A House Divided: The AFRB and China's Subnational Diplomacy in Australia - Salvatore Babones
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Analysis Paper 17
November 2020
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A House Divided:
The AFRB and China’s Subnational
Diplomacy in Australia
Salvatore Babones
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A House Divided:
The AFRB and China's Subnational
Diplomacy in Australia
Salvatore Babones
Analysis Paper 17EMBARGOED UNTIL 00.01AM, THURSDAY 12 NOVEMBER 2020 Contents Executive summary................................................................................................1 Introduction: China, Victoria, and the AFRB...............................................................2 China's global subnational diplomacy........................................................................4 Victoria's journey onto the 'Belt and Road'.................................................................6 When educational and scientific cooperation become collaboration................................8 Conclusions and policy recommendations................................................................. 10 Endnotes............................................................................................................. 13
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Executive Summary
Australia is an open society awash in Chinese foreign influence activities that are in any way covert,
influence operations, which at times may cross the coercive or corrupt. That is the line that separates
lines to constitute foreign interference in Australia’s legitimate influence from unacceptable interference”.2
domestic politics. Some of the most nefarious of these The Attorney-General’s Department actually praises
operations take the form of ‘subnational diplomacy’: foreign influence operations that are “conducted in
attempts by China to circumvent traditional an open, lawful and transparent manner”, saying
international diplomacy by building relationships that they contribute to Australia’s “vibrant and robust
directly with Australian state, territory, and local democracy”.3 It takes a very narrow view of foreign
governments and associated governmental entities interference as “covert, deceptive and coercive
(including state-chartered universities). On August activities intended to affect an Australian political or
27, Prime Minister Scott Morrison announced that governmental process”. Such a strict construction of
the government would introduce new legislation the difference between influence and interference ,
to restore Commonwealth control over Australia’s while perhaps necessary for legal purposes, is rather
international relationships at all levels. In the ensuing less helpful as a guide to policy. Even when they
press conference, the he explained how his proposed are conducted in a lawful manner, China’s influence
Australia’s Foreign Relations Bill (AFRB) would help the operations are never open or transparent, and it is
Commonwealth keep tabs on subnational diplomacy doubtful that they ever contribute to a more “vibrant
that already involved “more than 130 agreements, and robust democracy”.
from 30 countries”.
This paper thus examines China’s subnational
In fact, these represent only the tip of the iceberg of
diplomacy as an attempt to exert influence over
Australian governments’ subnational links to foreign
Australian politics and society, without attempting
governments, which range from grand programs like
to make a legal distinction between influence and
Victoria’s Belt and Road agreement with China to
interference. The AFRB serves as a focal point for the
workaday commercial relationships like Hobart’s role
exercise. The paper’s first recommendation is that the
as a logistics hub for Chinese Antarctic expeditions.
AFRB should be amended to require the publication
This paper places Australia’s many subnational
of subnational government and government entity
relationships with China in international perspective
agreements with foreign entities, except in a limited
before focusing on Victoria’s highly controversial
number cases when the filing party convincingly
China diplomacy and other states’ and universities’
argues that secrecy is in the public interest. Allowing
educational and scientific collaboration with China,
subnational governments and government entities
including their support for university-based Confucius
to continue to do business in the dark is a recipe for
Institutes. Reviewing the fitness of the AFRB as a
ensuring they continue to be vulnerable to foreign
tool for countering Chinese influence and interference
influence and interference. The paper’s second
operations, the paper presents recommendations for
improving its targeting and efficacy. recommendation is that the AFRB should be amended
to establish a ‘trusted partners’ list of countries with
The Australian government draws a fuzzy line between which arrangements can be made without any need
‘foreign influence’ and ‘foreign interference’, accepting for ministerial approval. Such arrangements might still
the legitimacy of some influence operations (but require registration, but they should not be tied up in
not others) while consistently condemning political uncertain and potentially time-consuming bureaucratic
interference, which it defines as activities that are: processes. Excessive regulation should also not be
• carried out by, or on behalf of a foreign actor used as a blunt instrument that prevents universities
from cooperating internationally.
• coercive, corrupting, deceptive, clandestine
In principle, the AFRB is all about protecting
• contrary to Australia’s sovereignty, values and
Australian sovereignty, without prejudice to any
national interests1
particular foreign country. In practice, as nearly every
It is not clear whether an action must tick one, commentator has recognised, the AFRB is ‘all about
several, or all of the items on this list to be considered China’. For Australia, China is too important to ignore
foreign interference by the Australian government. but too dangerous for complacency. Australia has no
Speaking in 2017 as prime minister, Malcolm Turnbull choice but to deal with China, but it must do so with
proclaimed that Australia “will not tolerate foreign its eyes open, and its values intact.
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Introduction: China, Victoria, and the AFRB
Prime Minister Scott Morrison announced on August placing China at the center of the economic and trade
27 that the government would “introduce new networks of the Afro-Eurasian landmass. Launched in
legislation to ensure the arrangements states, late 2013, it theoretically comprises the overland Silk
territories, councils and universities have with Road Economic Belt and the seaborne 21st Century
foreign governments are consistent with Australian Maritime Silk Road, but in practice it operates as a
foreign policy”.4 The new legislation would give the single overarching narrative for nearly all of China’s
foreign minister “the power to review any existing geoeconomic diplomacy, spawning a Polar Silk Road,
and prospective arrangements between state and a Pacific Silk Road, and even a Latin American Silk
territory governments and all foreign governments”, Road. The Memorandum of Understanding (MOU) that
under which any arrangements that are “inconsistent Andrews signed with China’s National Development
with our foreign policy could be prevented from and Reform Commission (NDRC) chairman He Lifeng
proceeding or terminated”. In the ensuing press in 2018 commits Victoria to both branches of the BRI,
conference, Morrison explained how his proposed though in such vague language as to represent a
Australia’s Foreign Relations Bill (AFRB) would help the broad commitment to supporting China and its global
Commonwealth keep tabs on subnational diplomacy, foreign policies, whatever they may be.
which already involved “more than 130 agreements, The contents of the October 8, 2018 MOU were
from 30 countries”.5 initially kept secret, until public and political pressure
At that press conference, a journalist challenged forced their release more than a month later.6 The
the Prime Minster to name the target or at least the English version of the MOU7 is so poorly written that
concerns that prompted the bill, but Morrison refused it must have been drafted in China, or else by a
to take the bait, answering repeatedly that the non-native English speaker working without official
laws, and his biggest concern, are about “Australia’s oversight in Victoria. It provides for exchanges,
national sovereign interests”. dialogues, “joint researches”, and the like. One
provision suggests that the parties may “discuss
Of course, the AFRB is all about China, as are a cooperation with a third Party on jointly building
panoply of other Commonwealth mechanisms that the Belt and Road, and provide convenience to such
have been recently set up to counter potential malign cooperation”, whatever that means. Interestingly,
foreign influences on, and interference with, Australian the termination provisions specify that “one Party
institutions: should give the other party a written notice through
• Australia’s Foreign Relations Bill (AFRB) — under diplomatic channels at least three months in advance”,
consideration implying that Victoria has appropriate standing
to communicate via diplomatic channels. Given
• Foreign Investment Review Board (FIRB) overhaul the amateurism that is characteristic of Chinese
— announced June, 2020 diplomacy, it is likely that this language is a holdover
• Parliamentary Joint Committee on Intelligence and from the standard provisions it uses in its conventional
Security (PJCIS) inquiry into foreign interference in sovereign-level agreements, but the implication
that Victoria has the sovereign standing to conduct
Australia’s universities — under consideration
diplomacy is nonetheless telling.
• University Foreign Interference Taskforce (UFIT) —
The China-Victoria MOU was followed in 2019 by a
met August-November, 2019
framework agreement signed October 23 in Beijing.8
• Foreign Influence Transparency Scheme (FITS) — in The framework is full of boilerplate Chinese diplomatic
effect since 2018 language about fostering “the silk road spirit of peace,
cooperation, openness, inclusiveness, mutual learning
These mechanisms collectively represent an assertion
and mutual benefit”. Like the MOU, the framework
of Commonwealth control over Australia’s international
seems to have been drafted in Beijing, without input
relations in the face of state, territory, and even
from native English speakers. For example, one stated
university forays into autonomous deal-making with
principle is:
China. The AFRB in particular seems almost certain to
have been prompted by the state of Victoria’s decision Comply with international rules, and respect
under Premier Dan Andrews to sign up to China’s laws of opposite country, with highlighting the
Belt and Road Initiative (BRI). The BRI is Xi Jinping’s importance of procedure open, transparent, and
signature foreign policy initiative, a master plan for non-discriminatory.
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As would be expected, the framework agreement Communist dictatorship as its own, or even worse,
provides at least some additional detail about just endorsed Chinese rhetoric in exchange for shadowy
what Victoria’s BRI agreement involves. The areas political favors that can only be guessed at. Reflecting
of cooperation to be pursued under the framework the potential for such favors, it has been noted that
agreement include: “Victoria’s primary producers have escaped China’s
trade bans and tariffs relatively unscathed, as the
• Infrastructure development
state pushes ahead with its Belt and Road Initiative
• Research, innovation, and industrial development agreement”.9 Was this a coincidence? Neither the
Australian public nor its elected representatives can
• Public services (with a focus on population aging)
know for sure.
• Trade development (focused on food, agriculture,
The proposed AFRB would give the Commonwealth
nutraceuticals, and cosmetics)
government the authority to invalidate Victoria’s
However, the framework emphasises that BRI agreements, as well as many other subnational
infrastructure is the key concern, with a full article agreements between Australian government entities
devoted to establishing the terms for infrastructure (including state-chartered universities) and foreign
development (but no further elaboration offered on government entities. Such a broad remit would force
any of the other areas). In the awkward phraseology all Australian governments to speak with one voice in
that characterises the entire document, the international affairs, preventing foreign governments
infrastructure article opens: from playing Australian governments against each
other. But it also represents a potentially illiberal
Both sides acknowledge that infrastructure is a overreach, especially when applied to universities;
key area of jointly promoting the Belt and Road which although government entities, are not
Initiative. In this area, both sides have good governments.
cooperation foundation, great potential and
prospect. Both sides agree to further enhance This paper lays out the context in which the AFRB
cooperation of relevant companies. (and related mechanisms) will have to operate in
dealing with China, focusing on the case of Victoria’s
The infrastructure article goes on to detail four BRI diplomacy but also drawing implications for the
undertakings on each side, which mainly involve rest of the country. Section 2 puts China’s subnational
promises to share information on tenders and diplomatic offensive in global perspective, drawing
encourage firms to bid for projects. The two sides parallels between China’s subnational diplomacy in
also undertook to explore the establishment of a Australia and its actions in other countries along the
joint ‘Infrastructure Accelerator’. However, it should BRI and beyond. Section 3 focuses on Victoria’s highly
be noted that both the MOU and the framework controversial relationship with China, which dates
agreement contain clauses explicitly stating they are from the beginning of Dan Andrews’s premiership.
not legally binding. Section 4 examines educational and scientific
cooperation with China, with a special focus on the
Of course, if Victoria’s BRI agreement is not legally
China-funded Confucius Institutes program. The
binding, then what’s the point? Ironically, it is
concluding Section 5 evaluates the dangers posed
precisely the lack of enforceable clauses that is
by China’s subnational diplomacy and recommends
most troubling about Victoria’s MOU and framework
appropriate ways to address it while still engaging
agreement. It underscores the fact that these are
with China. For Australia, China is too important to
political accords being entered into for political
ignore but too dangerous for complacency. Australia
purposes, which are left unspecified (and thus
has no choice but to deal with China, but it must do so
unverifiable). The lack of contractual obligations
with its eyes open, and its values intact.
implies that Victoria has either voluntarily endorsed
the foreign policy doctrine of a potentially hostile
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China’s global subnational diplomacy
Ever since the 1648 Peace of Westphalia that ended the deal was diplomatic in intention, if not in formal
the Thirty Years’ War, it has been a bedrock axiom of status.
international relations that diplomacy is conducted at
Such strategic ambiguity is endemic to China’s
the national level. The word ‘nation’ is incorporated
subnational diplomacy practices. In China’s party-state
into the very term ‘international relations’. This
amalgam, there are no meaningfully autonomous
hasn’t prevented the rise of efforts to build cross-
institutions. The national government, provincial
national friendships or influence foreign populations
governments, local governments, universities, state-
through what is called ‘public diplomacy’, but for
owned enterprises (SOEs), and even (to a large
most countries, public diplomacy efforts are clearly
extent) shareholder-owned companies are all subject
distinguished from official diplomacy. Sister city
to the authority of the CPC leadership. As David
programs, foreign aid spending, and the BBC World
Kelly points out, although “private enterprises have
Service are all very nice, but they don’t involve the
emerged [in China], ‘private’ is a formal category of
negotiation of international agreements. By definition,
ownership that can be summed up as ‘less state’”.13
they can’t, since an international agreement can only
China’s leaders can effectively order cities to engage
be negotiated between nations.
in sister city relationships with targeted foreign
Subnational governments in the United States,10 cities, order universities to participate in research
the United Kingdom,11 China,12 and other countries cooperation with specific international partners, and
routinely pitch for international investment, engage even order private companies to make uneconomic
in global brand-building exercises, and sign friendship investments in pursuit of national policy goals. This
agreements with similar regions in other countries, strategic ambiguity is also characteristic of a small
but they typically do not pursue peer-to-peer number of other countries (for example: North Korea,
relationships with foreign national governments. Iran, Ethiopia, and Eritrea), but it makes China
Most national governments, in their turn, typically unique among major global trading economies. When
do not seek relationships with subnational units in subnational actors deal with Chinese entities of any
foreign countries. This is partly a matter of diplomatic kind, they can never be certain to what extent they
courtesy, partly an issue of sovereign self-regard. are actually dealing with the national party-state.
Neither the 1961 Vienna Convention on Diplomatic
Relations — to which nearly every country in the world In the case of Victoria’s BRI agreement, the
is a party — nor the 1963 follow-up Convention on connection is unambiguously direct. A parallel
Consular Relations, which covers “the development example can be found in Scotland, another
of commercial, economic, cultural and scientific subnational region that is chronically at odds with
relations”, envisage scenarios in which a national its national government over foreign policy. Like
government might engage in diplomatic relations with many places around the world, Scotland hosts
a subnational government in another country. Chinese government-sponsored Confucius Institutes
(at the university level) and Confucius Classrooms
One country now seeks to change all that. That (at the schools level). However, unlike most other
country is, of course, China. Its subnational diplomacy subnational jurisdictions, Scotland negotiated these
does not technically fall foul of international
at a government-to-government level, with Scotland’s
conventions because it is not officially conducted out
government signing MOUs with China’s education
of embassies or consulates. In the case of Victoria’s
ministry in 2005 and 2008 to establish a framework
BRI agreement, the Chinese counterparty is the
for these institutions.14 By contrast, the MOUs
NDRC, a central government economic planning
governing Scotland’s educational cooperation with
agency that formally reports to Premier Li Keqiang,
India and South Korea were signed by Universities
not to President Xi Jinping or the Communist Party of
Scotland, an independent membership organisation
China (CPC). The NDRC is not, in itself, an important
representing Scotland’s 19 higher education
power base in China, and it has arguably become less
institutions, not by the Scottish government itself.15
important in recent years. However, in China such fine
The government of Scotland also signed an MOU
distinctions hardly matter: the only power structure
covering cultural exchange with China in 2011, again
that matters, both practically and constitutionally,
pairing the government of Scotland with a Chinese
is the CPC power structure. By assigning the NDRC
ministry.16
to deal with Victoria, the Chinese state nominally
removed the agreement from the purview of Illustrating the ambiguity inherent in dealing with
diplomacy. Nonetheless, by having its ambassador to the Chinese party-state, in 2016 the government
Australia, Cheng Jingye, attend the signing ceremony of Scotland signed a confidential £10 billion
for the MOU in 2018, China clearly signaled that infrastructure MOU with two China-linked corporate
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entities, the China Railway No. 3 Engineering Group with individual provinces of China being assigned to
(CR3) and SinoFortone (UK).17 The MOU included an conduct economic diplomacy with particular countries,
intriguing clause: for example Gansu partnering with Iran while, across
the Gulf, Ningxia partners with Oman.23 Geography-
The whole MOU may be subject to release in the
based and industry-based specialisations interact
event of a request for information made under
in Jiangsu province’s traditional Chinese medicine
the Freedom of Information (Scotland) Act 2002.
partnership with Malta, which has been leveraged by
In fact, the MOU was released, but only after China as an entry point into the broader EU market.24
SinoFortone published a photo on its website China also uses provinces as conduits for the delivery
showing Scotland’s first minister Nicola Sturgeon of foreign aid, with (for example) Sichuan province
meeting with company executives — and China’s taking responsibility for Uganda.25
Consul General Pan Xinchun.18 It took only a few
days for critics to reveal disturbing details about the In the United States, China’s subnational diplomacy
Scottish government’s China-linked counterparties. has become increasingly controversial. Earlier this
The CR3 group is owned by a Chinese SOE that has year, Secretary of State Mike Pompeo urged state
been accused of gross corruption and human rights governors not to “make separate individual deals
violations in Africa.19 SinoFortone is a mysterious UK and agreements with China that undermine our
investment company that is reported to be a joint national policy”.26 In the early years of city-to-city
venture between a trading company called Sinolinks and state-to-province pairing, ‘sister’ jurisdiction
Group and the Liaoning Fortone Group, a Chinese programs were understood on the American side as
construction contractor.20 It has been associated playing a generous capacity-building role, in which
with a string of collapsed deals, although it was able the American partner helped the Chinese partner
to purchase the pub where Xi Jinping met David cope with the transition from state planning to a free
Cameron in 2015.21 It is unknown to what extent the market economy. Although American jurisdictions tend
Chinese government may have been behind Scotland’s to undertake peer-to-peer relationships in a spirit of
disastrous involvement with CR3 and SinoFortone, but inter-community solidarity, “city diplomacy in China
the MOU did open with the clause: is understood as an extension of the nation-state’s
interests and power”.27 A bipartisan bill to regulate
The President and the People’s Republic of China
subnational diplomacy, the City and State Diplomacy
have created an international strategy, “One Belt
Act, is currently working its way through both houses
One Road” that seeks to deepen understanding
of Congress. It would create an Office of Subnational
and commercial relationships between countries
Diplomacy in the State Department and mandate the
lying between China and Europe.
creation of a database of subnational engagements
In other countries, China’s subnational diplomacy has that is accessible to the public.28
operated through peer-to-peer channels connecting
Chinese foreign policy doctrine has evolved under Xi
provinces, cities, and universities. Across the
Jinping from a broad but vague criticism of historical
European Union (EU), nearly every subnational region
colonialism, imperialism, and the ‘unequal treaties’ of
of France, Germany, and Poland has a cooperation
the nineteenth century toward an aggressive program
agreement with at least one province of China, as do
most regions of Italy and Spain. A major report from of outright expansionism. This shift has been evident
the Polish Institute of International Affairs covering in formal diplomatic conflicts like those connected with
these five EU countries plus the UK found that for China’s revisionist territorial claims in the South China
subnational regions, the “main task in this context is Sea and arbitrary detentions of foreign nationals.
to implement the policy of the central government”.22 Leading Chinese international relations theorists now
The report continues: write of Confucian ‘relationality’ as a substitute for
formal treaties in international relations, with at least
In other words, Chinese regions are part of the one explicitly linking the BRI to the transition to a
‘division of labour’ with the central government post-Westphalian world.29 As then foreign minister
or a kind of ‘transmission belt’ for the policy of Yang Jiechi bluntly put it at a 2010 ASEAN meeting,
the authorities in Beijing. [emphasis in original] “China is a big country and other countries are small
The authors of the report, Tomasz Kamiński, Adriana countries, and that is just a fact”.30 China figures it
Skorupska, and Justyna Szczudlik, explain how is big enough to impose its own unique rules for the
the central government assigns “specialisations conduct of international relations, and when it comes
to particular regions”. For example, Sichuan and to the shaping of norms for the conduct of subnational
Chongqing have been assigned to conduct subnational diplomacy, China just might be right. Subnational
diplomacy with partner regions in eastern Europe, jurisdictions around the world have shown themselves
while Liaoning and Sichuan focus on transportation so eager to do business with China that they accede
technology. In some regions of the world, China has to forms of behavior that would be rebuffed out of
adopted a ‘One Country, One Province’ strategy, hand if coming from any other country.
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Victoria’s journey onto the ‘Belt and Road’
Australia’s proposed AFRB would go much farther than Victoria’s BRI diplomacy has been conducted on
equivalent US legislation, giving the Commonwealth another scale entirely. Australia’s commentariat
government not only notification of subnational is unanimous in anticipating that foreign minister
foreign government agreements, but the power Marise Payne would use powers granted under AFRB
to invalidate existing agreements, veto future legislation to void Victoria’s BRI agreement with
agreements, and prohibit Australian governments China’s NDRC, but this agreement is only the most
and universities from even opening negotiations extreme tip of a long tail of Chinese subnational
about agreements. In his August 27 press conference diplomacy with Victoria. Soon after taking office as
announcing the AFRB, Scott Morrison cited a figure Victoria’s premier in December, 2014, Dan Andrews
of “more than 130 agreements”, and that same was talking up China. If China really does have a
day The Australian newspaper published a list of 30 ‘one province, one country’ policy, then Victoria was
existing state and local government agreements and assigned to Sichuan, a key BRI hub in southwestern
12 university agreements that could be affected by China. Victoria already had an official sister state
the proposed AFRB.31 But these represent only the relationship with eastern China’s Jiangsu province
tip of the iceberg. For example, according to the that dated from the beginning of China’s reform
umbrella organisation Sister Cities Australia, there era in 1979, a time when jurisdictions in Western
are at least 560 sister city relationships connecting countries volunteered to help poor Chinese provinces
foreign cities with Australian partners, plus a host of with capacity building for the transition to a market
lower-level ‘friendship city’ relationships.32 There are economy. Today, Jiangsu has an economy roughly
the size of Australia’s and is home to many of
also nine international ‘sister port’ relationships and
China’s leading high-technology companies, including
27 international sister state relationships. Tellingly,
e-commerce giant Alibaba. Sichuan has more modest
the country with the most sister city relationships is
economic aspirations.
China (with 99), and China is also making the recent
running. Of 19 foreign cities currently advertising for a When Andrews publicly launched his government’s
partner in Australia, ten are Chinese.33 China strategy in a June, 2015 speech to the
Melbourne Press Club, he didn’t even mention
There is nothing necessarily nefarious about Chinese
Jiangsu.37 He unveiled a new Victorian relationship
cities seeking sisters in Australia. The example only
with Sichuan and announced that he would appoint
serves to illustrate just how common subnational
a new Deputy Trade Commissioner to “focus on —
government agreements are. Agreements between
and be based in — the Western Provinces”. He also
state governments and foreign national governments
announced that would be making his first official
(as such) are much rarer. The most important
overseas trip to China and returning to China every
precedent for Victoria’s BRI diplomacy is the 2011
year. On that first trip — in September, 2015 —
MOU between the state of Western Australia and
he announced the signing of a Letter of Intent to
China’s NDRC, covering the facilitation of Chinese
establish a sister state relationship with Sichuan,
investment in WA’s natural resources sector. Even
in the process revealing that Victoria had already
here, the agreement itself delegated implementation (on April 21) signed an MOU for the relationship,
to the Western Australia Department of State which does not seem to have been made public at
Development and the Chinese Department of Foreign the time.38 The apparent secrecy with which Victoria
Capital and Overseas Investment.34 These are the negotiated its sister state relationship with Sichuan
appropriate administrative organs bureaucracies set the tone for the Andrews’ government’s approach
within the respective countries for coordinating to China.
international investment flows. In any case, the
China-WA MOU seems to have prompted little, if any, Andrews’ first formal China strategy document,
practical follow-up.35 Hailed at the time by WA premier published in April 2016, promised to increase
Colin Barnett as allowing the state to establish a “Victoria’s total share of Chinese investment to
Australia ... from 8 per cent to 20 per cent” and “to
“separate identity” that “raises the relationship
attract and facilitate $2 billion of Chinese investment
between Western Australia and China to a new level”,
into the State” within 10 years.39 The document
it seems never to have been taken as seriously in
was surprisingly frank in explaining in a section on
Beijing as it was by Barnett, and seems never to have
“Opening Doors in China” that:
even been reported by China’s English-language state
media.36 The change in power in Beijing at the end of The Victorian Government will pave the way
2012 seems to have put paid to Barnett’s attempts at for enhanced engagement with China. This
subnational diplomacy. is particularly important in China, where
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government plays a critical role in business, and Two of the nine were a property developer (FuWah)
influences trade and investment outcomes.40 and a hotels operator (Hind Group), both of which
likely would have invested in Melbourne real estate
In May, 2018, the Victorian government released
whether or not Victoria had a China strategy. The
a China strategy ‘progress report’ that highlighted
other seven were all SOEs or quasi-SEOs under state
the fact that the state had met its 10-year China
control. And while SEOs do not report directly to the
inward investment targets in just two years.41 In his
NDRC, all their foreign investments (and large foreign
introduction to the report, Andrews emphasised his
investments for quasi-SEOs) are subject to approval
burgeoning personal ties to the Chinese leadership:
by the NDRC:
Representing the reciprocity of our relationship,
• Bank of China — state-owned bank (SOE)
I’ve also been proud to meet some of the most
senior figures in the Chinese Government, • CITIC — state-owned investment company (SOE)
like Premier Li Keqiang, and welcome many
• CRRC — state-owned railcar manufacturer (SOE)
to our state. In 2017, I was honoured to be
the only leader of an Australian state invited • Hisense — state-owned appliance manufacturer
to the prestigious Belt and Road Forum for (SOE)
International Cooperation, held in Beijing
• Huawei — state-linked technology company (quasi-
and based on President Xi Jinping’s vision for
SOE)
stronger economic and social ties with partner
states.42 • Power China — state-owned power plant developer
(SOE)
The report also revealed the existence of previously
unreported MOU that Andrews had signed directly • Qenos — subsidiary of China National Chemical
with the NDRC, the Chinese agency responsible for Corp (SOE)
implementing the BRI:
An even closer connection between Victoria and the
In a world first, the Victorian Government NDRC can be seen in the participation of the China
signed an agreement with China’s National Investment Corporation (CIC) in a 50-year lease on
Development and Reform Commission (NDRC) the port of Melbourne. The CIC is not an SOE; it is
on public private partnerships (PPPs) in March an actual arm of the Chinese government. The CIC
2017. The occasion marked the first time the is China’s sovereign wealth fund, established in 2007
NDRC has entered into an agreement with “as a vehicle to diversify China’s foreign exchange
a sub-national government on this subject, holdings”.46 It is, in effect, a vehicle through which
recognising Victoria as a valued partner. China can put its official foreign exchange reserves
The only prior public acknowledgement of such a (equivalent to roughly AU$4 trillion) to work in the
relationship seems to have been an obscure mention service of the government’s political goals. Initially,
in a June, 2017 speech by China’s Melbourne consul China was careful to assuage international concerns
general Zhao Jian.43 that this would be the case, promising not to invest in
strategic industries like “airlines, telecommunications
Reiterating that “The Victorian Government Is or oil companies”.47 It quickly became apparent,
Engaging with China at the Highest Levels”, the however, that “the CIC is in fact tightly controlled by
progress report reminded readers that: the Chinese political leadership, and often applied
Victoria’s commitment [to China] was recognised to specific political tasks”.48 Uncharacteristically
when the Premier was the only state leader for a sovereign wealth fund, the CIC operates
invited to the prestigious Belt and Road Forum independently of China’s central bank and finance
in May 2017. Joining more than 90 world leaders ministry, being “insulated from both parties in the
in Beijing, the Premier delivered a speech on formal hierarchy of the central government”, instead
opportunities to collaborate with China on major having close ties to the NDRC, a situation that is
infrastructure projects. The Premier has also “actually quite unique”.49 The CIC is actually China’s
met the most senior national leaders from China “only financial SOE which reports directly to the State
during their visits to Australia, including Premier Council”, parent of the NDRC.50
Li Keqiang, Foreign Minister Wang Yi, and
Victoria’s 2018 China strategy progress report credits
Chairman He Lifeng of the NDRC.44
the CIC for purchasing 20% of the Melbourne port
All of this networking seems to have paid off for lease.51 In fact, the CIC owned what was effectively a
Andrews — and for Victoria. In less than three years controlling 50% stake in a private equity fund (Global
of networking at the highest levels in China, Andrews Infrastructure Partners) that itself owns 40% of the
was able to attract “big investments” (in the words of port lease.52 The 50-year port deal generated nearly
the progress report) from nine Chinese companies.45 $4 billion more than the estimated price, and far
7EMBARGOED UNTIL 00.01AM, THURSDAY 12 NOVEMBER 2020
more than a 99-year lease for Sydney’s somewhat reasonable to ask how it is that the premier of a
larger ports had generated just three years earlier.53 subnational region with a GDP of a little over US$300
Interestingly, in their initial press releases trumpeting billion has been able to attract the attention of China’s
the port deal, neither the Victorian government nor NDRC, which is responsible for managing an economy
the Lonsdale Consortium that purchased the lease of over US$14 trillion.
mentioned the involvement of Chinese capital in the
Initially fobbed off on Sichuan in 2016, Dan Andrews’
consortium.54 It has been suggested (although this
Victoria quickly gained the attention of the Chinese
cannot be proved) that “the handy billion dollars or so
central government in Beijing, which by 2017 seems
from Beijing probably just made the difference in the
to have been directing massive flows of state-linked
bids” between the China-backed Lonsdale Consortium
investment to Victoria. Andrews appears to be the
and a rival Australian group.55
only subnational leader in the world to have been
Judged by both its stated intentions and its invited to address China’s 2017 and 2019 Belt and
proclaimed results, the essence of Victoria’s China Road Forums, and Victoria seems to be the only
strategy seems to be a quid pro quo in which Victoria subnational entity in the world to have signed a BRI
offers China political support in exchange for Chinese agreement with China’s NDRC. Commentators are
state-directed investments in Victoria. Seen from always constrained to hedge with the word ‘seems’
this perspective, the otherwise bizarre decision by because China offers little official information about its
Victorian premier Dan Andrews to defy Commonwealth flagship economic diplomacy program. That in itself
advice by officially signing onto China’s BRI with a should be cause for alarm. The extraordinary level
framework agreement in 2019 starts to make sense: of attention lavished by China on a single Australian
the Chinese government directed billions of dollars of state is even more troubling. It is either — as Dan
state-linked (and, indeed, state) investment toward Andrews himself claims56 — a testament to his
Victoria in 2017-2018, while Andrews helped China “close personal relations with some of China’s most
meet its BRI political goals in 2018-2019. Whether influential government representatives”, or a sign that
or not the two sets of actions are explicitly linked is Victoria’s Icarus may be flying dangerously close to
impossible to say with certainty. But it is certainly China’s sun.
When educational and scientific cooperation
become collaboration
Most of the agreements connecting Australian China’s Antarctic research missions, China would be
subnational governments with China identified by free to continue to use Hobart as a logistics support
The Australian and other media outlets focus on base. It would be unprecedented in time of peace
educational and scientific cooperation. For example, in to bar a friendly country’s ships from purchasing
2013 Tasmania signed an MOU with the Chinese State fuel and supplies for a scientific expedition, and
Oceanic Administration to cover operations in support humane assistance might be provided to a distressed
of China’s Antarctic research missions, followed up by research vessel even in time of war. As China’s use
a 2014 schedule of activities.57 At the time, Hobart of Hobart as a support base before 2013 and after
had already served as China’s base of operations 2018 demonstrates, the China-Tasmania Antarctic
for Antarctic research for some 30 years, as well as MOU is completely superfluous. Its purpose is
servicing French, American, South Korean, Italian, entirely political. The same might be said for most
and Japanese operations.58 In light of rising tensions of China’s agreements with Australian subnational
with China and then proposed AFRB, “concerns” have governments, which is why (from China’s perspective)
naturally been raised about Tasmania potentially they fall under the general heading of ‘subnational
renewing the arrangement, which seems to have diplomacy’. Australian state, territorial, and local
lapsed in 2018.59 In fact, the Chinese State Oceanic governments have little practical business to do
Administration itself no longer exists, though its with foreign governments per se, and even a
former functions are “perceived” by experts to have blanket Commonwealth prohibition on their making
been taken on by the Ministry of Natural Resources agreements with foreign government entities would
(even Chinese environmental law professors are hardly affect them. It would, however, frustrate China.
unsure).60 Yet in 2019 and 2020, Chinese Antarctic
China is almost (but not quite) unique in seeking
research vessels continued to operate from Hobart.61
government-to-government MOUs to back up even the
Even were Tasmania to be prevented under AFRB most routine types of engagement. The Tasmanian
legislation from negotiating a new MOU to support Department of State Growth helpfully provides a list
8EMBARGOED UNTIL 00.01AM, THURSDAY 12 NOVEMBER 2020
of all of its current and expired foreign MOUs on its teaching staff, books, and materials.63 Interestingly,
website.62 Twelve are with Chinese counterparties, one an extensive search turned up no information
with a Japanese one, and one with a French one. Of whatsoever about who keeps the tuition paid by the
all the other countries that do business in Tasmania, students who take Confucius Institute courses. It
use Hobart as an Antarctic logistics hub, partner can only be assumed that course tuition represents
with Tasmanian agriculture, or cooperate with the almost pure profit for the host universities. It has also
University of Tasmania, not a single one apparently been suggested the hosting of Confucius Institutes is
requires the comfort blanket of a state government instrumental in securing additional China-related grant
MOU. Other states and territories are in a similar funding.64
situation of signing agreements with state ministries
University-based Confucius Institutes in Australia
in China that are roughly similar in terms to the
typically do not teach for-credit classes to ordinary
agreements that they sign with institutes, universities,
university students, although some Confucius
or corporations in other countries. To some extent,
Institutes in other countries do, and the University of
this merely reflects that the kind of work done by
Queensland has been criticised for allowing Confucius
independent institutions in Western democracies
Institute involvement in some of its undergraduate
tends instead to be done by government departments
classes.65 Australia’s Confucius Institutes focus instead
in China. More broadly, it also reflects that China
on offering Chinese language and culture courses to
prefers to unnecessarily push agreements up to the
members of the community. This raises two obvious
intergovernmental level in order to better leverage
questions: why does China choose to base Confucius
them for political purposes.
Institutes at universities, and why are universities
International agreements for educational and scientific so keen to host them? The cynical answers to
cooperation with countries other than China are these questions would be: “to gain influence over
rarely politicised. When it comes to dealing with other universities” and “for the money”. Yet it has been
countries, Australian subnational governments simply made impossible — by design — for outside analysts
focus on the practical business at hand: a research to ascertain whether or not this really is the case.
cooperation agreement is concerned only with It seems that not one of the hundreds of Confucius
research cooperation; a student exchange agreement Institutes around the world publishes separate
is concerned only with student exchange. China, accounts, and it has proven impossible to discover
however, dangles the prospect of educational and any accounting of Confucius Institute proceeds in
scientific cooperation as an incentive for subnational university accounts from Australia or abroad. Even
governments (and their leaders) to fall into line with the publication of Confucius Institute MOUs, such
China’s broad world-view. These links are difficult to as the 2019 agreement published by the University
trace empirically, but it is well-understood among of Queensland, provides little or no insight into the
international relations experts that China makes its motives (or rewards) universities have in hosting
official cooperation conditional on counterparties’ Confucius Institutes.66
acceptance of Chinese political positions on such
issues as the status of Taiwan, sovereignty over the Much of the criticism of Confucius Institutes has
South China Sea, the legitimacy of CPC rule, and focused on their potential to spread Chinese values
silence over human rights abuses. By negotiating and propaganda through their teaching activities.
cooperation agreements at a political level (instead of China expert David Shambaugh maintains that “the
leaving them to the relevant cooperating institutions), accusations against CIs for spreading communist
China can ensure that its political priorities are propaganda is hogwash”.67 A deeper but less easily
enforced. demonstrated threat posed by Confucius Institutes
is that they may discourage universities from taking
China’s practice of leveraging commercial agreements
positions that might upset the Chinese government, or
into institutional influence is not limited to
in extremis that they may lead universities to actively
governments. China uses the same practice in dealing
pursue the agenda of the Chinese government.68
with universities. The Confucius Institutes are a
That is the essence of accusations leveled at the
prominent case in point. There are thirteen Confucius
University of Queensland by student activist Drew
Institutes hosted by Australia’s 37 public universities,
Pavlou.69 When universities adopt policies that fall in
a per-university concentration that is exceeded only
line with Chinese government priorities, it is of course
in New Zealand. Individual Confucius Institutes
impossible to determine whether they are doing so
have historically been constituted as partnerships
under the influence of Chinese contracts, which may
involving an individual university in Australia, a sister
or may not bring them increased resources. Such
university in China, and the Chinese government.
strategic ambiguity is at the heart of the unease
In a typical Confucius Institute contract, the host
generated by university dealings with China.
university provides the physical facilities (office and
classroom space) and pays for a director, while the Australian universities have also become deeply
Chinese partners provide a start-up grant on the entwined in Chinese scientific research networks.
order of US $150,000, an annual subsidy on the The proportion of scientific papers published by
order of US$100,000, a Chinese associate director, Australian universities that included a coauthor from
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a Chinese university has risen from less than 1% in but it is, as The Australian reports, “secretive”.75 And
1998 to 16.2% in 2018, according to research from although there is no hard evidence that Australian
the Australia-China Relations Institute (ACRI).70 An universities intentionally looked the other way, the
unknown number of the Australia-based authors of structure of their scientific cooperation with China
those papers would themselves have been Chinese encourages them to do so. The research cooperation
citizens. The link is strongest in materials science and success story touted by ACRI is simply the reverse
chemical engineering, where more than a third of all side of the foreign collaboration scandal uncovered by
Australian university publications were coauthored by ASPI and The Australian.
scholars based at Chinese universities.71 In both these
To an extent unparalleled in Australia’s dealings with
areas, more than three-quarters of Australia’s “most-
other countries, the relationships that connect Chinese
cited” publications had China-based coauthors.72 Given
universities and their Australian peers are centrally
the centrality of such publications in universities’
funded and organised by the Chinese government
performance in international rankings, access to
itself. Moreover, the role of the party secretary at
Chinese research laboratories may be as important
Chinese universities, once a moribund survival from
as access to Chinese money for Australian university
an earlier era, has been revitalised in recent years in
administrators.
a successful effort to reassert direct party control over
The scientific research ties that connect Australia- university governance. China’s grooming of Australian
based academics to Chinese universities may be universities is thus in effect an extension of the
even closer than their employers realise. Alex Joske subnational diplomacy China conducts with Australian
of the Australian Strategic Policy Institute (ASPI) has states, territories, and localities. Although Australia
shone a light on China’s global network of scientific may treat intergovernmental relations and academic
talent recruitment, which seems to be most focused research cooperation as two entirely separate things,
on the United States, Germany, and Australia — from China’s standpoint they are merely different
with Australia leading the way in per-capita terms.73 aspects of a single, unified foreign policy. China does
An investigation by The Australian revealed that not limit its public diplomacy to the kinds of broad
Australian universities were often unaware that many cultural outreach practiced by other countries. It also
of their academics were receiving “second salaries” seeks to influence foreign institutions directly, and
of $100,000 or more for their work in China.74 often in a blatantly transactional way. What’s truly
The “Thousand Talents Plan” at the heart of these remarkable about this is the extent to which foreign
investigations was hardly secret (Chinese universities institutions, even in Australia, often seem perfectly
routinely advertise for Thousand Talents recruits), amenable to such an approach.
Conclusions and policy recommendations
Anyone who has read Clive Hamilton’s Silent Invasion second jobs at Chinese institutions — paid for by the
will be aware of the prodigious scale of China’s Chinese government?
influence and interference operations in Australia.76
It turns out Hamilton’s revelations were just the
Hamilton’s book has been criticised as a “McCarthyist
tip of the iceberg. Given the culture of secrecy that
manifesto”77 that “smacks of The Yellow Peril”78 and
surrounds contracts with China, that’s not surprising.
“misrepresents” alternative, “far more balanced”79
Hamilton could only report what he could discover.
approaches to China. In fact, we now know that The same is true here. If suggestion and innuendo
Hamilton did not go far enough. What outspoken critic must often take the place of hard facts, it is only
of Silent Invasion could have imagined that, within because those against whom the suggestions and
eight months of the book’s publication, an Australian innuendos are directed have worked very hard to
state premier would have signed a secret policy ensure that the relevant hard facts are not available
accord with the Chinese government, in defiance of for analysis. Was Dan Andrews offered a quid pro quo
his own country’s national government? And then for his BRI support? Did the CIC make a politically-
go to Beijing to seal the deal? Or that an Australian motivated investment in the Port of Melbourne? How
university would retain external counsel to pursue much money do 13 Australian universities make from
action against a student activist? Or that dozens of their Confucius Institutes? Does China make research
top scientists at Australian universities (and CSIRO!) cooperation contingent on hosting these programs?
would be found to be secretly working lucrative Have Australian institutions internalised China’s point
10EMBARGOED UNTIL 00.01AM, THURSDAY 12 NOVEMBER 2020
of view to such an extent that they reflexively toe The Darwin port fiasco prompted a Senate inquiry and
the CPC party line even in the absence of any specific a tightening of the rules in 2016 to close the loophole
threat from China? We simply don’t know, and given that excluded the deal from being considered by the
Australian public institutions’ relatively low levels of FIRB. More recently, the government has announced
transparency, we can’t know. a complete overhaul of the foreign investment review
system, which is expected to be implemented at
The proposed AFRB would address some of the
the beginning of 2021.84 While these reforms are
most serious concerns raised by China’s subnational
welcome, the fundamental challenge of dealing with
diplomacy offensive, but it leaves substantial gaps,
China remains: all deals with China are ultimately
and introduces some problems of its own. On the plus
deals with its government — and its ruling party.
side, it would give the Commonwealth government
That’s why gaps in the coverage of the AFRB cannot
unambiguous control over the country’s official foreign
be filled simply by referring international investments
policy. The Commonwealth could invalidate Victoria’s
to a revamped FIRB: the interwoven structure of the
BRI agreement. That would put an official end to an
Chinese party-state means that the key challenges
embarrassing episode and help Australia save face in
to be solved are political, not technical. Returning to
its future relations with China. But given that Victoria’s
the Victoria BRI example, there is no a priori reason
BRI agreement is in any case vague, aspirational,
to believe that any one of the eight state-linked
and explicitly “not legally binding”, invalidating it is
investments that Dan Andrews credits to the success
likely to have little practical effect. When it comes
of Victoria’s China strategy would run afoul of the
to practical implementation, what does it mean to
beefed-up FIRB. The problem isn’t the investments.
invalidate a non-binding agreement? It’s angels
The problem is the strategy.
dancing on pins.
The under-reach of the proposed AFRB is also evident
Even after the AFRB comes into force, an Australian
in one area where it over-reaches: the supervision
state premier could travel to Beijing, speak at a Belt
of university agreements with foreign partners. The
and Road forum, meet top Chinese leaders, endorse
AFRB would classify Australian public universities
China’s foreign policy initiatives, praise China using
as ‘non-core state/territory entities’ (as opposed to
standard Chinese foreign policy tropes, and pitch
‘core entities’ like state and territory governments).
for investments from Chinese state-linked firms.
As non-core entities, universities would be required
Moreover, since the draft AFRB explicitly excludes
to notify Australia’s foreign minister before entering
from consideration any “corporation that operates on
into arrangements with foreign entities, over which
a commercial basis”, China could simply redirect its
the minister would have veto power. An ‘arrangement’
subnational diplomacy to a supposedly ‘commercial’
is defined in the draft AFRB as “any written
SOE. In fact, the explanatory memorandum for the
arrangement, agreement, contract, understanding
AFRB explicitly states that “commercial corporations,
or undertaking”, a definition so broad that it would
including those that are wholly or partly owned or
seemingly cover everything from Confucius Institutes
controlled by a foreign government, are not covered
to cohosting a webinar. It would impose massive
by the Act”.80 It has been pointed out that the AFRB
compliance burdens on universities, but it still would
would not cover the Darwin port lease because the
not address China’s university-related subnational
lessor, Landbridge Group, is nominally a shareholder-
diplomacy. China can, after all, exert massive
owned company.81 In fact, that is irrelevant. The port
influence over Australian universities simply by
could be operated by the China State Construction
threatening to withdraw international students.
Engineering Corporation; it still wouldn’t come under
the purview of the AFRB. The Australian government seems not to have been
much troubled about the success of Victoria (and
Such investments would still, however, be subject
other states and territories) in attracting Chinese
to review by FIRB — a mechanism that failed
state-linked investment, or about the Darwin port deal
spectacularly in 2015 when the Northern Territory
(at the time it was concluded), or about Australia’s
controversially sold a 99-year lease on the Port
top universities looking to China for up to a quarter
of Darwin to a relatively opaque Chinese firm,
of their total revenues. It only seems to have become
Landbridge. To its credit, Landbridge submitted an
concerned when it came time to pay the piper. That
FIRB application (actually, two related applications)
was naïve, to say the least. Now that the piper has
for its bid, in an apparently good-faith attempt
come calling, the measures that Australia is putting in
to comply with all relevant Australian laws and
place to protect itself in the future are equally naïve.
regulations. But the FIRB informed the company that
As Clive Hamilton has so amply documented, the most
no such application was required, since the port was
serious challenges posed by Chinese operations are
government-owned.82 The framers of the Foreign
moral. More than anything else, China’s subnational
Acquisitions and Takeovers Act 1975 apparently
diplomacy threatens Australia’s moral fibre.
did not envisage a scenario in which an Australian
government would lease critical national security Thus, although the proposed AFRB and related
infrastructure to a Chinese firm with links to the CPC reforms to foreign investment and university
and the People’s Liberation Army.83 governance are steps in the right direction, they
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