Federal politics

What does China want from Australia?
On Australia’s efforts to resist Beijing’s campaign for influence – A Quarterly Essay extract

For Joe Hockey, the realisation hit him while he was sitting in a traditional thatched hut in Bali. After only two days as treasurer, he was utterly unprepared for his meeting with China’s finance minister. It was September 2013, and Hockey was representing Australia at a meeting of the 21 Asia-Pacific Economic Cooperation countries.

Chinese officials had shuttled back and forth to the hut for hours finessing every detail, but when Lou Jiwei strode in, sat down opposite Hockey and blithely lit a cigarette, it wasn’t detail that concerned him. “So,” Lou opened by saying, “why won’t you let me buy Rio Tinto?” Rio is one of the world’s great mining companies. It draws high-quality iron ore, bauxite, diamonds, gold, copper and uranium from its mines in Australia, Canada, Mongolia and elsewhere. Although it’s only part-Australian, with dual headquarters in London and Melbourne, it is one of Australia’s proudest corporate assets.

China had made a 2008 bid through a state-owned firm to buy 15 per cent of the company. Beijing was anxious to lock down the raw materials to feed its vast industrial appetites. The global financial crisis was underway, so it was going cheap. The Rudd government approved the sale, but made clear that 15 per cent was the maximum stake for a state-owned foreign investor. Now, four years on, Lou Jiwei wanted to revisit the idea.

“That’s fine,” Hockey parried once he’d recovered from his surprise. “As long as you’ll let Qantas buy China Southern,” a state-owned airline, the biggest in Asia. Lou didn’t like that idea. He tried another angle: “All I want,” he told Hockey through an interpreter, “is to buy 15 per cent of your top 200 listed companies.” The Australian treasurer’s response was to laugh at the brazenness of the proposal. If granted, it would make the Chinese government the biggest single investor in corporate Australia. In many companies it would make the Chinese government the most influential shareholder. And, overall, it would give the Chinese government unmatched sway over the conduct of companies, industries, banks, financial markets, regulators and governments.

When the brash former head of China’s sovereign wealth fund saw that this wasn’t going to be accepted, he put another idea to Hockey. Lou suggested Chinese buyers could take major stakes in Australia’s big banks. Hockey didn’t countenance this, either. Rather than allow Lou to work through a list of options for acquiring broad ownership of Australia’s corporate crown jewels. Hockey suggested they move on to a “more meaningful” topic.

The encounter stunned Hockey. It revealed several important aspects of the Chinese government’s intent and conduct. First, Lou put aside any pretence that state-owned companies act independently of the Chinese Communist Party. It was clear that he expected to direct the behaviour of Chinese state-owned firms. Second, Lou’s proposals were a naked play to use the resources of the Chinese system to buy the maximum possible ownership, and, with that, the maximum possible power and influence over Australia. There was nothing said about investment returns or business profitability. Lou was interested in ownership for its own sake. Third was the sheer brazenness of the bid. It revealed towering arrogance and raw hubris. What did China want from Australia? As much power and influence over its economy as it could get. It’s possible that Lou had no real expectation that such an abrupt and ambitious bid would be considered seriously. If so, we can only assume that he hoped to awe the new Australian treasurer with his power. In the event, a Chinese state-owned firm did manage to buy a slice of Rio, its coalmining business. Yancoal bought full ownership of Coal & Allied from Rio for $3.5 billion in 2017.

For Stephen Conroy, it hit him in a phone call from someone he’d thought was on his side. Conroy, a Labor senator and Victorian powerbroker, was the shadow defence minister. He took a call from the general secretary of the NSW Labor Party, Kaila Murnain. It was June 17, 2016, and a federal election was due in just 14 days.

“Steve, if you don’t change your China position, we are going to lose $400,000” in a promised political donation, she told him, according to the account that a shocked Conroy gave to many of his colleagues at the time. The timing gave it extra potency. The sudden loss of such a big pledge so close to an election could punch a hole in the party’s final ad campaign, maybe even a decisive one. He added his interpretation: “This is serious when they can manipulate us two weeks out from an election.”

For a political party, that is a huge sum. The public hearings of the NSW Independent Commission Against Corruption this year revealed that NSW Labor was prepared to break the law and engage in elaborate cover-ups to get its hands on a donation one-quarter as big during a state campaign. In 2019, Murnain lost her job over that scandal.

Curiously, it was the same donor, the property tycoon and billionaire Huang Xiangmo, behind both offers, according to evidence to the ICAC on the state campaign and according to multiple Labor sources on the federal. For the record, he has denied being the donor on either occasion.

A donation of $400,000 would have been among the biggest donations from any individual in Australian political history. Huang was a permanent resident of Australia and lived in a $12.8-million home in Sydney’s Mosman, which he’s been forced to abandon. The Australian government has since cancelled his visa and declared him a persona non grata after ASIO found him to be a covert agent of influence for the CCP.

The “China position” that was so upsetting that Huang would offer $400,000 to change it? The previous day, Conroy had debated the defence minister, Marise Payne, at the National Press Club as part of the election campaign. In the course of debate, Conroy declared that a Labor government would take a firmer stand in resisting Chinese encroachments on its neighbours’ territorial claims in the hotly contested South China Sea. “The Turnbull government has hidden behind ambiguous language,” said Conroy. “We believe our defence force should be authorised to conduct freedom-of-navigation operations consistent with international law.”

Conroy refused to alter his position. Murnain’s reaction? “Ms Murnain is said to have been seen in Labor head office cursing about losing ‘hundreds of thousands’ of dollars worth of donations after Victorian Stephen Conroy made utterances on Labor’s policy on the South China Sea,” according to a report in The Australian.

What Huang failed to buy in the wholesale market he decided to shop for in the retail market instead. He quickly organised for another Labor senator, Sam Dastyari, to declare a more Beijing-friendly position. Dastyari wasn’t a relevant frontbencher, so his words wouldn’t carry the same weight, but he was a Labor powerbroker nonetheless, with solid influence in the NSW Right faction, which is often at odds with Conroy’s faction in the Victorian Right. Better to have at least some of the federal Opposition spouting your favoured policy than none at all.

That same day, Dastyari called a press conference and, standing side by side with Huang, said that “the South China Sea is China’s own affair,” and that Australia should “respect China’s decision”. Only Chinese-language media were invited. When challenged by Australian reporters over his reported comments, Dastyari denied them. Until an audio recording emerged. Dastyari had been a cheerful recipient of Huang’s cash for some time. A key point here: he had disclosed the money he’d taken from Huang. It was all legal. Property developers, such as Huang, are prohibited from giving money at the state level, but not at the federal. Dastyari was drummed out of federal parliament in disgrace, not for accepting Huang’s money but for dissembling over the favours he was doing for him. It might have been legal, but it was plainly corrupt.

The first lesson from this episode is how cheap it is to buy Australian politics. When Huang Xiangmo wanted to have a bit of a flutter, he gambled hundreds of millions of dollars a year at one casino alone. We know from a 2015 leaked internal email from Melbourne’s Crown Casino that Huang put nearly $800 million through its tables in one year. By comparison, the donations Huang offered political parties to change policy, and potentially compromise themselves, were mere pocket change. It exposes an extremely uneven contest. A desperate, low-rent political system has grave difficulty resisting the temptations offered by an extraordinarily well-funded influence-seeking operation. To illustrate, someone with Huang’s play-money allowance could donate 10 times the combined advertising spend of both major parties at the 2019 election and still have half a billion dollars in his pocket to splash on Crown Casino’s games of chance. And Huang was just one covert agent of influence, according to ASIO.

Second, this incident jolted Australia into realising how little it knew of the Chinese government’s covert influence campaign. When I first disclosed that Labor had been offered $400,000 to change its policy on the South China Sea, my colleague Nick McKenzie, an investigative reporter for The Age and The Sydney Morning Herald, was alarmed. It was the impetus, he says, for his decision to pursue a major 2017 investigation of China’s influence operations in Australia. The series, in conjunction with the ABC’s Chris Uhlmann and Four Corners, was a key moment in waking Australia to the operation. And we only received this warning because Conroy refused the offer and let his colleagues know about it. How many other such proposals have been made and silently accepted? In truth, we have no idea and no systemic way of finding out.

The intelligence agency whose primary job is to guard against foreign interference, ASIO, has only a limited idea. Covert foreign intrusion into the heart of Australian politics is “something we need to be very, very careful about”, the recently retired head of ASIO, Duncan Lewis, says in an interview. “One spectacular case in New South Wales was Sam Dastyari. It’s quite clear to me that any person in political office is potentially a target. I’m not trying to create paranoia, but there does need to be a level of sensible awareness. When people talked about [how to define foreign interference in] our political system, I used to get the comment, ‘We will know it if we see it.’ But not necessarily. Not if it’s being done properly. There would be some I don’t know about.”

The Australian system is wide open in two critical ways. First, because “federally, Australia has some of the most lax political donations laws in the developed world,” in the words of a senior lecturer in politics at the University of New South Wales, Lindy Edwards. The political donation laws are “full of holes that can be exploited to hide where parties’ incomes are really coming from.” She calculates that the major parties disclose transparently only 10 to 20 per cent of their true incomes as donations. And, second, because Australia has no federal anti-corruption commission. The system is dark, and there is no agency whose job it is to shine a light.


This is an edited extract from Peter Hartcher’s Quarterly Essay 76, Red Flag: Waking up to China’s challenge, available now.

Peter Hartcher
Peter Hartcher is a Gold Walkley Award–winning journalist and a Visiting Fellow at the Lowy Institute. His books include To the Bitter End, Bubble Man and The Sweet Spot.

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