Let’s start with a simple test: who thinks it would be a good idea to hand over our next mobile communications network to a company with intimate connections to the Chinese Communist Party and the People’s Liberation Army, and which is obliged under Chinese law to support Beijing’s intelligence gathering activities?

Second question, who thinks it would be a smart idea to allow a Hong Kong company to dominate electricity and gas distribution in Victoria and South Australia, gas transmission and distribution in Queensland and the Northern Territory and critical gas transmission assets in Western Australia and NSW?

It says nothing positive about Canberra’s approach to national security that either of these developments are regarded in some circles as serious possibilities to take over critical infrastructure essential to how we function.

On Mondays, Wednesdays and Fridays our political leaders talk a big national security game. As Malcolm Turnbull said last December, the Australian people will ‘stand up’ against foreign interference from China. On the other days of the week we have ministers like Steve Ciobo in Shanghai last May praising China for its ‘commitment to openness’ and echoing a Xi Jinping speech: ‘we should bring our boats together and help each other to find a way to the other shore.’

The boats Mr Ciobo refers to are not likely to be the 12 future submarines or nine anti-submarine warfare frigates that Australia will build, primarily in response to a massive expansion of Chinese maritime power and Beijing’s illegal annexation of the South China Sea, an area almost as big as the Mediterranean and vital to international trade.

Australia has a massive strategic problem on its hands.

Australia has a massive strategic problem on its hands. Through our own policy choices over many years we consciously built an economic dependence on China, comforting ourselves with the hope that, as China became more wealthy, it would become more open, pluralist and part of a peaceful international system following the ‘rules’ based order.’

This hasn’t happened. China under Xi has become more assertive and more aggressively nationalistic. Xi makes no secret of his ambition to supplant the United States as the dominant power in the Asia-Pacific. Domestically, Xi is cementing his personal authority by abandoning the two term limit on the presidency and vigorously ‘recentralising’ Communist Party influence and control over all elements of Chinese life, including so-called private businesses.

As ASPI has reported in three new studies last week, modern telecommunications technology is enabling Beijing to roll out a nation-wide population surveillance capability that makes the state in George Orwell’s 1984 look like a hippy commune. Beijing’s increasingly elaborate ‘social credit’ system will measure people’s loyalty to the party like a credit rating, where low scores will cut off access to travel, jobs and promotions, stifling any unauthorised dissent.

Externally, China is squeezing Taiwan to strangle the independence instincts of a liberal democratic state of 25 million people. Beijing’s coercion of international airlines, including Qantas, to erase any reference to the ‘Republic of Taiwan’ is one example of the Chinese Communist Party’s desire for an Asia-Pacific that is expected to quietly toe the line while the Party’s reach is extended to Southeast Asia, the South Pacific, African and Indian Ocean countries, backed by an increasingly powerful People’s Liberation Army.

Australia’s foreign policy and defence statements for years have meticulously ‘welcomed China’s continued economic growth’, but Beijing’s return to a Leninist autocracy empowered with high-end information technology and growing artificial intelligence capabilities is a complicating factor we can’t afford to ignore.

This is the essential broader context for thinking about Chinese foreign direct investment into Australia, particularly of large Chinese companies – State Owned Enterprises or ‘private’ – into critical infrastructure.

Huawei has been a massive Chinese success story which, with the preferment and backing of Beijing, has grown to operate in 170 countries, and according to Huawei’s Chairman in Australia, John Lord, providing a third of the world’s population ‘with their telecommunications needs.’ John Lord admits that there is what he calls a ‘Communist Party Branch in Huawei’, but claims ‘it has no say in our operations, it meets in non-working hours and looks after staff social issues [and] is run by a retired employee of the company.’

Research done for ASPI by American China expert, Elsa Kania, presents a different picture. Kania has found that Huawei’s Party committee controls 300 party branches in the company with 12,000 members. Nor is it just a social club: Huawei’s current Communist Party Secretary, Zhou Daiqi often represents the company at high level talks.

None of this should be surprising; it reflects how business is done in a country where the Party and the State operate as a single entity. But in communications and information technology, which is so central to the Party’s apparatus for controlling the country, the Party and business are getting closer. In the words of one Chinese IT business leader, Wang Xiaochuan, ‘we’ll be fused together … [if] you think that your interests differ from what the state is advocating, then you’ll probably find that things are painful, more painful than in the past.’

‘all organisations and citizens shall, in accordance with the law, support, cooperate with and collaborate in national intelligence work.’

One marker of the Communist Party’s intent in controlling business is the National Intelligence Law released in June 2017 which bluntly says, ‘all organisations and citizens shall, in accordance with the law, support, cooperate with and collaborate in national intelligence work.’

Would that apply to Huawei’s activities in Australia? It’s interesting to note a change of emphasis in John Lord’s language on this issue. Giving evidence before the Parliamentary Joint Committee on Intelligence and Security in September 2012, Lord said ‘We comply with Chinese laws, as we comply with Australian laws, wherever we are operating’. Speaking last week to the National Press Club last Wednesday [27 June] Lord said that the Chinese national intelligence law ‘has no legitimacy outside China. We obey the laws of every country in which we operate in. In Australia we follow Australian laws.’

Read that carefully. It may be that Huawei in Australia isn’t looking for Chinese intelligence services, but you can be absolutely assured that, in China, the intelligence services are looking at Huawei. As John Lord told Parliament in 2012, ‘we obviously do not make the product; that comes from head office.’ And what does Huawei’s management do in Australia? Lord again: ‘market the company … part of that is football teams, meeting people, offering people the opportunity to go to our headquarters.’

Although Mr Lord said to Parliament ‘I am a bit unsure’ about who paid the costs, ASPI’s research into MP’s declarations of interest have found that no corporate entity has sent more Australian federal politicians on free business class trips overseas than Huawei. The aim ‘is getting Huewei known.’ It’s very unlikely though that this will improve the companies’ prospects to be allowed into bidding for the 5G mobile network. In 2011 and 2013 Australia’s intelligence agencies put cases to Government to keep Huawei out of bidding into the NBN scheme on national security grounds. Both times Government accepted that advice.

In May this year the Turnbull government committed over $130 million to provide a high-speed undersea telecommunication cable between Australia and Solomon Islands, which will also support internet connectivity to Papua New Guinea. That made it possible for Honiara to avoid a communications deal with Huawei, following ‘some concerns raised with us by Australia’ according to Solomon Islands Prime Minister Rick Houenipwela.

It is clear that Government and intelligence community concern about the national security risks of giving Huawei access to Australia’s telecommunication’s backbone have grown substantially over the last decade. On all the information that’s publicly available how could it be otherwise. Hopefully we can count on a quick and carefully explained government decision excluding Huawei from 5G consideration.

Hong Kong-based infrastructure firm CKI is now developing a $13 billion takeover bid for gas pipeline group APA, whose assets are critical to the flow of gas along Australia’s east coast from Queensland down to Victoria and between Moomba and Ballera in South Australia.

CKI, along with the Chinese SOE State Grid, were blocked on national security grounds from acquisition of the Ausgrid electricity distribution and transmission network in NSW in August 2016. The government never sought to explain the reason for the decision although it has since been reported that it was connected to a critical operational aspect of the Australia-US Joint Facilities located at Pine Gap near Alice Springs.

An equally surprising decision was to approve the sale of DUET gas facilities in Western Australia to CKI, news of which tricked out of a near-empty Canberra late on a Friday in April 2017 between Easter and an ANZAC day long weekend. Apart from supplying Perth, the Dampier Bunbury Natural Gas Pipeline feeds three critical operational Defence bases in the signals intelligence facility at Geraldton, the Special Air Services Regiment Headquarters at Swanborne, and Navy Fleet Base West at Stirling.

Again the Federal Government didn’t see fit to explain the basis this time for an approval of a sale to a foreign company of assets that rather convincingly look like critical national infrastructure. I understand that CKI management found the combination of these decisions to be wholly incomprehensible, as did industry observers.

What then are the prospects for CKI to receive Government approval for the take-over of the much larger stock of gas and electricity assets held by APA? I see at least two problems from a national security perspective and, although this is not my field, a competition problem.

The first problem is China. Hong Kong is trying desperately to hang on to some believable shreds of autonomy as a ‘Special Administrative Region of the People's Republic of China’, but it is clear that Beijing has no intention of allowing that autonomy to compromise its control of the territory and of the people and businesses that reside there.

While Hong Kong  currently maintains a separate legal system to the People’s Republic, and therefore the 2017 National Intelligence Law would not (formally) apply to CKI, there is no escaping the reality that President Xi intends for his will to prevail in Hong Kong. Businesses there will have to be as solicitor to the interests of the Communist Party as those on the mainland.

The national security calculation for Australia is hardly less stark for the gas and electricity sector as it is for telecommunications. Can we afford to let the bulk of that critical infrastructure be owned and run by a company that is ultimately subject to an authoritarian one party state with a massive intelligence apparatus and an equally large cyber force within the PLA looking for national vulnerabilities that might offer exploitable advantage?

Since the Ausgrid decision not to sell NSW’s ‘poles and wires’ to State Grid or CKI, a Critical Infrastructure Centre was created by the Federal Government and a new Security of Critical Infrastructure Act passed by Parliament in 2018 showing that more attention is being paid to how Australia can protect critical infrastructure, particularly from malicious cyber interference.

It’s true that one does not need to own an asset to be able to damage it through cyber manipulation, but hands-on access to the hardware and software of the industrial systems running our critical infrastructure is a clear vulnerability. The non-negotiable interaction of Chinese intelligence services with their business community remains a persistent challenge.

The non-national security problem for CKI remains what Treasured Scott Morrison has called the ‘aggregation effect’ of an ever larger part of Australia’s energy infrastructure being owned by a small number of mainly Chinese and Hong Kong businesses.

‘Australia’s national critical infrastructure is more exposed than ever to sabotage, espionage and coercion.’

The Government has warned on a number of occasions that ‘Australia’s national critical infrastructure is more exposed than ever to sabotage, espionage and coercion.’ The statement is not lightly made and we should take it seriously.  As difficult as these decisions are, Canberra should move quickly to block Huawei’s access to 5G and CKI’s access to APA’s gas and electricity business. This is the necessary price of maintaining national security interests in the face of an increasingly predatory China looking to maximise its own strategic interests at the expense of all others.