Last week I finally got around to watching Pine Gap, the ABC’s excellent geopolitical drama series. It is a terrific primer on the facility, as well as Australia’s position in the melting down relationship between the US and China.
But it is also a terrible failure. After six episodes (spoiler alert), it culminates in a near disastrous face off between the US and China in the South China Sea, which is ultimately defused by heroic Australian efforts to convince the US to back down by lying to alliance partners left right and centre.
The failure is not of a dramatic nature. It is in the politics at the heart of the question posed by the drama: will Australia choose the US or China and how can that question be resolved? The story settles on a convenience of sustained balance between our two great and powerful friends rather than the reality that no such easy option exists.
Moreover, the plot makes one further fateful false assumption. That China’s economic rise is inevitable and unstoppable and its military development will accompany that, leaving the US with no choice but to back away, which Australia triumphantly persuades it to do.
Last week we were treated to an intensifying debate in Australia around what we ought to be doing about the Communist Party of China (CPC) and its destruction of Hong Kong freedoms. This boiled down to the following:
- Peter Jennings of ASPI argued that by Australia kow towing constantly we are inviting further CPC aggression;
- Peter Harcher declared HK’s case hopeless;
- the Australian Signals Directorate is seeking deeper powers to monitor internal CPC threats, upsetting the press;
- strategic experts Alan Dupont and Chris Richardson argued Australia must seek the middle path between the great powers;
- Barnaby Joyce argued we must boost defence spending to stand alone from the US and be a partner of China;
- Kevin Rudd blamed Malcolm Turnbull for it all and Manchurian Dan is happy to court China no matter what it does to HK.
In short, there is a continuum of views that run from a very hawkish defence establishment through to very dovish Labor CPC apologists. There is no consensus meaning that Australia’s future is up for grabs, even if the faith in the US alliance does run deep.
To my mind, this debate has gone awry at a very fundamental level owing to a quite undisclosed problem emanating from Canberra and, especially, our leading economic institutions. To demonstrate, let’s recall the arguments of Hugh White, Australia’s most gloomy CPC prognosticator:
If you believe the Australian Treasury, in 2030, China’s economy will be $42tr and America’s will be $24tr.
And so it follows that China’s military and determination will also be insurmountable.
And herein lies the problem. China’s economy is nowhere near as powerful or stable as the proven dills at the Australian Treasury would have us believe. The Chinese economy is a mess. It is still largely assembly-based and imports most of the high tech equipment going into its export products. It is still an investment led, debt disaster in the making. As such, it is no longer the dynamic productivity powerhouse of yesteryear with income growth to burn. Rather, it is in an increasingly troubled, debt-laden, slow motion Minsky stagnation into ever more useless malinvestment. These challenges are all made much worse by China’s terrible demographics which eerily resemble those of Japan at the zenith of its power.
There are millions of charts I could show on this but the most obvious proof comes from China itself which has tried desperately to reform itself away from its own economy. I has done in fits and starts as it discovered that doing so results in much slower growth, challenging the legitimacy of the CPC. So it has always reverted to the old, dying model of growth.
These dynamics are well understood in development economics. The impasse is know as the “middle income trap“:
According to the idea, a country in the middle income trap has lost its competitive edge in the export of manufactured goods because of rising wages. However, it is unable to keep up with more developed economies in the high-value-added market. As a result, newly industrialised economies such as South Africa and Brazil have not, for decades, left what the World Bank defines as the ‘middle-income range’ since their per capita gross national product has remained between $1,000 to $12,000 at constant (2011) prices. They suffer from low investment, slow growth in the secondary industry, limited industrial diversification and poor labor market conditions.
The key to escaping the middle income trap is to move up the industrial production value-added chain. The CPC knows this. Which is why it launched its China 2025 plan which was all about advancing local manufacturing into technology and advanced robotics.
Alas for the CPC, these areas of expertise are the competitive advantage of the world’s most highly developed economies in the US and Europe, as well as the source of their military might. It might have acceptable to the US that democratically allied ‘island economies’ such as Korea and Japan succeeded in taking this leap the twentieth century. But for a continental giant like China, such a move will wipe out the competitive advantages of the US and Europe. It is simply too big and too dangerous to be allowed to do it.
This is what triggered the alarm bells in both, leading directly to Donald Trump’s trade war, which is directed straight at putting a lid on this escape hatch for the Chinese economy.
China has responded predictably, by doubling down on its old economic model. But endless ranks of empty apartments do not add value to an economy over time. They only add debt and worsen the ultimate stagnation. This is analogous to the Soviet Union’s capital misallocation into weaponry before its collapse.
That is not to say that China will collapse. It won’t. But it will bog down into more and more pointless growth that shrinks its economic power. As China’s catch-up growth fades so will any notion of its overtaking US hard power.
Yet I have never once seen a senior Australian Government economist express these ideas. The Australian Treasury exists entirely within an ideology that can’t see them, given it ignores debt as a factor in all of its economic models. Its economists exist within a group think loop that China’s economy is an unstoppable juggernaut.
Our pollies and strategic thinkers embrace its prognostications out of self-interest or ignorance and thus they embrace China far too fulsomely out of fear and greed.
In short, Canberra’s economic idiots are trying to talk the nation into giving everything away when the reality is that there is no need to do so. China is not as strong as is being made out. Its prospects are getting worse not better. And its power projection is likely to get more hysterical to hide these facts as they come to bear. Witness its staggering overreach in Hong Kong. which has now been defeated as 2 million people marched yesterday, via Bloomie:
But the biggest loser could be further to the north: President Xi Jinping just saw hundreds of thousands of people hit the streets on Chinese territory to effectively say they had no faith in the mainland’s system of governance — one he has pushed as a model for other strongman regimes around the world. Even worse for Xi: It actually worked.
Xi is currently engaged in a trade war with the U.S. that is evolving by the day into an ideological battle: Democracy vs authoritarianism, market-led vs state-managed economies, and free speech vs reeducation camps. By hitting the streets en masse, Hong Kongers showed they didn’t trust the city’s dominant Beijing-controlled lawmakers to protect them from the mainland’s legal system, which ultimately answers to Xi’s Communist Party.
“What’s really at issue is people’s distrust in the Chinese judiciary and its legal system,” Claudia Mo, one of the most outspoken opposition lawmakers and a main protest organizer, said in an interview after Lam spoke. “As long as things remain the same as they are in China, nothing is going to change.”
— TicToc by Bloomberg (@tictoc) June 16, 2019
No doubt the CPC’s MSS will now invade Hong Kong on the quiet but at least it is fighting it off.
Conversely, the Australian Treasury has shown zero cognisance of this fight. It has proven over and again that it has no idea about the Australian economy, let alone the Chinese one. It has ignored the reality of Australia’s debt-sodden households for years. It is steeped in a mass immigration obsession that is making all of the above internal and external problems worse. In a very real sense, its post-mining boom complacency is directly responsible for the turnover of Aussie PMs as its every economic prescription has served only to denude angered Australians of more income, which they take out on pollies. But that is a manageable pain. When the Treasury’s intellectual bankruptcy starts to threaten our very way of life then it poses questions much more dangerous and disturbing.
Which brings me back to Pine Gap. In the climactic scenes, the geopolitical conflict becomes personal and fights break out between the Australian and American staff as they try to knock their own version of sense into one another. The divisions are inflamed by tactical espionage from all sides. The Australians prevail but only thanks to dramatic licence.
In reality, I wonder whether, or in how long, Australia’s institutions fracture into open fights with one another given how opposite are their alignments, how vulnerable they are to outside influencers, and how hostile some are, intrinsically or deliberately, to the perpetuity of Australian liberal democracy.
To put it bluntly, defense and security officials are completely at odds with Canberra’s economic officials on China, and the Government appears not to have any way to bring them together. Instead, right now, we have rancorous public debates and ham-fisted tactical endeavours like the Australian Signals Directorate plus Home Affairs debacle around protecting critical cyber infrastructure from Chinese attacks, which puts other democratic institutions like the press offside. The division is described today by Tony Walker, though he comes down on exactly the wrong side of the debate:
Paul Keating’s creative use of the Australian idiom on election eve when he called for a “clean-out’’ of Canberra’s security agencies to get rid of the “nutters’’ who had “gone berko’’ over China.
Keating’s remarks were dismissed at the time as gratuitously provocative, but they had a serious side. He was reflecting concerns among a mandarin class in Canberra about an ideologically driven anti-China sentiment prevalent in the country’s spy agencies.
“The security establishment has too big a hold on China policy,” a former security mandarin tells me. “There is a general feeling the relationship is being mishandled.’’
Yeh, we’re spending far too much time kow towing and not enough time on how to protect our kid’s futures.
Yet there is a way to buy time, if not to resolve the issue permanently. It is to co-ordinate an all-of-government push back against undue Chinese influence via Malcolm’s Turnbull’s now idled plan:
The legislation I am introducing today is designed to reinforce the strengths of our open democratic system while shoring up its vulnerabilities.
I mentioned earlier that our Counter Foreign Interference Strategy has four pillars: sunlight, enforcement, deterrence and capability.
Of these, sunlight is at the very centre.
To ensure activities are exposed to sunlight, following an extensive review by the Attorney-General, we are introducing a new Foreign Influence Transparency Scheme.
The principle is quite straightforward.
If a person or entity engages with the Australian political landscape on behalf of a foreign state or principal then they must register accordingly.
This will give the Australian public and decision-makers proper visibility when foreign states or individuals may be seeking to influence Australia’s political processes and public debates.
The link could be a financial relationship or some other form of arrangement.
Registration requirements are carefully structured so that the closer you get to the heart of Australian politics, the more likely it is that you must register.
Being registered under the scheme should not be seen as any kind of taint. And certainly not as a crime.
To the contrary it is applying the basic principles of disclosure to allow the public and policymakers to assess any underlying agenda.
But if you fail to disclose your ties to a foreign principal then you could be liable for a criminal offence.
This is not about shutting down legitimate debate, but rather enabling it.
Interference, espionage and sabotage
Sunlight is the most reliable disinfectant but it will not be sufficient on its own.
We are also introducing, for the first time, offences for acts of foreign interference. Addressing a clear gap, we will criminalise covert, deceptive and threatening actions by persons acting on behalf of, or in collaboration with, a foreign principal aiming to influence Australia’s political processes or prejudice our national security.
Acts of foreign interference are often intertwined with espionage.
But our espionage laws are so unwieldy they have not supported a single conviction in decades, even as the threat reaches unprecedented levels.
So we will also introduce a range of carefully structured espionage offences as well as new provisions for secrecy, sabotage and treason.
Any one of these three pieces of legislation—the foreign donations legislation, which Senator Cormann will introduce into the Senate, transparency, and interference-related criminal offences, would mark an enormous improvement in our ability to counter foreign interference.
Together, they add up to the most important overhaul of our counterintelligence legislative framework since the 1970s.
They should be seen as interlocking components. All are important and none will fully succeed without the others.
Finally, we need a central hub to not only enforce the law but do so in a way that maximises deterrence.
This is where our new Home Affairs portfolio will come in.
There is no national security threat outside war time that demands an integrated all-of-government capability like this one.
By enacting this legislation, and building the capability to properly use it, we are sending an unmistakable signal:
We will not allow foreign states to use our freedoms to erode freedom; our open democracy to subvert democracy; our laws to undermine the rule of law.
The centrepiece of the all-of-government push to deal with CPC influence was the creation of the National Counter Foreign Interference Coordinator with Home Affairs under former ASIO honcho Chris Teal:
The National Counter Foreign Interference Coordinator delivers an effective, efficient and consistent national response to foreign interference by providing a focal point for coordinating policy and program development and leading engagement with private sector areas.
Alas, afterwards, the office has not been funded properly. What should be a half billion dollar operation to ensure the Australian Government is operating as single entity in its dealings with the Communist Party of China (CPC) is instead a dozen under-resourced people.
For juxtaposition, imagine if we were being so slipshod on counter-terrorism, which has a similar National Coordinator to bring together all government efforts into cogent policy making.
The man in charge of the putative plan is Home Affairs Peter Dutton. Why has he not gotten the National Counter Foreign Interference Coordinator properly funded and deployed as the US/China Cold War has intensified? Does he really have any higher priority task? Is he too busy worrying about media coverage?
It’s not like he does not have first hand experience on the need. It is matter of record that the Minister hobnobbed with an alleged Communist Party of China (CPC) agent of influence in 2016, via the ABC:
Monday’s Four Corners-Age-Sydney Morning Herald investigation reported that Mr Dutton, immigration minister at the time, in 2015, approved a private citizenship ceremony for Mr Huang’s family, who were due to travel overseas.
Mr Dutton justifies the special treatment as being in response to a request from then Labor senator Sam Dastyari.
That would be the same Mr Dastyari who in December in 2017 announced he would resign from the Senate after revelations that he had promoted Chinese interests, including at a notorious news conference where he stood beside Mr Huang.
Four Corners reported that in 2016 — when Mr Huang was anxious to get his own citizenship — lobbyist Santo Santoro, a former Howard government minister and close to Mr Dutton, arranged a lunch between the businessman and the minister at Master Ken’s (upmarket) restaurant in Sydney’s Chinatown.
Mr Dutton denies the lunch was about Mr Huang’s citizenship bid. “He didn’t make representations to me in relation to these matters,” he said on Tuesday, also stressing he’d received no donation (Mr Huang over several years donated, to both sides of politics, between $2 million and $3 million).
Mr Huang didn’t get his citizenship, and last year his permanent residency was cancelled. The officials charged with examining his background and activities judged him unsuitable to be one of us.
This is the very same Mr Huang who cost Sam Dastayari his career when Peter Dutton labelled him a “double agent” for his dealings with the man. During the campaign, former Prime Minister of Australia Malcolm Turnbull condemned the meeting:
“Look, Peter Dutton has got a lot to explain about this.”
“He is supposed to be the minister responsible for the domestic security of Australia, He is supposed to be the minister responsible for ensuring our politics is not influenced by foreign actors.
“The laws that I introduced at the end of 2017 about foreign influence and foreign interference are very important laws and responded to a rising concern in the community.
“Now, the idea that the minister responsible for enforcing those laws has had a meeting of this kind does raise a lot of questions but Peter Dutton is the only one that can answer it and Mr Santo Santoro should equally be answering questions about his role.”
The press more or less dismissed this as sour grapes on the part of Turnbull. Before it could mushroom into a genuine scandal, ScoMo called the election.
Yet we have ask, where is the ScoMo Government’s CPC plan? Why is Peter Dutton not funding a viable initiative to prevent further CPC influence operations at home, to give the Government shape and time on the subject, to provide succor to Australians and the Chinese diaspora that the ScoMo Government has their back? Not to mention bringing together arms of the Government that are effectively at each other’s throats, before it turns nasty.
Does life really have to imitate the dubious art of Pine Gap?