Are we really going to sell out the US alliance for property prices?


Finally the nation has been shunted into a decent debate about China and its role in Australia’s future. We know it’s a debate of substance because the Chinese Communist mouthpiece, The Global Times, was sufficiently exercised to mock it:

A Briefing Book, given to all senators and members by Australia’s Parliamentary Library recently, warned them of China’s “Belt and Road” initiative and expressed concerns toward it. The book called on senators to adopt a prudent mind toward China affairs and to keep alert toward China’s motives behind its investments.

The book is an epitome of some Australians’ attitude toward China. The news that Labor Senator Sam Dastyari from New South Wales accepted political donations from a Chinese man has caused quite a stir. The Chinese donor was found to have paid his legal bills, and Dastyari reportedly supported China’s stance in the South China Sea issue. Conservative forces within Australia launched an assault on Dastyari and urged him to resign.

“I think the Australians need to make a choice,” said Colonel Tom Hanson, assistant chief of staff, US Army Pacific. “It’s very difficult to walk this fine line between balancing the alliance with the United States and the economic engagement with China.”

Some Australians seem to be deliberately hyping up the alarm toward China, which baffles Chinese society. China and Australia are geographically detached. Like Canada, Australia is an English-speaking country and apt for doing business, study, travel and migration. Canada used to have disputes with China over human rights. It is not difficult to understand as Canada belongs to the Western camp. But what bewilders us is why Australia keeps confronting China over security issues.

Southeast Asia is situated between China and Australia. But Australia seems to have more security concerns toward China than Southeast Asian countries like Indonesia and Malaysia. It is even difficult to maintain a normal relationship with Australia now.

Geographic advantages grant Australia the most security among world countries. Its sense of insecurity comes partly from its own paranoia and partly it is created by itself. As an external nation, it is keen to get involved in Asia’s political disputes like the US. But its strength is relatively weak. The US wants to be a guard in Asia. Does Australia want to behave like an auxiliary policeman affiliated to the US?

Australia does not have to feel unsettled. It can rest easy due to being an ally of the US and stressing its identity as a Western country. At the same time, it needs China as its largest trading partner who is also willing to do business with it. Beijing will not force Canberra to pick a side. As long as Canberra knows what it is doing, Washington can do nothing about it.

China does not have to care about Canberra’s provocative words. But if it resorts to real actions to hurt China’s security such as sending warships to the South China Sea, it is bound to pay a heavy price. So far, China and Australia have only been engaged in a war of words, and their ties are not really affected. China’s relations with Canada have been warming up recently. The momentum of China-Europe ties keeps steady. The maritime disputes between China and the Philippines and Vietnam have been put under control. Australia should make reflections on whether it has gone too far in standing up to China.

That’s pretty clear. Beijing is happy to be friends so long as we stay out of any strategic tensions. If not look out, so says US strategic analyst Richard Fontaine, from the AFR:

“I did not sense there was a great appreciation for the specific vulnerabilities in the Australian economy,” said Mr Fontaine, who is currently the president of the Centre for a New American Security and has just spent two months as the inaugural Alliance 21 fellow at the University of Sydney’s US Studies Centre. His writings on “salvaging the global order” have been widely circulated within Australia’s Department of Foreign Affairs and Trade.

“If Australia were to do something that China considered provocative and it was going to retaliate what might that actually look like? What areas is it likely to impact and therefore how much risk Australia is willing to assume in order to push back.”

Mr Fontaine said retaliation was unlikely to be related to the iron ore trade but could take the form of a travel advisory warning or a directive to state-owned enterprises.

Precisely. What is most likely at stake here is the ‘citizenship export’ sector: education, immigration, property prices and capital imports (sold assets). Pretty much Australia’s current great hope for future economic development, known around here as the ‘McKibbin Doctrine’.

On the other hand, if Australia was to stand aside from any actual China/US tensions what would be the strategic cost? Again Richard Fontaine:

Fontaine argues the global order, an open and rules-based system, is under threat on a number of fronts including “China’s challenge to maritime rules across the South China Sea”.

“Countries like Russia and China were not among the architects 70 years ago, and they have been brought into the house only haphazardly,” writes Fontaine, who is now president of the Center for a New American Security in Washington.

“It remains unclear whether they wish to make major renovations to that house, or to tear it down entirely.”

As a middle power the cost to Australia from a collapse of the “rules based” multilateral system would be extreme. We would need to divert enormous new resources to defense spending, the Great Power tensions we are currently witnessing would morph into a permanent ‘Cold War’ and the US is quite likely to shift to a policy of China containment, forcing Australia into the very choice it is aiming to avoid.

It is here that we find an old school of Australian strategic thinkers, also at the AFR:

In foreign policy circles this is known as “independence within the alliance”, a posture favoured by former Labor prime ministers Gough Whitlam and Paul Keating.

…”Australia needs a foreign policy, and it needs it urgently,” said Keating, who was prime minister from 1991-96 and now sits on the advisory board of the China Development Bank, at a forum this week.

“China will once again be a great state in the world. Through its population and GDP, China [economy] will end up being one and a half or twice as big as the US.”

Keating believes Australia should respond by joining the Association of South East Asian Nations and avoiding any involvement in a potential US-China conflict in the South China Sea.

[Hugh] White, for his part, still thinks Turnbull is inclined towards a more independent foreign policy.

“I just think he is reluctant to open a debate on China, which is a big and scary subject,” White says via phone.

“That’s equally true of the [current Labor opposition]. There is a kind of cartel where both sides agree this issue will stay off the agenda.”


Which seems to be the default position for pretty much everything of importance on the Aussie agenda. Anyway, ‘independence within the alliance’ is what we’ve been doing for the past decade whether it was spelled out or not. You may be able to palm off the Chinese for a while longer by stating it openly but the Great Power tensions will simply keep rising. Australia may be ready to sell the US out but Japan and Korea sure aren’t. The three-way enmity there with China is never far below the surface. And if it comes to conflict in the South China Sea (or elsewhere) then the rules based system will be trashed whether we go or not.

The strategic fallout for ANZUS may also be severe. ‘Independence within the alliance’ that persists with Australia’s current economic transformation is turning us into a Chinese espionage hot spot, also from the AFR:

The government’s top intelligence experts are concerned Prime Minster Malcolm Turnbull isn’t taking their warnings about the security threat posed by China seriously enough and the former banker is relying on advice from outside experts.

Despite vetoing a Chinese bid for Sydney’s electricity network this month, Mr Turnbull and some other cabinet ministers are reluctant to act on or receive warnings that China is engaging in spying on an “industrial scale” and that business secrets are among its top targets, three sources with senior contacts in the security services said.

“It is far more ambitious and better resourced than ever before,” said Paul Monk, an intelligence and foreign affairs expert who headed China analysis for the Defence Intelligence Agency.

“It’s notorious with politicians that they find intelligence to be a new thing when they go into politics. It’s things they would prefer not to know or suggest actions that can be embarrassing.”

“There is an unspoken rule that we spy on each other,” said Alan Dupont, a former military officer and defence analyst. “But to target in a massive way the business community of your trading partners and friends, in a way China has done, is unprecedented.”


In case you don’t know, these are the top minds in Australian strategic thought and what they are saying is more than a little scary. I mean, check out this bombshell from Peter Hartcher:

It is a polite fiction that donors will give money to politicians without expectation of a return on investment.

One of the biggest paymasters of Australian politics, the chairman of the property developer Yuhu Group, laid this out explosively for all to see this week.

…Huang has paid more than $1 million to both sides of Australian politics since 2012.

He is also the financier for Bob Carr’s pro-China outfit, giving $1.8 million to set up the Australia China Relations Institute.

Carr’s outfit is so relentlessly pro-China that Professor John Fitzgerald, of Swinburne University, has written of “the monotony of Carr’s China-Whatever comments”.

…None of this is happening in a vacuum. The president of China, Xi Jinping, has publicly called on the patriotism of overseas Chinese to advance Beijing’s interests in foreign countries:

“As long as the overseas Chinese are united,” declared Xi, “they can play an irreplaceable role in realising the Chinese Dream of National Rejuvenation as they are patriotic and rich in capital, talent, resources and business connections.”

The Chinese Communist Party even has a department responsible for the co-ordination of Chinese diaspora and international communities – as sinologist Gerry Groot, of Adelaide University, has written:

“The United Front Work Department (UFWD) is the organisation through which the Party reaches out to many key non-party groups within and outside China in order to achieve important political goals.

“It also monitors sensitive constituencies and selects representatives from them who they can then incorporate into the political system.”

There is a group of Chinese Communist Party party-connected influencers in Australia acting not merely for personal or commercial advantage but for China’s national interest.

The ABC’s Chris Uhlmann reported that “the security warning to party chiefs is another indicator of the growing concern in intelligence agencies about the use of ‘soft power’ in Australia.

“That includes donations to politicians and universities, urging community groups to press Beijing’s cause, increasing control over Chinese language media and buying space in mainstream media.

“The immediate goal is to push China’s case for control of the South China Sea and, long-term, to urge a rethink of Australia’s alliance with the US.”

Inside the parties, the connection between Chinese money and Australian foreign policy is being made starkly plain.

Senior Labor figures have told MPs that Senator Stephen Conroy’s tough position on China’s disputed claims in the South China Sea have cost Labor a lot of money, well informed sources tell me.

Specifically, they’ve said that big Chinese donors withheld $450,000 in payments that otherwise would have been given to Labor, the sources said.

…By offering, or withholding, money, this is an attempt at deep, strategic corruption, an effort to pay politicians to change Australian foreign policy.

Total disclosed payments to the major parties by Chinese corporate and business interests in the two years to June 30 last year was $5.89 million.

An informed official tells me: “There is very high level concern inside ASIO about the use of donations to purchase access and influence.

“It’s concern about systematic behaviour by people connected to the Chinese state apparatus. It’s centrally directed by Chinese intelligence.”

The obvious conclusion to draw for the Americans is that under such an espionage assault, little Straya is no longer a trustworthy “five eyes” intelligence partner. Moreover, if we were to abandon the US in a North Asian skirmish with China, or indicate that we would do so in advance, then why share intelligence with us now? Or, for that matter, spend trillions on policing the Pacific hegemony that enforces the rules-based system? In the simple calculus of real politik what’s in it for them?


None of this is really as hard as it appears. It’s only hard if we allow the fundamental tension between the economy and our strategic outlook to develop further. That tension is not between Australia as a Chinese trading partner of goods like raw materials on one hand, and the US as the regional hegemon on the other. The supply of raw materials to developing countries and emerging powers supports the international rules-based system because without free access to commodities nobody can grow and invasions for access become a rational choice for governments. The rules-based system polices the sea lanes that keep that trade flowing.

No, the fundamental tension is between where Australia’s economy is going and the US alliance. The strain is between the McKibbin Doctrine – selling to the Chinese everything that is not bolted down and the ‘citizenship export’ sector of high immigration, education exports, property prices – and the US alliance. There is no getting around this. If we allow that part of the economy to continue to develop and dominate then we are ipso facto entering an altogether deeper engagement with China that will render us strategically dependent upon the rising Great Power of North Asia and whatever it decides to do with the “rules based” system of Pacific strategic relations. There is no “independence within the alliance” that supports the current rules-based system policed by a US hegemon, there is only risking it by backing an unproven new one.

We might choose to back the new kid on the block but if so we should do it with our eyes open. Given it is totalitarian, we do not know to what extent it will at some point rely upon external aggression to support internal power.


On the other hand, the US is still the great Liberal Empire of our time, the greatest democracy on earth by some distance. It has no interest in leading wars of aggression in the Pacific. This is not some glib “end of history” drivel about democracies never invading one another. The US has been a troubled alliance partner in a decade of global misadventure that was shockingly destructive to itself and others. It might next elect a weirdo to the Oval Office and turn inwards for a while. It is very far from perfect. But its track record of support for an Asian rules-based system of international relations is very good (with some prominent Cold War exceptions) and that benefits Australia in ways so large that it is difficult to measure.

The answer to this strategic dilemma is actually pretty easy. When I was publishing The Diplomat, the then Chinese Ambassador to Australia, the elegant Fu Ying, recounted a story about travelling to far northern Australia where she imagined diggers and US marines fighting side by side on the beaches against Japanese invasion. It was at the moment, she said, that she understood that the strategic links between Australia and the US go deep into history, and exist beyond simple alliance paraphernalia (it may be that knowledge that has the Chinese state working so intensively to disrupt it). So, to manage our strategic tension we simply do what Fu Ying might have expected us to do, we take away Chinese leverage by:

  • properly policing Australia’s foreign property buyer rules;
  • banning Chinese investment in strategic assets while freeing it up in raw materials (including agriculture);
  • ratcheting down immigration levels;
  • focusing hard on improving general economic competitiveness so that we rebuild tradable sectors instead of relying on selling everything off to prosper, and
  • ban political donations.

We do this within a clear foreign policy, strategic, investment and trade framework, communicated through white papers and consistent decision-making so that it is clear to Beijing that we are their loyal partner in their developmental economic journey within the existing rules-base system of regional governance. And we tell the US that we back them all the way as the regional hegemon.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.