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The relationship between the Australian and Chinese governments would benefit from a clearer declaration from Australia about what is and is not in our national interest in engaging with the Chinese state and economy.

This is a particularly timely requirement given that President Xi Jinping’s re-energised Communist Party has clarified the Chinese state’s intent and behaviour in ways that show that the time of its peaceful rise is over.

A declaratory policy is just a way of saying what you do and don’t want, and what you will and won’t do, so that others know what to expect and can shape their own policies and actions accordingly.

Such a clear policy can be implied from government decisions and statements and from laws passed by the Australian parliament. Rather than leaving it to be understood from the pattern of individual decisions, a statement setting it out simply would provide a framework to help manage future issues.

Without such a framework, each Australian decision can be characterised as a new ‘test’ of the bilateral relationship—whether on foreign investment, security or defence relations, or on whether to prosecute foreign interference or implement, say, the laws regulating research partnerships.

Each decision can look like a chance to send a message, or to give a little back if the previous one was maybe perceived as harsh. That creates the risk of an ad hoc transactional approach. Commentators and critics then read the tea leaves of each decision for symbolism about overall policy directions and the ‘state of the relationship’.

It makes everything a more febrile, exciting and open adventure than a more sober analysis would suggest. Great for the commentariat, but bad for government to government relations.

Let’s look at overall policy settings and big decisions on China and what declaratory policy flows from them. First on foreign investment and trade.

Australia is open for business. Our two-way trade with China focuses on resources, agriculture and services (notably tourism and education). This is mutually beneficial, as Australian businesses earn strong revenue and our Chinese customers receive world-class resources, goods and services at competitive prices.

But economists and strategists learned from the global financial crisis that it’s a mistake to carry too much risk in any asset area.

So, Australia will seek to diversify its economic and trade relationships to reduce its reliance on China as the single customer.

Trade diversification is an old strategy for Australia that’s becoming newly relevant. It was a major theme when the UK joined the European Economic Community—another example of our reliance on a large single customer being bad economics and bad strategy.

Peter Varghese’s India strategy sets out the contribution that a growing relationship with India can make to such diversification. Prime Minister Scott Morrison’s visit to Indonesia around the free trade agreement is another element of that strategy.

On investment, most foreign investment into Australia, whether from China or elsewhere, is approved by the Foreign Investment Review Board process. According to FIRB annual reports, in the 10 years to the end of 2016–17, four business proposals were rejected (two on Ausgrid, one on Graincorp and one on the ASX) and 169,178 were approved.

The small number of foreign investment decisions rejected (and others given a ‘preliminary view that they were contrary to the national interest’) from Chinese entities are important, however, in establishing a policy. Key examples are the Ausgrid decisions and the Kidman Holdings decisions. In the Ausgrid case, Chinese bids were rejected as contrary to the national interest.

In the case of Kidman Holdings, in April 2016 the then treasurer, Scott Morrison, gave his ‘preliminary view’ that the original bid from Dakang Holdings, a Chinese-owned entity, was contrary to the national interest. That meant that if it proceeded, it was very likely to be rejected. A new bid involving Gina Rheinhart and a Shanghai firm was accepted, with property straddling the sensitive Woomera Prohibited Area in South Australia excised from the transaction.

There’s little doubt that if the leasing of Darwin port was being decided in 2018, the Chinese entity Landbridge would not have got its 99-year lease.

On telecommunications infrastructure, the government has advised Australian telcos that suppliers subject to extrajudicial control by governments won’t be able to supply 5G systems within Australia. That has excluded Chinese telcos Huawei and ZTE.

Public statements on our approach to foreign investment review and critical infrastructure are reassuring about openness to investment and explain in detail that any rejections are decided case by case, subject to the nature of the asset and transaction, with no one-size-fits-all approach. That repeats the longstanding approach of testing all foreign investors’ proposals against Australia’s national interest.

But these public statements provide scant explanation of the few important rejections.

The sense I make of it—and which I’m sure the leadership in Beijing gets too—is that we’ve reached a point in Chinese investment in Australia’s critical infrastructure, energy and communications sectors where further aggregation and large market penetration by Chinese-owned entities is not seen as being in our national interest.

As with trade, this is probably as much about cumulative business risk from reliance on a single source of investment as it is about strategic interests. The net effect, though, looks pretty firm from a policy perspective. Let’s say so.

Second is the new foreign interference legislation. As Malcolm Turnbull said when he introduced it last December: ‘[Q]uestions of foreign interference are not all about China—far, far from it. Globally, Russia has been wreaking havoc across the democratic world.’

But it’s equally clear that events like the controversy over former senator Sam Dastyari, combined with testimony on the threat from foreign interference and covert influence by the head of ASIO, created the foundation for this legislation to be passed by both sides of politics.

The policy here is in the law itself. Quoting Malcolm Turnbull again: ‘Media reports have suggested that the Chinese Communist Party has been working to covertly interfere with our media, our universities and even the decisions of elected representatives right here in this building. We take these reports very seriously.’ He also said: ‘[W]e will not tolerate foreign influence activities that are in any way covert, coercive or corrupt. That is the line that separates legitimate influence from unacceptable interference.’

The only further clarity we could provide is to prosecute a Chinese national for covert interference or espionage. That may come, noting that both Russia and the US do often prosecute Chinese nationals for such things.

Lastly, there’s the issue of the defence relationship and the pursuit of capability advantage by the ADF and by the PLA. Here also there’s some clarity. We seek a defence relationship where we can engage each other to increase understanding, and we each seem willing to exercise together in ways that don’t give away real capability insights.

There’s no prospect of the Chinese giving us technological or intelligence insights into the PLA’s weapons systems, cyber capabilities or even strategic intent (apparently they don’t conduct cyber espionage for economic advantage now).

Similarly, Australia won’t share JORN over-the-horizon radar, CEA radar, or the joint strike fighter or future submarine technologies with the PLA. That’s because we are not allies and we have markedly different strategic interests. We each know that it’s not in either of our interests to advance the military reach and capabilities of the other. Again, let’s say so.

That will have consequences for research partnerships and for particular types of students in Australian universities. China would never allow Australia (or the US, Japan, France, Germany, the UK …) to put military or other national security individuals in its key military research institutions or in universities that are creating the next wave of technical advantage (with both civil and military applications).

Australian policymakers, universities and the public need a much clearer, more honest and intellectually rigorous discussion about what the Chinese military and the research community tied to that military are seeking to achieve here and in other nations through their research partnerships and student placements.

To date, the Defence Trade Controls Act 2012 seems to have resulted in not one refusal of a research proposal involving the Chinese military on national security grounds, maybe because it relies on universities’ self-assessment of national security risk.

Doctoral and post-doctoral researchers from China who have access to cutting-edge research in STEM that has military applications will apply that knowledge for PLA purposes. We’re fooling ourselves if we think that PLA students studying explosives technologies or quantum computing would be doing so for peaceful purposes.

Given Xi’s agenda of using civil–military fusion to create strategic and military strength through next-generation technologies, it’s hard to see that research partnerships contributing to the PLA’s capability agenda are in our national interest.

A clear declaratory policy on China around economics and security would look a bit like this:

• We want to continue our close and growing economic relationship because it’s to both countries’ benefit. We get high-quality resources and education and tourist services at competitive prices. We get revenue and economic activity that’s important to our society.
• We gradually diversify our economy to reduce the business and strategic risks from relying too heavily on a single country. That will make us a more resilient economic partner.
• We welcome debate and exchanges of views as part of our politics and national decision-making. However, we won’t tolerate foreign influence activities that are in any way covert, coercive or corrupt.
• On investment in critical infrastructure, energy and telecommunications, we’ve reached a point of cumulative investment where further large-scale investment by Chinese entities isn’t in our national interest.
• We’re in favour of defence cooperation, but only as a reflection of shared strategic interests.
• We’re happy to engage in a defence relationship that increases understanding of each other’s intent and creates habits of communication so that tensions can be resolved and the prospects of conflict between us reduced.
• We won’t help China increase its military capabilities because we’re seeing that how it is beginning to use them, most obviously in the South China Sea, isn’t in the interests of Australia or the region. Here, our countries’ strategic interests are in direct tension, given the direction of Chinese policy and action.
• We also don’t support plans to create military advantage for the PLA through next-generation technologies, so our economic and research interactions will have limits in that key area.
• Overall, we seek a mature, respectful relationship between our nations, in ways that enhance the prosperity and security of our region and the world. Clarity on where our interests work together—and where they don’t—is an important step in building this relationship.

If such a declaratory policy were in place, Australian ministers wouldn’t be as hostage to pressure (as much from the various wings of Australia’s commentariat as from Chinese authorities) on individual decisions.

As an example, the treasurer’s forthcoming decision on the bid by CKI holdings to acquire a large stake in Australian electricity and gas distribution systems would already be clear—and future such bids would be unlikely.

Let’s take the heat, light, noise and excitement out of the relationship by establishing a clear, declared policy that governs our approach to the economic and strategic relationship with the Chinese state. It won’t be new news to Beijing and the CCP leadership, but it will make our government’s deliberations and public statements easier.

It will also be a welcome relief to both sides of politics to have a clear bipartisan approach.

This may well encourage similar clearer declarations from other nations facing similar tensions and competing interests in their own relationships with the Chinese state and economy.

The Russian Federation is undertaking the biggest military exercise in its history, Vostok 2018 (East 2018). These large exercises are held each year, focusing on one region in the country. Last year’s Zapad (West) war games caused concern among NATO members and other European countries that Russian troops were practising for a large-scale attack on them.

Observers were also alarmed by the significant number of troops exercising on the territory of Belarus, which borders three NATO members, fearing that they wouldn’t leave after Zapad ended. Poland and the Baltic States have been particularly worried about Russia attacking them directly. A prior iteration of Zapad had indeed concluded with a simulated nuclear attack on Warsaw.

Fast-forward to this year, and it’s the eastern military district’s turn. Around 300,000 Russian troops will be in Eastern Siberia until 17 September. Valery Gerasimov, chief of the general staff, says the drills aim to assess the military’s readiness for ground, air and naval operations—which is why more than 1,000 planes, helicopters and drones will join around 80 ships and 36,000 tanks and other vehicles in the exercise.

Vostok 2018 is also notable because it’s the first time that Russia has invited China to participate in a strategic-level exercise. More than 3,000 soldiers from the People’s Liberation Army and equipment and personnel from the country’s air force were sent north. A small contingent of Mongolian troops has also joined the drills.

The US and its NATO allies will be following Vostok 2018 closely. China’s participation highlights the significant transformation in Chinese–Russian relations that has occurred over the past decade. Dmitri Trenin, director of the Carnegie Moscow Center, wrote on Twitter that the military exercise is sending a message to the US (and the rest of the world) that China and Russia have never been closer, and that Russia is now considering China as a potential ally.

The China–Russia relationship has come a long way since the Cold War, when it was dominated by the Sino-Soviet border conflict and Russia considered China a significant threat to its national security. Now President Vladimir Putin says the countries have a ‘trusting relationship’ and President Xi Jinping is promising to ‘push the China–Russia relationship to new heights’.

The strategic partnership serves both countries’ interests. Russia has been increasingly seeking to collaborate with China to advance the two countries’ positions on the world stage, and especially to send a message to the US. At the same time, the Kremlin is well aware of the Russian economy’s overreliance on China, which has increased since the illegal annexation of Crimea in 2014 and Russia’s subsequent rift with Europe (and its markets).

Russia has been trying for a while to diversify its economic engagement—especially across the Asia–Pacific—to avoid being overly dependent on China, but progress has been slow. It comes in handy, then, that Vostok 2018 is taking place at the same time as the Eastern Economic Forum in Vladivostok, which aims to attract business and industry investors from the Asia–Pacific. Not only is Xi attending (after observing the Vostok drills alongside Putin), but Japan’s Prime Minister Shinzo Abe has also travelled to the Russian Far East.

The main hurdle to closer Japan–Russia relations has been the territorial dispute around the Kuril Islands. Abe met with Putin ahead of the Eastern Economic Forum and the pair agreed on an action plan for joint economic collaboration in the islands, even without a legal solution to the dispute. Moscow and Tokyo also agreed to work towards closer defence cooperation. Both sides aim to resolve their territorial disputes and sign a peace treaty to formally end World War II, allowing even more collaboration.

Both developments—a China–Russia relationship that appears to be stronger than ever and the possibility of closer Japan–Russia defence ties—will be monitored with interest across the region and beyond. These changes could have a substantial impact on the power balance in the Asia–Pacific—the backyard of countries including the US and Australia.

Japan’s moves are particularly significant, given its oft-cited status as a like-minded partner of Washington and Canberra. Australia’s continued engagement in the region, especially deepening cooperation with Japan, South Korea and countries in Southeast Asia, will be vital to ensuring that its interests are safeguarded in the changing strategic environment.

Even though China and Russia haven’t formed an official alliance yet, the potential for such a relationship has been demonstrated through the joint exercise. This factor needs to feature in future Australian defence planning.

If you were trying to design a low-cost strategy to constrict the operational horizon of an important US ally in the region, China’s ploys in the Pacific wouldn’t be a bad model to examine.

China has been talking a big game in the Pacific. It’s been reported as looking to fund a major regional military base in Fiji and scoping Vanuatu for a military base of its own. And it apparently has plans to refurbish four ports in Papua New Guinea, including the strategically significant Manus Island. Over the decade 2006–2016, it has committed US$1.8 billion in aid, and Chinese telco Huawei has sought to build undersea internet cables in the region.

Australia’s response has been frenzied, but perhaps not yet that strategic.

Our aid spending in the South Pacific has been hurriedly increased from A$1.1 billion in 2017–18 to A$1.3 billion in 2018-19, the ‘highest ever contribution’ we’ve made in the region. Australia had to outbid China for the Fiji base, investing a ‘significant’ figure.

The Department of Foreign Affairs and Trade has also dipped its toes into the undersea cabling business, assembling a crack team to master the ins and outs of a new underwater operating environment. The project has an estimated price tag of A$136.6 million (two-thirds of which will come from the aid budget). There has also been a deal to expand the Biketawa security agreement to cover non-traditional threats.

That all fits in with the 2017 foreign policy white paper’s promise of ‘greater intensity and ambition’ in Australia’s approach to its neighbourhood. But is it good strategy?

Increasingly, China’s approach in the Pacific looks like its coercive methods in the Australia–China economic relationship, where sectors of little importance to the Chinese Communist Party but of significant value to Australia—like Chinese students and tourists—are used to try to coerce Canberra.

In the Pacific, China appears to have identified our soft spots and now just has to hint at scoping a port to cause a frenzy. Its debt diplomacy is another lever with dual purposes. It wins China temporary kudos in Pacific states, while simultaneously countering Canberra’s aspirations of improving Pacific development by saddling tiny island nations with unaffordable loans. When the debts become crippling, they will afford Beijing another opportunity to niggle Canberra by offering debt relief in return for something that will frustrate Australian plans, or inflict the burden of debt relief on Australia.

Undersea cables are just the latest front and present another opportunity for China to divert significant Australian resources, without spending any of its own. China, if it wanted to, could offer to build a dozen cables linking up the region. Would Australia then rush to spend hundreds of millions more to build those connections too?

At one level, Canberra’s response is completely understandable, as Australia’s top priority is protecting its immediate region and preventing it from becoming a site for a major military power to operate from. But is the current approach the most efficient use of our resources? And in the longer term, do we risk constricting our operational horizon, shifting from engaging both globally and regionally—where we participate as an international actor and at least periodically consider actions like freedom-of-navigation exercises in the South China Sea—to being more narrowly focused on our immediate neighbourhood? That would be a win for China and a loss for the world.

China’s actions in the South China Sea, the militarisation of its manufactured islands and its threatening behaviour towards its neighbours, do not bode well. If it eventually has its way in its immediate patch, it will almost certainly look to expand its operational space further afield. Australia’s focus and actions with partners in the broader region are a valuable contribution to dealing with this more assertive, at times coercive, Chinese state led by President Xi Jinping.

To deal with this Pacific challenge in a more enduring way, could Canberra look to a bigger play? A plan for addressing China’s attempts to militarise the region, cripple it with debt and force DFAT to become a telecommunications provider?

One option would be for Australia to forge a grand bargain with its neighbours—a sweeping economic, education, people-movement and security pact that prevents the militarisation of the Pacific and allows Australia to remain outwardly oriented. We could establish a regional security council to work towards common approaches on issues like debt diplomacy, protection of critical infrastructure and climate change, with phase-in periods to allow for a smooth transition.

Now five years into its existence, China’s Belt and Road Initiative (BRI) appears to be attracting both new supporters and opponents on a daily basis.

Included among the former is Papua New Guinea, which in June joined more than 70 countries Beijing already counts as formal participants in a plan whose centrepiece is potentially trillions of dollars’ worth of new infrastructure investment.

In the latter category it now seems safe to locate the governments of Australia, the United States and Japan, which last month backed their often oblique but persistent criticisms of the plan by launching their own Indo-Pacific infrastructure drive.

At the announcement, the then Australian foreign minister Julie Bishop listed some potential goals that also served as reminders of perceived BRI flaws: ‘global standards of transparency, accountability, engaging local workforces and ensuring that unsustainable debt isn’t imposed on the recipient nations’.

The ambition of the BRI alone—targeting, by one estimate, about two-thirds of the world’s population, a third of global GDP, and a quarter of all trade—represents a major disruptive threat to the status quo, though the question remains: To what ends?

As I note in a new ASPI paper out today, answering this necessarily entails a high degree of scepticism about official Chinese state pronouncements. While the urgency of addressing the key challenges that they identify—a lack of regional interconnectivity and rising levels of protectionism among them—is not in doubt, the ability of Beijing’s responses to produce what Chinese President Xi Jinping suggests is a spirit of ‘win–win’ cooperation certainly is.

An alternative, unvarnished assessment of the BRI’s potential is possible from studying the context in which the plan arose and continues to evolve, as well as more honest reflections on it offered by members of the Chinese academic, policy and business communities. What this reveals is considerable evidence to support a view of the BRI as both economically and strategically focused and overly Sinocentric.

Links between cause and effect of this nature are, indeed, often fairly explicit, perhaps as a result of the expedience of successfully delivering new Chinese models of domestic and international governance at a time when the Chinese Communist Party’s power is both great and potentially fragile.

The party’s considerable need for continued domestic economic reforms to maintain its legitimacy is a prime motivator of both the BRI’s focus on offloading excess industrial capacity and its attempted creation of new trade linkages to benefit new innovation-based Chinese ventures.

A desire to subdue what Beijing views as threats to national security and political cohesion is in turn served by developing impoverished areas, which, in the case of Xinjiang’s Uyghur population, also coincides with an increase in mass detention and surveillance.

Yielding to Xi’s noted preoccupations with history and his ‘China Dream’ of national rejuvenation of past glories, the BRI can ultimately be viewed as a tool not only for securing China’s place as the centre of global trading routes, but also as master of its own destiny in its region and, potentially, globally. The most significant BRI capacity from this perspective is the potential to militarise assets under some degree of Chinese control, which already include a number of Indian Ocean ports.

Efforts of this nature are, in turn, largely informed by far more recent concerns, primarily about the US. As one representation, the geographic orientation of most of the BRI’s six planned corridors is likely informed by an influential 2012 article from Beijing University’s Wang Jisi urging the country to ‘march west’ into areas of Central and Western Asia and onward towards Europe, building power and influence in areas less touched by Washington.

Of course, the mere presence of such a strategy is no guarantee of success, as increasing pushback against some of Beijing’s actions might attest. Examples such as the new Malaysian government’s cancellation of problematic deals signed by its predecessor offer some encouragement to the likes of Canberra, Washington and Tokyo looking to offer parallel pathways to the BRI or simply wishing for mitigation of its ill-effects.

Such setbacks might alternatively spur Beijing to recalibrate the BRI to become more palatable, including to the more robust economies, institutions and companies whose involvement is likely critical to the plan succeeding on anywhere near the scale currently imagined.

Taking nothing for granted, however, what needs to also be considered is the extent to which, as Australia’s own 2017 foreign policy white paper notes, competition built around trade and infrastructure development might merely accentuate strategic rivalries.

Consideration might also be given to the troubling parallels between the current escalation of Indo-Pacific geo-economic competition and that sparked between the US and the Soviet Union by the post–World War II Marshall Plan—an agenda to which the BRI is itself frequently compared.

The announcement earlier this month that ASEAN and China had agreed on a single draft code of conduct negotiating text over the South China Sea after years of talks has been hailed as a milestone. But while getting to that point is evidence of mutual goodwill, it reveals more about the region’s perennial dilemma—how to keep trying when the challenges to cooperation continue to mount.

Given the pace of the negotiations, arriving at the ‘zero draft’ for negotiations sounds like a big achievement. The more sensitive elements up for negotiation though, are wide, starting with the content (a sneak peek here), including the geographic scope; dispute settlement mechanisms; the duty to cooperate; references to the United Nations Convention on the Law of the Sea (UNCLOS); the role of third parties; whether there will be explicit mention of the militarisation activities; and whether it is going to be legally binding—among other contested issues.

There’s disagreement not only between China and ASEAN but also between ASEAN member states. Stalled negotiations have led many commentators, including me, to conclude that the code of conduct could become a tool in China’s strategy to distract the rival claimants with detrimental consequences for ASEAN’s interests. The long-running ASEAN–China dialogue on the South China Sea has brought little confidence because of concerns about China’s intentions and ASEAN’s ability to reconcile its internal divisions.

But the single draft suggests that there’s some symbolic value behind the largely questionable ‘progress’. China’s leaders want to show that they’re capable of resolving the disputes peacefully. A conciliatory attitude will also help guard against meddling by ‘external parties’ as Beijing demonstrates that it can manage issues with neighbours smoothly. Not only are the talks ‘back on track’, but China is offering more cooperation, including announcing the first-ever China–ASEAN maritime exercises. Scheduled to take place in October, ahead of the ASEAN summit in November, the joint initiative is certainly a positive sign for regional cooperation.

Beijing’s good intentions are also being demonstrated beyond Southeast Asia. China has donated a warship to Sri Lanka and pledged a ‘surveillance and hydrographic’ vessel to Fiji later this year. It’s important for Beijing to show that it can ‘cooperate’. However, negotiating a peaceful settlement of disputes seems detached from China’s steady militarisation of the artificial islands it has constructed in the South China Sea and its incremental control over the disputed waters. Coercive behaviour towards vessels or aircraft passing through or over the area continues.

So why do the ASEAN states play along? Despite the challenges of the process and the many concerns that Southeast Asian nations have about China, none of them can afford to disengage. While the majority of the Filipino population still strongly support their country’s assertion of its maritime claims, the (still popular) Duterte administration has opted for some risky bets in its relations with Beijing. Most recently, the foreign secretary, Alan Peter Cayetano, said that Manila’s willingness to ‘put aside territorial claims’ in pursuit of joint exploration with Beijing was ‘a matter of principled pragmatism’. ‘[L]et’s cooperate first, and let’s talk about who owns what, who has jurisdiction, later on’, he said, adding, ‘What’s better, 60-40 or 0-0?’ Many Filipino experts find Manila’s new attitude hard to accept.

Singapore—this year’s ASEAN chair—is under pressure to deliver. It has just completed its term as the coordinator of the ASEAN–China dialogue and appears to have wanted to lock in the list of items to be included for further negotiations. As one example, the draft negotiating text includes China’s proposal that parties ‘not hold joint military exercises with countries from outside the region, unless the parties concerned are notified beforehand and express no objection’. If that clause makes it into the final, it would give Beijing a veto over ASEAN member states’ choices about who they conduct exercises with in the South China Sea.

It’s no surprise that Beijing is seeking to impose unfavourable conditions on the rest of the claimants. But where the negotiations go from here, and whether they will be binding, is another matter. As such, the draft’s real value is that it changes the nature of the negotiations to ‘open cards’ and enhances the transparency of the process.

Timing is an important factor given the ASEAN tradition of rotational leadership. The Philippines assumed coordinatorship of the ASEAN–China dialogue on 5 August and will serve in the role until 2021. The Duterte government has, as yet, displayed little evidence of its ability to represent ASEAN-wide interests in the negotiations with China.

While finalising the code of conduct is still a remote prospect, the next few years will determine the momentum and nature of the negotiations. A non-claimant as the next ASEAN chair would add to neutrality of the negotiations (next year is Thailand’s turn). The year 2020 may bring more interesting developments: Vietnam—an active claimant—will become chair and intends to have a strong focus on security, including deepening the agenda for the ASEAN Defence Ministers Meeting Plus forum. In the following years, the chairing will successively rotate to Brunei, Cambodia and Laos.

All ASEAN member states—both claimants and non-claimants—are interested in engaging with China, and the single draft negotiating text is a sign of progress. But challenging times are ahead for the claimant states to negotiate provisions that actually support rather than circumvent UNCLOS, including the option for judicial settlement and arbitration in case of further violations.