fentanyl precursor that was proposed for international control), 2-phenethyl bromide (including one shipment of 660 kilograms) and para-fluorofentanyl. These findings suggest a diversification by traffickers into the illicit manufacture of more fentanyl end products, bypassing the agreements made between the US and China. Chinese criminals used a similar approach to produce ‘novel substances’ and avoid regulatory controls. ‘Novel substances’ are designed to mimic the effects of existing illicit drugs or to produce new psychoactive effects.

Other synthetic opioids may use different precursor chemicals. The production of all synthetic illicit drugs involves complex chemical reactions that typically require specialised knowledge and equipment.

China has long claimed that it cannot control illegal activities in its chemical and pharmaceutical industries due to the difficulty of identifying manufacturers exporting synthetic narcotics. But to receive a VAT refund, a company must provide details of the name and amount of the exported substance to the government, including complete identification and sales records. The US select committee’s April 2024 report also presented solid evidence that the CCP provided monetary grants and awards to companies openly trafficking illicit fentanyl online.

Without addressing the CCP’s systemic support for illicit narcotics, the new controls on three precursors are little more than a public-relations stunt to save face and obfuscate the party’s complicity in this deadly problem. If China wants to be a good global citizen, it must remove VAT subsidies on illicit pharmaceuticals, increase regulatory oversight and domestic law enforcement’s counter-narcotics efforts, and remedy international compliance deficits for all illicit pharmaceuticals.

While Australia doesn’t, at present, have a fentanyl problem, we do have a methamphetamine epidemic. Our epidemic, like the US one, is fed by chemical precursors produced in China. It’s imperative that Australia maintains an independent sovereign foreign policy, but there’s great value in Australia and the US adopting a shared stance against China’s illicit narcotics role.

Kiribati’s upcoming presidential election: a chance for a reset

Kiribati’s polls have closed, and the results are in. There won’t be a president for several weeks, but, regardless of the outcome, Australia will be hoping for a fresh start.

When parliament is formed, it must put forward at least three presidential nominations for another public election. Incumbent President Taneti Maamau was re-elected to parliament and is likely to seek to keep the presidency.

The Kiribati people voted, first and foremost, on issues affecting their daily lives, including climate threats and economic development needs. However, as Australian Foreign Minister Penny Wong has said, we are in a ‘permanent contest’ with China over influence in the Pacific. How governments are navigating that contest is increasingly affecting voters across the region.

The Australia–Kiribati bilateral relationship has been in decline, but the election will provide an opportunity for a reset. For the sake of the ongoing development assistance that Australia is hoping to provide our near region to ensure its stability, Canberra must find a way to move forward with any incoming President through more dialogue and greater transparency on our own activities, starting with an invitation to visit our capital at their earliest convenience. The relationship has been challenged by a series of disagreements that Maamau has aired publicly, asserting himself domestically and internationally. If he does return as president, Australia must do more to show we are listening to these concerns.

In 2020, Maamau’s party lost its majority of seats, but he returned for a second term as president based on a campaign that addressed local issues and steered clear, where possible, of concerns about cutting ties with Taiwan and the growing relationship with China. This year, shying away from geopolitics may be more difficult, as the people of Kiribati now find themselves with the Chinese paramilitary, the People’s Armed Police, on the ground in their small island nation.

The presence in Kiribati of the force (revealed only in February this year) concerns the Australian government, which has struggled to respond. The minister for international development and the Pacific, Pat Conroy, said there should be ‘no role’ for China in policing the Pacific islands and offered instead to send Australian police. But such broad comments could risk alienating Pacific countries by disregarding their sovereign decision-making. Australia should be more open about the real risks that come with Chinese police in the region, including their use in suppressing Chinese dissidents, collecting biodata and conducting mass surveillance.

Overenthusiastic and unsubstantiated posturing could jeopardise Australia’s relations in the region; Kiribati has recently shown reluctance to allow other forms of assistance from Australia. For example, it blocked support from the Pacific Media Assistance Scheme.

Maamau’s government signed a memorandum of understanding with Australia in February 2023 ‘nurturing cooperation’ across a broad range of sectors, including economic reform and maritime security. However, any talk of a stronger agreement or treaty has been put on ice. More recently, Maamau was quick to downplay any discussion of Kiribati signing a treaty similar to the Falepili Union between Australia and Tuvalu. A new government could see a shift in Kiribati’s approach to those larger agreements, but transparency and time for proper consultation across groups will remain the key.

Fortunately, Australia has been able to continue with the delivery of a new barracks, headquarters and radio system regardless of the tension. Even if the relationship has soured, Canberra understands that it’s important to continue to support lasting and meaningful development for the country.

Another point of tension is the breakdown of independence in Kiribati’s judicial system after Australian David Lambourne, a long-serving High Court judge in Kiribati, was removed and later deported. Some believe this move was meant to make the opposition’s life more difficult before the election.

Incumbent opposition leader Tessie Lambourne is the partner of David Lambourne. More importantly for the people of Kiribati, she is a former dedicated and decorated civil servant who has filled the role of secretary in many government departments and was Kiribati’s final ambassador to Taiwan before the switch to recognising the People’s Republic of China in 2019.

David Lambourne was removed in ‘proceedings that violated international standards’, according to a United Nations Human Rights special rapporteur, who also voiced concerns over Kiribati’s judicial independence. The change is part of a larger trend of declining public transparency.

Kiribati, like all Pacific island countries, is seeking to solidify its identity, values and place in the region and the world, and each country must navigate those waters in the way that makes most sense to it. Kiribati’s temporary withdrawal from the Pacific Islands Forum in 2022 forced the organisation to ensure that the country’s voice was heard. Similarly, Maamau’s public criticism of AUKUS boils down to resentment that Australia did not consult Kiribati. The criticism reminds partners that Kiribati wants to be seen as an equal and will do things its own way.

A good partner understands those concerns, and Australia has made positive steps to demonstrate that. Canberra will be hoping that it can use the presidential election as a chance to start afresh, even if it is with a returning Maamau. But Australia must also continue strong public consultations about initiatives and support and keep encouraging transparency from all governments and partners in the region, ensuring that the contest for influence doesn’t get in the way of helping our Pacific family.

Australia could soon be hosting nuclear-armed US submarines

The possibility of Donald Trump returning to the White House has resuscitated debate about the reliability of the US alliance, including the nuclear protection Washington extends to Australia and other allies.

Whoever wins the presidential election in November, Australia needs to deepen its contribution to extended nuclear deterrence, as the US nuclear umbrella is formally known, to keep Washington engaged. As ASPI senior fellow Rod Lyon put it, assurance is a two-way street.

One way to demonstrate that Canberra has real skin in the deterrence game is to host more US nuclear forces.

Australia is yet to follow South Korea’s example of welcoming a visit by a US ballistic missile submarine, which would always carry dozens of nuclear warheads. But changes afoot in Washington mean Australia could soon be regularly hosting other types of nuclear-capable submarines—those that can deliver nuclear weapons even if the US neither confirms nor denies that any are aboard.

Largely overlooked in Australia, the US Congress has funded development of a nuclear-tipped cruise missile for use at sea, formally called SLCM-N, to become provisionally operational by 2034. Such nuclear cruise missiles have not been deployed on US Navy vessels since the early 1990s.

The new ones seem to be primarily earmarked for Virginia-class attack submarines—a type of boat that visits Australia regularly and will form part of the rotational force being established at the base HMAS Stirling in Western Australia later this decade as part of AUKUS.

Politics could still get in the way, but there is bipartisan support for SLCM-N in the US Congress and the Biden administration’s opposition has lessened. If Trump wins, its future should be secure. Elbridge Colby, who is widely tipped for a top national security role in a second Trump administration, is a fan.

Some might be inclined to shrug, as nuclear-capable bombers have been rotating through our airfields for decades, exploiting a caveat in the South Pacific Nuclear Free Zone treaty that bans the ‘stationing’ of nuclear weapons in Australia but not visits by US nuclear forces.

But the nuclear threats we face today, including China’s rapid missile buildup and sabre-rattling by Russia and North Korea, are more complicated than those we faced in the Cold War, when the treaty was drawn up against the backdrop of large anti-nuclear protests.

Washington is adjusting its posture to meet these evolving threats. The New York Times has reported that revisions to US nuclear strategy approved by Biden earlier this year focused more on countering China, although the White House has denied that any country was singled out.

Australia will have a greater say over changes to US nuclear posture if it does more to support extended deterrence than host such joint facilities as Pine Gap. But doing more will require public understanding and support, which the government must build.

Canberra’s first task is ensuring that disinformation about US nuclear weapons does not undermine AUKUS. The fact that the Royal Australian Navy will purchase Virginia-class submarines from the US Navy in the 2030s does not mean Australia is acquiring a nuclear weapons capability, as the new AUKUS treaty tabled in Parliament this month makes clear.

But the government cannot afford to bunker down behind defensive press lines. Ministers must make the case to the Australian public and the international community that the US nuclear umbrella, which relies on support from allies, helps make the world more stable and less prone to the proliferation of nuclear weapons.

Encouragingly, the AUSMIN statement, issued after Foreign Minister Penny Wong and Defence Minister Richard Marles met their US counterparts at the US Naval Academy earlier this month, complimented Washington’s ‘responsible transparency’ as a nuclear power and called on Beijing and Moscow to improve. It’s a start, but still far from the level of candour we need.

Behind the public rhetoric, Australian ministers, officials and military planners should already be sharing views about nuclear deterrence with their US counterparts through the dialogues and force posture initiatives that manage the alliance.

But coordination is also essential with other US allies, notably Japan and South Korea, if Australian voices are to be heard clearly in Washington.

At a practical level, Canberra and Washington need to thrash out how Australian sailors can continue to train on US attack submarines that might in future be nuclear-capable, which is vital for the success of AUKUS.

Longer term, the Australian Defence Force could even follow NATO’s example by integrating elements of its conventional forces into US nuclear planning and operations.

But treaty obligations prevent Australia storing US nuclear weapons on its soil, as takes place at some European airbases. NATO’s so-called nuclear sharing arrangements are really about the pooling of responsibilities and decision-making, which is also where Canberra should focus.

Australian interests are best served by contributing more actively to extended nuclear deterrence, including being open to hosting more US nuclear forces, without seeking nuclear weapons.

Ducking the issue and covering the debate with anodyne talking points will deter nobody.

New Caledonia crisis: a turning point in Pacific security

New Caledonia is the most pressing issue in Pacific security right now. New Caledonia’s future is a black swan risk: waiting in plain sight, yet unknown to most.

In May 2024, New Caledonia erupted into violence and unrest after the French government changed local voting eligibility rules. What happens next could be a game changer for the Pacific region. 

As I detail in my report When China knocks at the door of New Caledonia, published by ASPI today, the Chinese Communist Party has been engaging in covert activities in New Caledonia over decades, targeting local elites and business figures. CCP influence will remain a significant factor in New Caledonian politics whatever the islands’ future. 

There is no evidence of the Chinese government’s direct involvement in the current unrest and violence. Even so, China has featured repeatedly in commentary about the New Caledonian riots despite no reports of Chinese businesses being targeted. 

In the first two weeks of looting and unrest, the French Government blocked the Chinese social media app TikTok (抖音) in New Caledonia. French Prime Minister Gabriel Attal said TikTok was banned ‘due to interference and manipulation of the platform, whose parent company is Chinese. The app is used as a medium for spreading disinformation on social networks, fed by foreign countries, and relayed by the rioters.’ 

Beijing has been quick to push back at any hint that it might be involved in the unrest. In June 2024, Global Times, a CCP mouthpiece, posted a scathing attack on Western coverage of the unrest, saying that the media were scaremongering about China as a ‘shadow’ behind the protests.  

Beijing has been noticeably circumspect in public commentary about the social unrest in New Caledonia. As my paper details, media accounts have also been extremely limited, which will reflect official guidance to “Follow the Xinhua line”.  

China has longstanding political, economic, and strategic interests in New Caledonia, and the careful rhetoric reflects these interests.  

A 1987 assessment by China’s foreign ministry is a prescient reminder that Beijing has long set its sights on New Caledonia as key to the strategic situation in the Pacific:

Once New Caledonia’s national independence movement is taken advantage of by a superpower, changes that are unfavourable to the United States will take place in the strategic balance in the South Pacific. On the other hand, if the United States supports New Caledonia’s national independence movement, it may spread to other islands and trust territories in the Pacific and encourage other peoples to start their own independence movement. This is what the United States would not like to see. 

New Caledonia was an important military and intelligence base for the allies in World War II, and it is crucial to France’s current security efforts across the Southwest Pacific. New Caledonia also has 25 percent of the world’s nickel resources. Over the last ten years, New Caledonia has become dependent on the Chinese market. 

As a result of the riots and unrest since May 2024, the New Caledonian economy is in ruins and its society is at a crossroads. One potential pathway could be closer relations with Beijing.  

In 2021, a report written for the New Caledonian independence group Front de Libération Nationale Kanak et Socialiste (FLNKS), proposed that New Caledonia could become a ‘Djibouti of the Pacific’ and generate income by charging rent to foreign troops and hosting military bases from China and other interested states. FLNKS make up some of the key members of the current New Caledonian government. 

Would the New Caledonian government reach out to China to rebuild after the devastation of the riots? The risk is that New Caledonia will switch from one form of dependency to another. In the interviews I conducted in my paper, many New Caledonian leaders said they did not want that scenario. 

The violent unrest in New Caledonia shows no sign of ending. The rioters have caused an estimated €2.2 billion worth of damage. Hundreds of cars, homes and private businesses have been looted and burned. Nine civilians and two gendarmes have been killed. France has imposed emergency measures, deployed troops to New Caledonia’s ports and international airport, and sent an additional 500 police and gendarmes to support the existing 1800-strong force. UN human rights rapporteurs have expressed concerns about France’s repressive tactics.  

My report makes it clear that France, the EU, U.K., Australia, Japan, Singapore, Korea, New Zealand, the U.S. and the Pacific Island Forum should consider what role they can play in helping to diversify and rebalance the New Caledonian economy as a means of supporting greater resilience and autonomy and to help with the rebuild.  

Peaceful negotiations are required to end the social and political crisis. The stakes are too high to leave it all to fate. 

To win the AI race, China aims for a controlled intelligence explosion

China’s leader Xi Jinping has his eye on the transformative forces of artificial intelligence to revolutionise the country’s economy and society in the coming decades. But the disruptive, and potentially unforeseen, consequences of this technology may be more than the party-state can stomach.

While there are signs that the leadership is considering loosening the grip in this space, the Chinese Communist Party’s instincts towards overregulation, ideological conformity, and cautious incrementalism could stand in the way of China’s ambitions for global supremacy in AI.

Xi has made AI a strategic priority and wants its development to move quickly. Clearly frustrated by the perceived slow pace of China’s innovation and technological progress, Xi focused the third plenum meeting of the CCP on ways to accelerate his version of ‘Chinese modernisation’. At a politburo study session in January this year, he said he wanted China to ‘break away from the traditional economic growth model and productivity development path’ it has been on for the past 40 years.

To do this, Xi wants China to harness ‘new quality productive forces’ that will drive disruptive breakthroughs and not merely produce incremental improvements on existing technologies. Xi wants to encourage great technological leaps forward that will have a ‘profound impact on global economic and social development and the progress of human civilization’, according to a letter he sent to the 2024 World Intelligence Expo in June this year.

He also sees AI playing a central role in advancing China’s military power by pushing the People’s Liberation Army through multiple stages of military-technological development simultaneously rather than sequentially.

China hopes to acquire ‘leapfrog’ technology, particularly in military AI, which it hopes can change the military balance of power by giving the PLA an overwhelming edge. Debates about the future potential of AI by military analysts in China focus on developing the PLA’s ‘intelligentised warfare’ capabilities, referring to the aim of using AI to control the will of the enemy’s top decision-makers. If successful, AI has the potential to bring about revolutionary changes in the way militaries operate and warfare is conducted—comparable to mechanised warfare, information warfare, and even nuclear warfare.

The party-state apparatus is following suit. While there is, in theory, a ‘whole-of-society’ approach to science and technology development, the various parts of Chinese society in practice have different resources, outlooks, and priorities for how to develop and use AI. Ultimately, it is Xi who is pushing for this technology to be China’s deus ex machina, turbo-charging its economy out of a malaise, transforming its military power and capabilities, and catapulting the Chinese nation to the top of the global order.

Mixed signals are coming from the centre of the political system. In 2017, the State Council called for developing the resources to fuel major breakthroughs in AI by 2025 and to be the global leader in AI by 2030—but gave few details on how to do this. The Council has also urged administrative authorities and courts to adopt a cautious and tolerant regulatory stance toward AI. Following this year’s two session meeting, Premier Li Qiang emphasised the need for greater policy support for AI and to create ‘a relaxed environment for the development of the AI industry’.

Meanwhile, the clock is ticking. Xi sees advances in science and technology as a proxy measurement for China’s overall development. In a speech at the National Science and Technology Awards in June, he noted that, although great progress had been made, ‘innovation capabilities are still relatively weak, some key core technologies are controlled by other countries, and there is a shortage of top scientific and technological talent’.

The twin opportunities and risks of AI create a quandary for the CCP as it moves to put safety measures in place that could act as impediments to progress. Getting the behemoth Chinese party-state to head in one direction has historically been difficult but has been a large part of Xi’s focus over his first two terms in power. Chinese regulations are often described as ‘more reactive than proactive’, and this is generally a theme of Chinese policymaking in all areas. Regulation enforcement can be spotty.

Chinese authorities have begun taking regulatory action, including against deepfakes and harmful recommendation algorithms in 2018. Their top concerns, according to a white paper on AI-generated content published by the China Academy of Information and Communications Technology, are to maintain the CCP’s objectives for online information and network security.

But there are other known risks. PwC estimates that AI and related technologies, such as robots, drones and autonomous vehicles could displace around 26% of existing jobs in China over the next two decades—which would strike at the heart of the implicit social contract the CCP has with the people.

The biggest obstacles to AI success are in fact those the party-state itself has imposed to maintain its control on social stability and to manage disruption and change.

The data regulations and laws China has created, for example, have a heavy focus on national security, meaning protection of the CCP’s position of power must trump the easy flow of huge amounts of data needed for AI development and innovation. Legal restrictions on cross-border data transfers pose a significant compliance challenge for foreign companies operating in the country. Draft regulations on generative AI released in May signalled a shift towards more stringent security standards and regulatory oversight.

Thanks to the CCP’s obsession with information control and ideological conformity, Chinese regulators require AI-generated content to ‘reflect core socialist values and not contain content that subverts state power’, putting the country’s AI aspirations on a collision course with its censorship regime—not to mention precluding future research collaboration and exporting technology to liberal democracies.

Some Chinese companies have been better at threading this needle than others. Researchers from Fudan University created a benchmark to test compliance on different Chinese large language models (LLMs) and determined ByteDance’s ‘Doubao-Pro’ to be the best at responding in ways that were ideologically correct.

The party-state’s obsession with security is a straitjacket it chooses to wear. It is always free to loosen it—and there are some signs that it is at least considering that. But to make Xi’s AI dream a reality, China’s bureaucracy will need to walk a shaky tightrope to maintain the CCP’s ‘two miracles’ of economic development and social stability, while also tolerating the unavoidable disruption that comes with technology-driven transformation.

Australia needs to step up in the western Indian Ocean

Australia must become more active in the western Indian Ocean, not least because the country’s fuel supplies depend on tanker traffic through the region.

The Royal Australian Navy has operated in the western Indian Ocean consistently for more than a quarter of its history. Those operations have spanned a spectrum of tasks from counter-piracy, counter-narcotics and counterterrorism to support to both Gulf Wars in the Red Sea and Persian Gulf.

The nature and persistence of such operations is often attributed to Australia–US alliance responsibilities or the need for operational experience. However, the overarching reason is that western Indian Ocean maritime security directly affects Australia’s national security.

While maritime operations in the region are understandably not Australia’s primary focus, ignoring the region and its impact on national security may have significant consequences as the Indian Ocean becomes more contested. Maritime operations and capacity building in the western Indian Ocean must be factored into Australia’s maritime strategy.

Since the articulation of the ‘Indo-Pacific’ concept in the 2013 Defence White Paper and the 2017 Foreign Policy White Paper, Australia has limited its Indo-Pacific imagination to the eastern Indian Ocean. That focus has been reinforced repeatedly since then, including in the recent National Defence Strategy (NDS). The NDS defines Australia’s primary area of military interest as ‘the immediate region encompassing the Northeast Indian Ocean through maritime Southeast Asia into the Pacific’.

A primary focus on the northeastern Indian Ocean makes sense for many reasons. The obvious ones are the importance of the oil and gas reserves on Australia’s northwest shelf, Australia’s northern approaches and the ‘general proximity’ argument. The Malacca Strait between Singapore and Indonesia, and the Sunda and Lombok straits through the Indonesian archipelago, are central to Australia’s maritime trade dependencies. In a time of crisis or conflict, any direct threat to Australia beyond missile and long-range bomber attacks would likely transit through the northeastern Indian Ocean, although not exclusively.

The Australian Defence Force and the current and previous governments have actively sought to bolster the defence presence in the northeastern Indian Ocean. This has taken the form of naval diplomacy through the Indo-Pacific Endeavour regional engagement activity and the bolstering of facilities in Australia’s Indian Ocean territories. The Cocos (Keeling) Islands have become a focus: a significant investment is being made to upgrade the airstrip there on West Island to support Australian P-8 Poseidon surveillance aircraft, and there has been talk of potential deployments of the Australian Army’s new HIMARS missile launchers there for maritime strike capability. This emphasis has been underwritten by the new era of maritime patrol aircraft diplomacy, including visits to the Maldives and a suite of new defence attache appointments.

The focus on the eastern Indian Ocean is extended by the expansion of Australia’s naval base in Rockingham, Western Australia. The base HMAS Stirling will not only play host to Submarine Rotational Force–West from 2027 and Australia’s nuclear-powered submarines; it will also inevitably be host to Australia’s expanding surface combatant fleet, albeit in the 2030s.

In many respects, Australia’s increased emphasis on the eastern Indian Ocean is realising what Kim Beazley hoped for with his 1987 two-ocean Navy strategy.

However, Australia’s Indian Ocean defence engagement cannot be confined just to the eastern Indian Ocean or subscribe to an artificial line drawn south from India in its conception of the Indo-Pacific. There are several reasons for this, from population growth in Africa to Australia’s important trade relationships with the European Union, Australia’s third-largest trading partner. However, the most compelling and strategically significant is Australia’s fuel supply.

Australia imports 90 percent of its fuel. Any interruption to the fuel supply would have dramatic and immediate effects not only on the Australian economy, but also on Australia’s ability to defend itself. F-35 fighters would not be able to fly, and HIMARS launchers could not be moved around the country, to name but two of the effects.

In conversations about Australian fuel supply across the Indian Ocean, it is common for concerns to be dismissed by pointing out that Australia imports most of its fuel from its north. In June 2024, the top three exporters of fuel to Australia were South Korea, Singapore and Malaysia. But there is a catch: those imports are of refined fuel, because all but two Australian oil refineries have closed.

South Korea, Singapore and Malaysia all import most of their crude oil from the Middle East, so any interruption to the crude-oil supply across the Indian Ocean will directly affect Australia’s fuel supplies and its national security. While many countries in the region are also vulnerable, Australia’s vulnerability is twofold. Australia’s fuel needs to cross the Indian Ocean twice, first as crude oil from the western Indian Ocean to the Malacca Strait to be refined in Asia, then through the Indonesian archipelago back into the Indian Ocean as refined fuel to be imported into Australia.

Australia’s fuel supply is but one obvious example of why Australia should care about maritime security in the western Indian Ocean. While there have been calls for Australia to bolster its fuel-supply resilience, policies developed to do so will not have an effect in the near to medium term.

The western Indian Ocean is increasingly a contested maritime domain, not only as a result of increased piracy and Houthi attacks on shipping, but also because China is gaining a foothold in the region. In 2017, China established a base in Djibouti and has since invested in ports across the western Indian Ocean. In the event of a crisis, it is not a stretch to think that Australia’s fuel supply would be directly affected.

While the claim has been made that Australia relies on its partnerships and alliances to ensure maritime security in the western Indian Ocean, that’s not entirely accurate. Australia has relied on partners and allies, in concert with its independent operations, to ensure maritime security in the western Indian Ocean, as evidenced by the near 30 years of continuous Australian naval deployments to this region.

Given the implications for it of western Indian Ocean maritime security matters, Australia must become more active in this region through semi-regular deployments of ships and aircraft and through investment in capacity building. This will ensure presence, build relationships in the region and grow the Royal Australian Navy’s fluency with operating in the region—a baseline of familiarity that would be essential to surging operations in the event of a crisis.

Australia is correct to prioritise the northeastern Indian Ocean in its military calculus, but that prioritisation should not mean that the western Indian Ocean is ignored. It’s time for Australia to incorporate a greater presence in the western Indian Ocean into its maritime strategy.

Foreign interference is a threat to Australia—including diaspora communities

The Australian Security Intelligence Organisation (ASIO) has confirmed publicly that Iran isn’t the only foreign power interfering with a diaspora community in Australia. Responding to a question on whether India was similarly engaged (following a media report), ASIO Director-General Mike Burgess told ABC’s Insiders on 11 August ‘there is a range of countries that [commit foreign interference in Australia], not just Iran, many countries that would surprise your viewers. When [ASIO] find it we deal with it effectively.’

I’ll take Burgess at his word that those countries would surprise, as I have a suitably vivid imagination.

The Department of Foreign Affairs and Trade has previously confirmed interference by both the Chinese and Cambodian governments, and former Prime Minister Malcolm Turnbull specifically referred to reports of Chinese covert activities when introducing foreign interference laws in 2017. And similar allegations have been raised publicly against Rwanda, Ethiopia, Myanmar and Vietnam, among others.

What should surprise no one is that the director-general of ASIO would be highlighting this threat. For there is an unspoken contract between the Australian government and those who have come to make their home in Australia and contribute to its future: they have a right to be free of the coercion, politics and prejudices of authoritarian governments they’ve left behind; and our government has a duty to safeguard the social cohesion we strive for in Australia.

So, not only did the former home affairs minister Clare O’Neil specifically call out Iran’s misbehaviour last year; Burgess used his Annual Threat Assessment in February to detail efforts by unnamed foreign intelligence services to harm—even disappear—diaspora members here.

Now it’s a fact of international politics that everyone spies on everyone else. Study of publicised espionage cases between 1985 and 2020 identifies at least 176 separate instances of spying globally, including espionage not just by major powers but by nations such as Ghana, Greece and Ecuador—to name just three that might surprise—and in those cases the spying was directed at the US. And espionage can blend into foreign interference—use of covert, coercive or corrupt activities, typically by intelligence services, to influence other nations’ politics and policies.

But what Burgess and O’Neil were referencing is a particularly pernicious variant of foreign interference, especially for liberal, multicultural societies: interference directed at Australians with links overseas, characterised by surveillance, intimidation and harassment, and spanning Australia and origin countries (where extended family can be used as leverage over Australian residents). Such behaviour is increasingly common although also more commonly countered. According to ASIO successful disruptions of interference activities in Australia have increased by 265 percent since 2020.

What are foreign governments seeking when they do this? Sometimes it’s about regime security (for example, historically in Australia by the former Yugoslavia) or clumsy attempts to police nationals temporarily abroad (for example, international students). Sometimes it’s clothed in the language of countering terrorism. In other instances it’s to enable espionage against Australia (as with South Korean intelligence activities revealed in 2013, or the ‘nest of spies’ revealed in 2021) or to subvert political outcomes (per China’s documented efforts over the past decade). Sometimes Australians are simply collateral damage (for example, when Israel used Australians’ passports in a 2010 assassination mission).

It’s also important to distinguish this behaviour from other, legitimate, influence activities by foreign governments. As O’Neil said last year,

Foreign governments try to influence politics and decision-making in other countries all the time, in perfectly legitimate ways …. But what makes foreign interference problematic and illegal is covertness, and deception. That is, the attempts by foreign governments to secretly influence our cherished democracy, and coerce people living in Australia to behave in ways that undermine that democracy, for the benefit of a foreign power.

Since 2017 successive Australian governments have adopted a bipartisan, prioritised approach to countering foreign interference. In July, the government announced further measures, including expanding and making permanent the four-year-old, and invaluable, Counter Foreign Interference Taskforce. It also established a Foreign Interference Communities Support Hub to help affected Australians identify and mitigate interference threats, and it improved immigration processes intended to manage potential espionage and interference threats from visitors.

This commitment is matched by ASIO itself. Despite some misinterpretation this month when the national terrorism alert level was raised to ‘probable’, Burgess has been clear that espionage and foreign interference and politically motivated violence are now equally ASIO’s principal focuses.

However, ASIO can’t do this without maintaining relationships of trust with diverse communities across Australia. It also needs to be complemented by non-security measures, such as addressing the danger posed by the loss of diversity in home-grown foreign language media and the resulting segregation of non-English speaking residents from the rest of the community.

Countering foreign interference is a whole of nation effort and, even if we’re surprised by which countries are culpable, we should be clear-eyed about the threat it poses to all aspects of society, from the government and democracy to the media, the information we accept as news, and the well-being of our individual citizens and communities.