The Chinese Communist Party leadership is using the decisions made by the premier of Victoria to engineer a split between the federal government and the states and territories on Chinese President Xi Jinping’s signature Belt and Road Initiative.

Daniel Andrews announced on Wednesday that Victoria had signed a new deal with China under the BRI that ‘will help fast track cooperation in the key areas of infrastructure, innovation, ageing, and trade development providing more opportunities for Victorian companies and more Victorian jobs’.

The federal government hasn’t signed up to the BRI, saying only that it will consider individual projects on a case-by-case basis. So the CCP has gone around the Commonwealth to see if it can get a different answer from the states and territories, and Premier Andrews has cheerfully obliged.

Foreign investment in Australia is an area in which the federal government’s roles and responsibilities matter—because those roles and responsibilities have led to its not signing up in the way that Victoria has.

The federal government’s areas of responsibility—foreign affairs, defence and national security, including the intersections between them—equip it with agencies and insights that Victoria just does not have. And those constitutional responsibilities weigh heavily when considering an issue like the BRI—because it requires a wholistic perspective that states don’t naturally have, given their different roles and responsibilities.

Andrews has now signed a ‘Framework Agreement with China’s National Development and Reform Commission’, which is the communist state’s former planning commission.

When Andrews signed the original memorandum of understanding on the BRI back in 2018, I wondered what he didn’t know and when he didn’t know it.

Now, I think the conclusion must be that he does know that the BRI is not simply a set of economic investments and projects. It’s also a strategic and technological path to assert the Chinese digital authoritarian state’s power and influence.

Andrews is reported to have said he wants to get more Chinese companies involved in Victoria’s massive $107-billion infrastructure ‘big build’ and to explore cooperation in areas of high-end manufacturing, biotechnology and agricultural technology. This infrastructure build isn’t just about physical infrastructure. Modern infrastructure runs on digital technologies, so Andrews may also be signing up to bring a whole set of Chinese communications, control and collection technologies along with this big build.

And the big build will involve physical and digital critical infrastructure. Both the federal and Victorian governments will need to consider these proposals, not just from the economic perspective that’s clearly driving Andrews, but as a package of security, technology and economic issues—as the federal government did in making its decision on the nation’s 5G network.

Biotechnology is an area that Chairman Xi has highlighted as a source of both strategic and economic power in his ‘Made in China 2025’ agenda, which, like the BRI, is one of Xi’s signature initiatives for making a Sino-centric global order where we all live in the CCP’s ‘China Dream’—along with the people of Hong Kong and Xinjiang.

Andrews’s visits to China to attend Belt and Road forums and to meet with provincial, Hong Kong and Beijing authorities are showing us that Beijing has its house in order when it comes to aligning their positions on key issues like the BRI when they engage with political leaders from other nations. I’d expect to see Beijing reward Andrews somehow, as a way of driving a wedge between the federal and state positions on the BRI and trying to pressure Canberra to change.

It’s not hard for the Australian public or for our leaders to understand this part of Beijing’s agenda, because it’s pretty obvious that it’s a political as well as a strategic move. But it’s a bad look for Australia to have its levels of government played off against each other by a foreign power.

We need to see coordination between the Commonwealth and every state and territory that’s on a par with what Beijing achieves with its other levels of government. We’re not seeing that now.

Australia today sees its strategic interests in the South Pacific directly challenged by China.

No longer is China given the benefit of the doubt as the rapidly expanding power coming to terms with its new roles in the South Pacific. The shift in Canberra’s judgement is significant.

In the previous decade, China’s actions in the South Pacific were seen principally through the prism of its diplomatic competition with Taiwan. The Beijing–Taipei fight was tough and rough in the islands, but China’s priority was clear: it was all about Taiwan. China didn’t want to disrupt the order of the South Pacific, just beat Taiwan.

By the start of this decade, China’s rapidly expanding influence was the big new economic and diplomatic reality for the South Pacific. As in Southeast Asia, China expected its prerogatives to be understood and its wishes respected.

Fair enough, thought Canberra. Australia’s relatively comfortable view was greatly aided by the diplomatic ceasefire between Beijing and Taipei, brokered by Taiwan’s president between 2008 and 2016, Ma Ying-jeou. Ma’s term muted the cheque-book battle for diplomatic recognition in the islands. That period of detente is over and intense battle has resumed.

For China, though, it’s now about more than beating Taiwan.

Australia judges that Beijing has decided it wants to remake the order in the South Pacific. See this using the frame of the third paragraph of Australia’s foreign policy white paper, discussing the changing power balance in the Indo-Pacific: ‘The United States has been the dominant power in our region throughout Australia’s post-Second World War history. Today, China is challenging America’s position.’

Rework those thoughts to get a rhyming message that reads like this: ‘Since decolonisation, Australia has been the dominant power in the South Pacific. Today, China is challenging Australia’s position.’

The change in Canberra’s perspective explains why the South Pacific was such a priority in the white paper, with the promise of economic and security ‘integration’ with the Islands and a ‘step-up’ in engagement.

In peacetime, fundamental shifts in strategic perceptions tend to be gradual and cumulative. Ad hoc moments start to form fresh patterns. The tide shifts. Understandings change. New resolves are formed. Policy adapts.

A lot of moments in different fields explain why Australia–China relations have entered an icy age. Domestically, Australia announced legislation to ban foreign political donations and broaden the definition of espionage. In cyber, Australia cited national security concerns in the decision to ban Chinese firms from any role building the 5G network. As an expression of strategic intent and economic contest, Australia trumped China to build an undersea telecommunications cable with Papua New Guinea and Solomon Islands. Australia elbowed out China, promising the islands that they’d get ‘a secure communication asset’.

To see the hardening of Canberra’s thinking over the past three years, try a simple thought experiment: Would Australia today approve China’s purchase of Darwin’s port as it did in 2015?

The ‘yes’ Australia gave in Darwin back then would become a sharp ‘no’, as Australia panics at the prospect of China controlling ports in Vanuatu or Papua New Guinea.

On Canberra’s view of Chinese power plays, The Australian’s Greg Sheridan and Cameron Stewart declare:

Australia’s intelligence and analysis agencies believe that the South Pacific now presents the greatest strategic threat to Australia, as a result of what they believe is Beijing’s intention to establish a military base in the region. This marks the first time since World War II that the South ­Pacific has been of such intense strategic concern to Canberra.

Australia’s view of China’s military interest in the South Pacific drives Canberra’s offer to build a joint Australia–PNG naval base on Manus Island.

As Malcolm Davis writes, Australia is acting to block a Chinese port development that’d fundamentally change Oz strategic circumstances:

The prospect of a Chinese-developed port on Manus Island, along with possible Chinese development of Wewak, Kikori and Vanimo harbours in PNG, has generated concern in Canberra. A Chinese-controlled port on Manus would give Beijing a prime strategic location for projecting military power north towards US forces in Guam or south towards Australia.

James Goldrick offers an impressive account of the long history of Manus in thinking about Oz security in the Pacific: World War I and Jellicoe, World War II and MacArthur—and especially the struggle after 1945 over whether the US Navy should be ceded control of Manus as a permanent base.

Australia, 70 years ago, wouldn’t give control of Manus to the US. Today, Canberra wants to partner with Port Moresby to deny China control of a Manus port.

The Manus effort is a statement from Australia about intent, influence and interest in the contest over the strategic order of the South Pacific.

President Xi Jinping’s Belt and Road Initiative (BRI) is driven by two main considerations. First, Xi recognises that the Chinese Communist Party’s survival is dependent on China’s ability to continue to serve as the world’s factory while the country transitions into a developed economy. In 2015, China experienced more than 130,000 protests, or almost 400 each day, relating to dissatisfaction with living standards and wages. Xi has made it clear that he will protect the party from domestic and foreign enemies.

Second, Xi believes that China has crossed into a ‘new era’ and he is determined that China will be recognised as a great power. However, as a pragmatist, he appreciates that China can’t act as Putin’s Russia does, exploiting humanitarian crises to serve its national interests or committing flagrant violations of international law. Xi prefers the post–World War II American method of using economic power to cajole and entice countries into China’s sphere of influence.

The key to understanding the breadth of the BRI is to see how it connects China and the world and how it allows China to project non-military power to shape public opinion, which it does through its economic, educational and cultural programs (China, for example, has established 135 Confucius Institutes in the 51 nations that are part of the BRI).

Under the BRI, China has made massive inroads into spaces where it previously had only limited influence. In my ASPI Strategic Insights paper, I look beyond the Asia–Pacific region and beyond the BRI to highlight how China is expanding its influence in Africa and the Middle East.

In Zimbabwe, Beijing has exploited the Robert Mugabe – Emmerson Mnangagwa crisis to support Mnangagwa’s rise. This is likely to give it a major role in Mnangagwa’s ambitious economic program. A strong foothold in Zimbabwe gives China access to vast natural resources and, due to Zimbabwe’s strategic location, allows it to further project power across southern Africa.

After decades of having no official ties with Israel, China has aggressively pursued relations with the start-up nation (in 2016, Chinese investments in Israel were over US$16 billion). In 2017, the two countries announced the formation of a ‘comprehensive strategic partnership’, and they’re now negotiating a free trade agreement. For China, developing an Israel–China corridor through the construction of a ‘Red–Med’ railway, which includes developing the port of Eilat to accommodate more cargo ships, makes strategic sense, as it provides an alternative route to the congested Suez Canal. The railway would connect Eilat on the Red Sea to the port of Ashdod on the Mediterranean, which can ship to Piraeus in Greece, and into the rest of the EU. The China Ocean Shipping Company has operated Piraeus since August 2016.

Egypt has always been important for China because of the Suez Canal, the influence that Egypt wields in the Arab world, Egypt’s size (it has almost 100 million people), and its status as the second largest non-NATO recipient of US military aid after Israel.

Xi visited Egypt in 2016, precipitating the signing of 21 memorandums of understanding on economic cooperation, electricity, energy, trade, civil aviation, science, technology, communications and aerospace. China’s commitment to invest in Egypt, coupled with its lack of criticism of President Abdel Fattah el-Sisi’s policies, has endeared Beijing to Cairo: the Egyptian president has visited Beijing, but not Washington DC.

China is focused on Iran, too. Iran’s geostrategic location is crucial to the BRI project: it’s on the Persian Gulf, so it can affect traffic along the BRI’s maritime route (the Road), and its position makes it important to the BRI’s land route (the Belt), as well as to China’s investment in Pakistan through the China–Pakistan Corridor, valued at over US$60 billion. China now wants Afghanistan to be included in the corridor.

China has seized on Iran’s commitment to spend around US$185 billion by 2020 to revamp the country’s antiquated energy sector, and Xi has vowed to boost bilateral trade to US$600 billion by the late 2020s, beginning with the construction of high-speed railway lines so that a train leaving Shanghai would be able to reach Tehran, 3,200 kilometres away, in 12 days (a similar trip by sea takes 30 days).

China and Iran have also improved their security relationship. China is a major arms supplier, selling the Iranians anti-ship cruise missiles, long-range J-10 advanced fighter jets and other military equipment. The two also conducted joint military exercises that have brought Chinese warships into the Persian Gulf (in 2012, the Iranian navy came to the aid of a Chinese cargo ship that was attacked by Somali pirates). These activities enhance relations and ensure that, if Iran were to close the Strait of Hormuz, Beijing could use its ties with Tehran to cushion the impact that such a move would have on oil prices.

There’s much about the BRI project that’s unknown, specifically on the financing side. For example, there’s an assumption that China could never really recoup the US$1 trillion-plus that it’s investing in the initiative. However, for Xi Jinping, the BRI is less about a return on the investment and more about making sure that the Chinese people are economically satisfied, allowing the Communist Party to continue to govern. And that requires unfettered access to new markets, which is why Xi has staked China’s future on this ambitious program.

I recently argued that Asia is becoming a coherent strategic system. This system is centred on the gravitational force of China’s growing geo-economic and strategic weight but also bound together by growing trade and investment flows, and, with the Belt and Road Initiative and other institutional structures, underpinned by a nascent multilateral architecture. The once discrete systems of Northeast, Southeast, South and Central Asia are becoming the most important strategic system in world politics.

In this post I will explore three significant strategic policy challenges that the integration of Asia into a singular strategic system present. Together they represent the biggest change Australia has faced in its history as an independent actor in international affairs.

First, the most important feature of Asia’s strategic order, as it existed for the four decades after Sino-American rapprochement, was the stability of its power balance. The US was the predominant power and no other country had the interest, will or capacity to challenge its position. That allowed the countries of Asia, including Australia, to spend a good deal less on defence and security than would otherwise have been the case.

The emerging integrated Asian strategic system will be very different. It will be comprised of a small number of very large and powerful states, none of whom will be able to command the kind of predominance that the US enjoyed previously. The US will remain powerful but its relative advantage will be reduced.

China will have greater weight through its increased military capability, the connectivity created by the Belt and Road Initiative will reduce its vulnerability to maritime predation and increase its strategic depth. A more powerful and confident India will be the third corner of the major Asian power play, with others, such as Japan and Indonesia, becoming important players but at the margins of influence.

The biggest challenge for Australia will be to work out how to position itself in this contested strategic setting. Does Australia steadfastly cling to one side? Should it give itself flexibility to play sides off against one another? Or should it opt out of the contest and take advantage of its geography to remain aloof from integrated Asia’s geopolitical and geo-economic contest? The key question policy-makers need to address today is how the country can give itself options to advance its strategic interests in a bigger, more complex strategic setting and one which will be in stark contrast to the stability of the previous four decades.

Second, the US alliance remains the bedrock of Australian international policy. It presented a strikingly good deal for Australia in terms of relative benefit to cost but it also reflected a close alignment between Australian interests and values. As well as a very different strategic balance, integrated Asia significantly changes the alignment of interests and values and the relative costs and benefits of the alliance to Australia.

That’s not to say the alliance should be ditched or that it’s completely anachronistic. Rather, it’s to emphasise that as US power and influence decreases, and as Australia’s interests in the strategic order diversify, Australian strategic planners need to recognise that the value calculation of the alliance will change.

In its current configuration, the alliance comes with side costs that could prove significant in the future and warrant careful consideration. Central to that is the limits the alliance places on strategic maneuverability. While secondary powers are dependent on the actions of the most powerful, in contested orders their relative position in the system can be increased as they’re able, if they choose, to leverage larger contestation to their strategic advantage.

To do that, Australia would need to loosen its current relationship with Washington. If it weren’t to go down that path then Australia should expect that it will need to investment more, financially, politically and operationally, into its relationship with the US to sustain the same return for its strategic policy.

In either scenario Australia is almost certainly going to face higher costs and greater risks in integrated Asia.

Third, related to the integration of Asia is the waning of the liberal order—the only one Australia has navigated as an independent power. Its decay is being presaged by the coalescing of a coherent Asian geopolitical and geo-economic system. And this new strategic system will be much less conducive to the liberal ideas that have been vital both to Australia’s political and economic life at home and its international engagement abroad. The processes creating an integrated Asian order defined by contestation among major powers are bringing geopolitics back to centre stage. But power alone won’t be the only issue for Asia’s big players to fight about.

Australia has recently placed heavy emphasis on the value of the liberal order and its importance to its strategic interests. Already it’s clear that there’s a mismatch between the rhetorical commitment to the importance of the order and the action which the country is prepared to take to defend it. As integrated Asia coheres into a contested strategic system, those ideas will be much more openly at stake and Australia will need either to stiffen its spine and work to defend those ideas in a much less permissive international environment. Alternatively, it will need to be prepared to recognise that interests and power have become more important than rules and values.

While integrated Asia promises a great deal—human development will continue to be advanced at a high rate and links between states and peoples will continue to grow—it also brings considerable new risks. The first step in managing those risks is recognising the nature and scale of change Australia faces. It will be like nothing this country has ever seen.