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National Observer Home > No. 68 -Autumn 2006 > Articles


Guanxi and Australian-China consultants
— the risk of dual allegiance

by Andrew Campbell

National Observer
(Council for the National Interest, Melbourne),
No. 68, Autumn 2006,
pages 21–39.


This article examines the case for an Australian Foreign Agents Registrations Act (AFARA) to ensure that former Australian government officials, diplomats and senior intelligence officers who become consultants to or conduct business with foreign powers — especially with communist China — are legally deterred from wittingly or unwittingly betraying or disclosing secrets or compromising Australia’s national security interests.

Many former diplomats who have served in China, returned to Australia and occupied the most senior positions in the Department of Foreign Affairs and Trade (DFAT), the Australian Security Intelligence Organisation (ASIO) and the Office of National Assessments (ONA), now operate as commercial and political “consultants” to China or to companies engaged in commercial ventures in China which necessarily require political contacts in Australia and China.

The concepts of Chinese “consultant”, apologist, agent-asset, agent of influence and Chinese intelligence agent have become diffused in Australia. This “diffusion of boundaries” is intensified by the increase in the number of Australian consultants to China who have previously worked in the most sensitive areas of Australian intelligence, security and diplomacy. This trend raises important counter-intelligence problems should such individuals ever be targetted by the Chinese intelligence services in Australia or abroad.

Australian governments have formal treaty provisions with the United States to ensure that any of its former government officials who work as consultants to foreign powers are subject to law and to the imperatives of transparency and accountability, as in the private sector where corporate responsibility and ethics are a developing issue. The likelihood of communist China targetting Australian consultants — leading to the risk of its successfully recruiting assets or agents (witting or unwitting) — logically and legally raises the question: in a time of crisis or emergency, to whom would Australia-China consultants ultimately be loyal — Australia or China?


The Significance of Guanxi

Australian consultants to China bring the benefit of language skills, experience in dealing with China and particularly the benefits of access to Australian and allied intelligence on China. They also often bring an underestimated but invaluable operational asset to their consultancy work. In Chinese, this is known as guanxi, or “personal contacts networks”. 1

Guanxi (pronounced: “gwan-shee”) is comprised of two words, guan and xi, and literally means “connection”. Guanxi can be in the form of a dyad, or two-person, guanxi . An individual can “have guanxi”. Guanxi networks are known as a guanxi net. But guanxi also implies long-term “mutual commitment, loyalty and obligation”. 2 This can pose a serious counter-intelligence problem, especially as guanxi is critically important for personal, social and political business operations in China.

According to two American-based academics, Xiao-Ping Chen and Chao C. Chen: 3

“Guanxi-related activities are often described by applying different verbs. For example, to “pull guanxi” refers to actions of initiating and establishing a connection, and to “walk guanxi” is to use connections to achieve specific purposes. Other frequently used verbs include building, developing, consolidating, maintaining, breaking and so on..”

An Australia consultant to China who has guanxi has the operational advantage of “natural cover”, as most business is conducted in natural social settings, such as private dinners or restaurants which cater to the Chinese passion for protracted banquets and alcohol-enhanced, disinhibiting conversation which provides the ideal setting for elicitation. 4

The Chinese leadership highly values relationships with friendly, retired foreign political leaders as they represent the highest level of guanxi. Moreover, under these circumstances, there is no operational requirement for clandestine meetings or any of the paraphernalia of espionage. With guanxi, “the best cover is no cover”.

From a counter-intelligence and espionage perspective, guanxi relations are especially hard to monitor as they are generally opaque in Australia and surveillance-free — certainly from Australian authorities — during visits to China by eminent Australians. Australian consultants’ visits to China are intensively monitored by Chinese security authorities, and provide a benign operational environment for possible compromise and recruitment.

ASIO does not know, and probably will never know, how many “consultants” have been “turned” or recruited as witting or unwitting contacts, agents and assets for China and returned to Australia under the control of a foreign intelligence service — in this case, China’s Guojia Anquan Bu, or Ministry of State Security (MSS), which, for operational security, prefers to recruit agents in China.

The most challenging agents for ASIO to detect are described by the Chinese as “fish at the bottom of the ocean” (Chen di yu) — that is, “sleeper agents” who are activated at an appropriate time of crisis or operational opportunity.

None of the following vignettes is intended to question the undoubted loyalty and integrity of the persons described. Rather, the vignettes are used for heuristic purposes only, in order to increase our understanding of the unintended consequences of Australian-Chinese commercial-political contacts.


The Hon. Bob Hawke, AC

Bob Hawke, Labor Prime Minister of Australia from 1983 to 1991, now head of his own advisory firm Bob Hawke and Associates, is appropriately enjoying the rewards of his services to Australia and the guanxi he developed as a result of his many official visits to China. In his memoirs Hawke recalls: 5

“My contact with the Chinese leadership lapsed for three years. In late 1992 after I had left office an approach was made to see whether I would be prepared to visit China in 1993. I accepted the invitation and was welcomed in Beijing by President Jiang Zemin who is also [Communist] Party Secretary and Chairman of the Military Commission. … Jiang Zemin could not have been warmer or more gracious in his greeting.”

In November 2001, the Australian Financial Review’s Hong Kong correspondent reported on China’s emergence as one of Asia’s biggest destinations for overseas investment and its accession to the World Trade Organization. She noted: “One person enjoying the fruit of these unique changes will be Australia’s former Labor Prime Minster, Bob Hawke, when he’s not playing a round of golf on one of Beijing’s many courses or betting on the Guangzhou races.” 6 Ziwang Hu, a managing director of Goldman Sachs Greater China, reportedly said of Hawke: “He’s doing well here. I’ve even seen him carrying around that golf bag in Peking.” 7

Hawke first visited China in 1978 and has been pursuing business interests there since his retirement from politics in 1992. He said: “I’ve had a long experience with China. I have good connections there and I’m pretty well-known.” 8

In 1998, AMP, seeking a Chinese contract for life insurance and general funds management, reportedly “enlisted the Sino expertise of former Australian Prime Minister Bob Hawke to assist in their negotiations at a political level”.

In July 2005, Hawke addressed a Committee for Economic Development of Australia (CEDA) luncheon in Adelaide and stated: “I have had the privilege of getting to know China reasonably well from a very long association with its leadership over the years and have had the opportunity to do a lot of consultancy over there.” 9

According to his latest biographer, Hawke “promoted the Australia-China relationship to the highest level of Australia’s foreign policy priorities”. Hawke visited China in 1984 and 1986, and hosted visits to Australia by Zhao Ziyang in 1983, Hu Yaobang in 1985 and Li Peng in 1988. Hawke, a gregarious sort of person, envisaged “a very close and intense personal political relationship”, founded in the “personal dialogue between Hawke and the Chinese leadership”, notably Premier Zhao and Communist Party General-Secretary Hu. Hawke once boasted: “I have had the opportunity of spending more time with the Chinese leaders than probably any other Western leader.” 10

Hawke’s conversations with the Chinese leadership reportedly provided him what he regarded as “an intimate and unique insight into China and its reform policies”. The Chinese for their part informed him that they regarded their friendship with Australia as “a model for relations between countries of different political and economic systems”. In Hawke’s own words, on the great majority of international and regional issues, China and Australia saw “eye to eye”. 11

After the June 1989 Tiananmen Square massacre of pro-democracy student demonstrators, Hawke was profoundly shaken. At a public commemoration, he wept for the victims of Beijing’s political crackdown. His reaction was undoubtedly sincere; but his biographer cryptically wrote: “His tears were also shed for the death of his dreams of a powerfully beneficial relationship with China.” 12


The Hon. Paul Keating

Hawke’s successor Paul Keating, who was Labor Prime Minister of Australia from 1991-1996, is the most discreet of the Australian consultants to China. Keating intuitively follows the intelligence principle of compartmentalisation. “Nobody but I knows how my business life is,” he once said. “Not even business acquaintances of mine, because like most things, I keep my affairs to myself.” 13

In January 1998, Colonial Insurance revealed that Keating had been hired to advise the company on long-term strategy in Asian markets. A week before the announcement, Keating had visited Beijing representing Colonial and had met with Chinese “economic czar” Zhu Rongji. Curiously, Bob Hawke, in February of the same year, also visited China for talks on China’s license for Colonial’s rival, National Mutual Insurance. 14

Keating is chairman of the investment bank Carnegie, Wylie and Company, but few public details of Keating’s consultancy activities and operations are available. In a recent profile of Keating, a close friend pointed out: 15

“Paul’s always been fascinated by power and money. He’s achieved significant power, but he’s never had enough money. It’s a concern for him … Hawke’s made money out of the racing industry and looking after the Chinese but Keating is only starting to get a few things working for him.”

In the past year, he has particularly concentrated on China. In 2005, he telephoned an acquaintance in Asia and lectured him for an hour “about China and how benign it was”. The person recalled Keating as saying: “China will be much kinder to the region than the region will be to it. … The rise of the Chinese economy will have rewards for countries around it.” 16

According to The Bulletin’s summary of Keating’s Chinese enthusiasm: 17

“It’s classic Keating … his new mantra is that China will ‘own’ this century and that all of us should try to get a piece of the action.

“After politics, Hawke made a large amount of money as a ‘facilitator’, using his high-level contacts in a country like China to introduce key business or political figures. Keating has done something similar — initially for Macquarie Bank, and more recently for Carnegie Wylie — but has preferred to seek opportunities for direct investment.”

In a keynote address to an IBM forum in Singapore in 2005, Keating claimed: 18

“On the strategic front, China is already imbibing the confidence of its own growing power as it better aligns its foreign policies with its trade policies. … And you will notice in [China’s] arrangements, there is no place for the United States. The two big dogs on this particular pavement are China and Japan and it is they who will run it. Gradually, strategic issues will come onto the table providing a further extension of Chinese policy ambitions.”

But as Keating also noted in a speech in Beijing in 2002: “China is so large that it will always make its smaller neighbours apprehensive. It is hard to live next door to a giant.” 19 He could also have alluded to the strategic reality that this “giant” is a formidable regional and aspiring hege-monic power and a nuclear superpower.


The Hon. John Dawkins AO

John Dawkins was a Labor member of the House of Representatives for 18 years. From 1983 to 1994, he served in various ministries in the Governments of Bob Hawke and Paul Keating as Finance Minister; Trade Minister; Employment, Education and Training Minister; and finally Treasurer.

He left politics in 1994 to pursue a career in business. A number of Australian and international companies have sought his advice on strategic issues especially relating to trade and investment. He is also chairman of Elders Rural Bank and a director of Genetic Technologies Limited which last year described Mr. Dawkins’s previous appointments as federal Treasurer and Minister for Trade as “an experience which will be valuable to the company in guiding its overseas activities”. 20

He is also a director of Government Relations Australia (GRA). Dawkins provides strategic advice and detailed knowledge of Australian assessments of foreign countries and negotiating perspectives and techniques to GRA’s international client base.

Interestingly, according to a GRA spokesman, Peter Phillips, the noted China consultant — whose consultancy career is examined in the following pages — was a “senior private secretary and ministerial consultant” to John Dawkins from 1988 to 1999.


Former senior Australian intelligence personnel and diplomats

David Sadleir AO

The case for former government officials to be held publicly accountable for their dealings with foreign governments is most vividly illustrated in the career of David Sadleir, who has held the important positions of Australian Ambassador to China (1988-1991) and Director-General of ASIO (1992-1996). Sadleir held the latter position in 1995, when the details of the bugging operation against the Chinese Embassy in Canberra were leaked to the press by ASIO officers. Little if any action was taken against the group concerned although they were identified by a national law enforcement agency.

Sadleir was also Deputy Director-General of the ONA (1977-81) when present China consultants, David Ambrose, Peter Phillips and John Bowan were working in that organisation.

David Sadleir joined the then Department of Foreign Affairs in 1958. He served in Washington, Moscow, Manila and Tokyo before his appointment to DFAT as first assistant secretary of the North /South Asia division which covered China, Japan, Korea, the Indian subcontinent and Indochina.

As Deputy Secretary of DFAT, he was responsible for supervising policy advice on North Asia (China, Japan and Korea), the EU and the USA, as well as on defence, intelligence and arms control issues.

In the Australia-China Council’s annual report, Sadleir is coyly described as a “business consultant and a former ambassador to China”. He served on the Australia-China Council board from 30 June 1997 to 10 October 2003.

After leaving ASIO, he became managing director of his own firm, David Sadleir and Associates Pty Ltd, and adviser to AMP Limited (1997-2004). He is also a part-time consultant to Canberra-based security company, Intelligent Risks Pty Ltd, 21 which, according to its CEO Neil Fergus, “derives about 80 per cent of its revenue from offshore”. 22

As former Australian Ambassador to China, Director-General of ASIO and senior ONA/DFAT officer, Sadleir enjoyed unrestricted access to the most sensitive Australian-US intelligence on China. Given his background and access, Sadleir should be required to provide contact reports on his meetings with Chinese officials — a requirement to which he submitted when he worked for the Australian government.


Gerard Walsh

Gerard Walsh, of Gerard Walsh and Associates, worked for ASIO for 32 years, and occupied the position of Deputy Director-General from 1986 to 1996. For five years, he headed ASIO’s Protective Security Branch. He also managed ASIO’s foreign liaison program, in which capacity he visited China in 1995 to negotiate the release of a controversial alleged “agent”.

Walsh was involved in ASIO’s most complex counter-intelligence/counter-espionage matters, including Soviet KGB Special Reserve Officer Valery Zemskov’s controversial relationship with a senior DFAT officer, and the unsuccessful government prosecution of a suspected KGB mole in ASIO, Russian interpreter George Sadil. 23 He was adviser to the Commonwealth Government and the Attorney-General’s Department on cryptography, and authored The Walsh Report (1996) on encryption in relation to law enforcement and security.

After leaving ASIO, Walsh worked as a risk management and corporate security adviser to a number of major companies. He joined David Sadleir at AMP. From 1998 to 2004, he was AMP’s corporate security executive responsible for protecting business data, making strategic assessments as they impacted on the company’s assets, developing counter-terrorism strategy and contingency planning and offering high-level advice to the AMP board and executive management. 24

Walsh’s background and experience in ASIO would make him not only a particularly valuable asset to the AMP, which has massive investments in China, but also a subject of considerable operational interest to the Chinese intelligence services.


David Ambrose

David Ambrose joined the Department of External Affairs in 1971. He served in the Australian Embassy in Beijing from 1975 to 1977, under then Dr Stephen FitzGerald. From late 1977, Ambrose worked on Asian issues in the Office of National Assessments (ONA) and then spent a year as a consultant with Stephen FitzGerald and Co.

Ambrose served as counsellor and head of mission in the Australian Embassy in Belgrade, returning to Canberra as director of DFAT’s China/Korea section. From 1985 to 1988 he was minister and deputy head of mission in Beijing and returned to Australia as Assistant Secretary of DFAT’s East Asia branch. He was appointed to the Australia-China Council from September 2003 for a period of three years. Ambrose was Australian Consul-General in Shanghai from 1988 to 2001. The Australian Consulate-General’s Newsletter in Shanghai of 2002 observed: 25

“Mr. Ambrose was well liked by senior Chinese contacts … he now provides strategic advice, analysis and consultancy advice to a number of international companies. He travels widely.”


Professor Stephen FitzGerald AO

Professor Stephen FitzGerald was Australia’s first Ambassador to communist China at the age of 34 (1973-1976) and is arguably the most high-profile Australian consultant to China. He accompanied Labor Opposition leader Gough Whitlam on his celebrated first trip to China in July 1971.

FitzGerald has a deserved reputation as a scholar. He is the author of acclaimed books and monographs on Australia-Asia relationships, especial the Australia-China relationship. Since 1978, he has run a consultancy for Australian companies in Asia, particularly in China.

However, Professor FitzGerald is curiously sanguine about China’s increasing political and military might. In his 1997 book, Is Australia an Asian Country? Can Australia survive in an East Asian future?, he repeatedly expressed his acceptance that China’s future strategic and regional hegemony was inevitable. Referring to the future of Australia and Chinese power projection, he wrote: 26

“That future will not be one in which the United States, or any other power with which we have shared cultural heritage or political philosophies or processes or institutions, is the determining force in the part of the world in which we live. The dominant political force and cultural influence will be something like the coalition of East Asian states which emerged for ASEM [the ASEAN-Europe Meeting, Bangkok, March 1996], in turn under the pervasive and dominant influence of China …

“Now that there is no Cold War and China is feeling its strength in Asia, our China policy is determined by what China itself does …

“… [O]ver the next 25 to 30 years … China will have, if it chooses, the capacity to impose its views and its will. This is so close to being true already that its realisation is more fact than probability.”

FitzGerald’s benign assessment of Chinese regional hegemony, however, is not shared by the US, Taiwan or Japan who watch with apprehension as China introduces the new generation of mobile nuclear missile, the DF-31. This intercontinental ballistic missile, which will be operational by next year, could target Australia in an arc from Brisbane to Perth. A later model, due to be deployed in 2007-09, is expected to be able to strike any Australian city, New Zealand and the greater part of the US. Moreover, the DF-31 is a solid-fuelled missile which, being road-based, is highly mobile and can avoid satellite surveillance. 27

Currently, China’s true, as opposed to stated, defence budget has reached US$80 billion — the third largest in the world after the US and Russia. 28


John Bowan

John Bowan is a former DFAT officer who served in Lagos, Moscow, Bangkok and Belgrade and was Australian Ambassador to Germany from 1990 to 1994. He was also a senior ONA officer and worked under David Sadleir and with David Ambrose and Peter Phillips. He was senior international relations adviser to Prime Minister Bob Hawke from 1983 to 1990, and chief of staff to Prime Minister Paul Keating during 1995-96.

During 2000-2001, he worked as a consultant for Peter Phillips in support of Beijing’s successful 2008 Olympic bid. His firm, Litmus Consultancy, specialises in international political, trade and sporting issues, although there is a paucity of research information on its operations. 29


Peter Phillips

Peter Phillips is a veteran Australian diplomat, China expert and brilliant linguist who is fluent in Chinese (Mandarin) and Thai. He served in the ONA, as a China desk officer, in the same period as David Ambrose, John Bowan and David Sadleir. He later employed Bowan to assist him in China’s bid for the 2008 Olympics. 30

Phillips is director of the Canberra-based public relations and political consultancy firm, Endeavour Consulting Group Ltd, which has a staff of six. He openly acknowledges that he has “very close ties with Beijing [and] China”. 31 Interviewed by ABC radio in 2001, Phillips stated: “I’ve been involved since the seventies in pursuing business with China both on my own company’s behalf and on behalf of a number of the client companies with whom we’ve worked.” 32

Phillips is currently director of a consultancy, established in May 2005, called Government Relations Australia (GRA Asia), which describes itself as having a “particular focus on China”. Its Beijing office is headed by Haitao Wen (now an Australian citizen, having been educated at Australian and Canadian universities) who has previously worked within the Chinese Ministry of Foreign Affairs. GRA Asia provides a number of services, including market intelligence, strategic advice on dealing with government and non-government organisations, business missions, and translation and interpretation services. 33

In 2003, Phillips was a committee member of the ACTEW Corporation Limited, a government-owned holding company with interests in providing water, gas, telecommunications and energy services to the people of the Australian Capital Territory. It has three subsidiary companies, including ACTEW China Pty Ltd, which describes its mission “to seek business objectives in the People’s Republic of China (PRC)”. 34 Phillips was a director of ACTEW until 30 June 2003, and was listed as Peter Phillips (of Endeavour Consulting), a member of the Beijing Steering Committee.

The ACTEW’s financial report, for the 2002-03 financial year, notes: 35

“A number of directors and executives of ACTEW are also directors of various subsidiaries who deal with ACTEW and each other. A subsidiary company, ACTEW China Pty Ltd had a contractual arrangement for the provision of specialist services with Endeavour Consulting Group Pty Ltd, in respect of a project in China. A director of ACTEW Corporation Pty Ltd, Mr. Peter Phillips, is a director of Endeavour. Fees totalling $25,956 (2002 — $170,360) were paid to Endeavour under normal terms and conditions. The contract concluded in October 2002.”


Michael J. Costello AO

The current Managing Director of ACTEW is a weekly political commentator for The Australian newspaper, Michael Costello. Costello joined the then Department of Foreign Affairs in 1971, and served in various embassy postings, including Stockholm and Belgrade, where he made his first professional acquaintance with John Bowan, during the 1970s. During 1979-1981, he was deputy head of current intelligence at the Office of National Assessments (ONA), where he worked alongside subsequent China consultants, David Sadleir, John Bowan, David Ambrose and Peter Phillips.

Costello subsequently became principal secretary to Bill Hayden (1981-86), both when Hayden was federal Labor Opposition leader and when he became Minister of Foreign Affairs. Costello served as Australian Ambassador to the United Nations (1988-89). Later, he served as Secretary, first to the Department of Industrial Relations (1992-93), then to DFAT (1993-96). During 1999-2001 he was chief of staff to federal Labor Opposition leader Kim Beazley (1999-2001).

He has been deputy managing director of the Australian Stock Exchange and, since 2003, has been Managing Director of ACTEW Corporation. 36 In June 2005, it was revealed that, for the latter position, he received from the public purse $450,000 a year — a sum which the ACT Opposition treasury spokesman Richard Mulcahy said was “head and shoulders” above the wage of any one else in the ACT Government.” 37

According to the ACT Auditor-General’s report, ACTEW China Pty Ltd has run up accumulated losses totaling $369,405. 38 The company’s annual report for the last financial year announced: “It is proposed that a dividend of nil … be declared for the financial year 2004-05.” 39


Costello’s China connection

Costello is also chairman of ACTEW China Pty Ltd which, as the ACTEW Corporation Ltd’s financial report (2003) stated, is “a subsidiary component of ACTEW”.

According to the same report: “A number of directors and executives of ACTEW are directors of various subsidiaries who deal with ACTEW and each other.”

A financial audit report for 2001-02 stated: “ACTEW China continued to hold a 17% interest in Beijing Green World Environment Protection Technology Company Ltd. ACTEW China also continued to be the prime contractor in a project with the ACT Government to assist the Beijing Olympics bid for 2008.” 40 (Emphasis added).

According to the Australian Capital Territory Chief Minister, Jon Stanhope, the Beijing Steering Committee (BSC) included Peter Phillips of Endeavour Consulting. 41

In June 2005, at a session of the ACT Legislative Assembly’s standing committee on public accounts, the following exchange took place between ACT Opposition treasury spokesman Richard Mulcahy and ACTEW Corporation’s Managing Director Michael Costello and chief finance executive Michael Luddy: 42

Mr. Mulcahy: … My last question is on your China venture, which seemed to be going nowhere when we spoke at the annual reports meeting. Have you written that off yet or are you going to write it off? What’s the plan with that investment?

Mr. Costello: Where are we on that, Mr. Luddy?

Mr. Luddy: The China investment has been written off and we are basically adopting a watching brief, just keeping an eye on the investment.

Mr. Mulcahy: My memory is that it was $5 million. Is that correct?

Mr. Luddy: No. It was only about $363,000, from memory. Adding to what Mr. Costello said, ACTEW is in a pretty good financial situation.


Phillips and Bowan’s Role in Securing the Chinese the Olympic Games in 2008

The widely publicised and critical role played in 2000-01 by ex-DFAT/ONA officials, Peter Philips and John Bowan, in securing the Olympic Games for Beijing in 2008 leaves the Chinese bid open to being interpreted as a political influence operation by the Chinese Government. Who better qualified to advise the Chinese Government as consultants than former Australian intelligence analysts who were also trained as diplomats?

According to ABC television reporter, Eric Campbell, Beijing’s bid to host the Olympic Games “coincides with the 80th anniversary of the founding of the Communist Party”. 43

Late in 2000, Phillips was hired by Beijing to help in its $US24 million campaign bid though his Canberra firm, Endeavour Consulting, 44 and played a pivotal role in improving China’s tarnished human-rights image. Time magazine, in its detailed coverage of the successful Beijing bid, reported: 45

“… China has at last mastered public relations, offering appealing images of economic progress while slickly downplaying human-rights abuses.

“Crucial help came from a former rival. Australian consultant Peter Phillips picked up ‘one by one’ the five key organizers of the wildly successful Games in Sydney, which beat out Beijing by two votes back in 1993, and made them China’s exclusive counsellors.

“For more than two months last year, Philips and friends spent 16-hour days in Beijing helping craft key documents. When the International Olympics Committee sent an evaluation crew to grill the committee, Phillips and his team suggested answers the Chinese might have muffed …

“China’s savvy bid contrasts sharply with its failed 1993 effort. … Its current slogan, “New Beijing, Great Olympics”, deliberately focuses on the city, not the country’s problems.”

The Melbourne Age described Phillips’s recruitment of the Russian-speaking John Bowan to assist with this task. It reported: 46

“… Mr. Bowan and Mr. Phillips coached the Chinese in presentation skills when the IOC evaluation commission inspected Beijing in February [2001] …”.

“The Chinese delegation has asked Mr. Phillips and Mr. Bowan to be in Moscow next month to guide them through their crucial lead-up, and to be present during the final IOC presentation.

The Bowan-Phillips joint effort is a paradigm case of guanxi.


Urgent Need for an Australian Foreign Agents Registration Act

An Australian Foreign Agents Registration Act (AFARA) is urgently needed to:

1. Prevent witting or unwitting disclosure of Australian and US classified information to Chinese intelligence by former Australian diplomats, intelligence officers and analysts;

2. Prevent the Chinese intelligence service from recruiting and running witting or unwitting agents of influence within the Australian intelligence community;

3. Prevent former Australian intelligence officers, diplomats and analysts from gaining commercial benefit from their former privileged access to classified information;

4. Forbid former Australian intelligence officers, diplomats and analysts from being employed as consultants for a period of at least three years after the termination of their employment with the Australian government.

5. Prohibit former members of Australian intelligence organisations from profiting from their access to classified information for the Chinese government or any other foreign government;

6. Compel Australian consultants to provide full reports to ASIO of any contacts they may have with foreign embassies and personnel, particularly with Chinese officials who are suspected or positively identified by ASIO as Chinese intelligence officers or agents.

Breaches of any of the above rules should immediately be referred to the Australian Federal Police for investigation.

An AFARA will inevitably be opposed by those with vested and operational interests in maintaining the status quo; but the proposed laws are designed to create transparency and accountability and are in the interests of Australia’s national security, treaty and agreement obligations, particularly to ensure the protection of highly classified information provided by the US and UK intelligence and regional services.

Ministerial codes on post-separation employment are common to many Western governments, as are standing advisory bodies to assist ministers in complying with guidelines on these matters. 47 To date, Australia has resisted these practices. Australian governments would greatly improve public ethical standards by applying such codes not only for former government ministers but to intelligence officers, diplomats and analysts who have had access to sensitive information.

Senior intelligence officials generally have specialised access to Australian and US operations against Chinese espionage and influence operations in Australia and the region. Many have been cleared for code-word access to CIA/UK Secret Intelligence Service assessments of the Chinese economy and trading policies.

The breakdown in compartment-alisation in the Australian intelligence community assists the diffusion of classified information through various departments and strategic leaks to the media. For example, an ONA analyst has ready access to a wide variety of sources from ASIO, ASIS and DSD — particularly from DFAT from which many ONA officers are recruited.

Significantly, Bill Hayden, a former Foreign Minister, cited in his memoirs — and agreed with — the forthright and damning assessment of Mr. Justice Woodward, a former Director-General of ASIO, who said: “I regard this problem of leaking of defence and security information [by the Department of Foreign Affairs] as being just as serious as the work of hostile intelligence services in the country.” 48

In his biography of Malcolm Fraser, Philip Ayres wrote: 49

“… the views of a small group of politically motivated ONA officers regarding the Soviet invasion of Afghanistan had been communicated to the Leader of the Opposition, Bill Hayden, for use in a speech critical of key aspects of [Prime Minister] Fraser’s tough line on the invasion …”.

“Fraser was seriously concerned at these and other of ASIO’s findings and was determined to get rid of the politically motivated officers in ONA who had been responsible for channelling material to the Opposition which was then used to embarrass the Prime Minister — John Bowan (later appointed senior foreign affairs adviser in Prime Minister Hawke’s office), Michael Costello (later appointed Principal Secretary to Hayden), and Peter Phillips.”

Ayres provides the most accurate account of the ONA controversy, based on his exclusive access, as Fraser’s biographer, to classified documents, including a top-secret ASIO report on the ONA. At the time, Fraser wanted the ONA Director-General, Robert Furlonger, to remove Bowan, Costello and Phillips from the ONA and to provide an appraisal of political activity in the organisation. In response, Furlonger plaintively wrote to the Prime Minister, on a “blind memo”, an unsigned and undated letter used only for the most sensitive communications. In this letter, according to Ayres, Furlonger said that “he did not condone the party-political activity of his officers, that he recognised the damage which that activity had done to public perceptions of ONA’s neutrality, that he had made these points clear to the officers concerned”. Furlonger added that he “was now seeking to influence these officers to apply for a voluntary transfer out of ONA”.

He told Fraser, “I have reasonable grounds … for thinking that a voluntary move can be achieved, provided they are allowed to go quietly and not under a cloud. The operation will, however, be a highly delicate one, which could easily go wrong along the way if adverse publicity occurs.” He pleaded that he be allowed to use the utmost discretion in handling this case, saying, “It will need a quieter background than now exists, and a period of some months if the objective is to be achieved.” 50

In the same timeframe, another security breach, involving the most sensitive US intelligence product, concerned two countries of South-East Asia. According to former Canberra-based intelligence officials, an ONA specialist desk officer tasked an ONA colleague (working in an unrelated area) to acquire top-secret signals intelligence (known as “SIGINT”) from Australia’s Defence Signals Directorate (DSD) and the US National Security Agency. The product was sanitised and sold to a Canberra consultant and to a representative or client of a grateful foreign government on at least two known occasions. Whether the tasked officer was a witting or unwitting participant was not established, although notations and handwriting on the classified material clearly identified both ONA officers. Despite the serious nature of the offences, the case remains unresolved.

In Canberra, sporting, personal and social networks operate as an adaptation of guanxi. A member of a “mateship” network can be strategically placed to obtain highly classified information from, and for, other “mates” and pass it to a witting or unwitting third party or “cut-out”.

As Chinese-Australian elite contacts and economic relations intensify, Australian consultants, lobbyists, academics and government officials may find themselves increasingly subject to manipulation and pressure from China. Under guanxi obligations, they may be expected — or may be specifically instructed — to increase the tempo of their defence of China’s interests; and may be committed, either contractually or under guanxi obligations, to engage in perception and influence campaigns depicting communist China as a legitimate, peaceful and preferred regional contender to the US. This situation could lead individuals to a “double bind” and to a dual allegiance dilemma, illustrated in the scenarios below:


The Dual Allegiance Dilemma

Dual allegiance dilemma scenarios include a China-Taiwan military standoff, with a two- to three-day Chinese blitzkrieg assault on Taiwan, or even Chinese operations which fell short of an all-out invasion, coupled with psychological warfare and demoralisation programs designed to induce a political victory over Taiwan. This raises questions, such as:

• How would Australian Chinese consultants react? Would they defend any Chinese action, including China’s sudden seizure of Taiwanese territory?

• Would they support Australia’s treaty obligations to the United States in the case of a Chinese invasion or attack upon Taiwan?

The Chinese intelligence services are noted for their operational ruthlessness and could be driven to demand guidance and expertise from their Australian consultants or agents. Moreover, in individual cases, they may feel themselves in a position to reward, threaten, induce, blackmail, intimidate or otherwise order their contacts and consultants to fulfill their contractual, financial and other obligations to provide valuable and classified information — above all, US classified information, especially relating to US early-warning and battle plans concerning Taiwan.

Over the past decade, a wave of Chinese defectors to Australia, Canada, Belgium and the USA have revealed Beijing’s aggressive intelligence-collection and counter-intelligence operations. “China is the biggest [espionage] threat to the US today,” David Szady, the assistant director of the FBI’s counter-intelligence division, told the Wall Street Journal recently. 51 Chinese spies have especially targeted Australia as they have hunted for military, scientific and public policy secrets. 52 As China increases its influence within the arc of instability to our north, Australian government sources have frankly acknowledged ASIO’s assessment that the number of Chinese agents operating in Australia now exceeds the number of Russian spies here during the Cold War and have renewed their interest in Chinese collection targets in Australia. 53

An Australian Foreign Agents Registration Act (AFARA) will provide ASIO with the necessary legal powers to counter and neutralise Chinese intelligence operations and collection which is targeted against Australian and US defence interests in Australia. Australia is the “Lucky Country” — for the Chinese intelligence services — but with ominous implications for US and Australian regional security and, in a crisis or emergency situation, the global security balance.

The risk of dual allegiance is a national and international security challenge which the Australian Government, in consultation with the US Administration, must counter by a mandatory Australian Foreign Agents Registration Act.




1. Professor Stephen FitzGerald, an eminent Australian Sinologist, who was Australia’s first ambassador to China and a long-time China consultant, notes: “The modus operandi of Chinese business is connections. Family connections, clan connections, state of origin connections, school connections, and where there are none of those, simply other Chinese.” See S. FitzGerald IsAustralia an Asian Country? Can Australia survive in an East Asian future? (Sydney: Allen & Unwin, 1997), page 150; see also Nicholas Eftimiades, Chinese Intelligence Operations (Annapolis, Maryland: Naval Institute Press, 1994), page 115.

2. Xiao-Ping Chen and Chao C. Chen, “On the Intricacies of the Chinese Guanxi: A Process Model of Guanxi Development”, Asia Pacific Journal of Management, vol. 21, 2004, pages 306-7.

3. Ibid., page 307.

4. See J. Michael Waller, “China’s agents of influence”, Insight on the News, 17 October 2005, for how China, using its famed hospitality and other means, frequently succeeds in persuading prominent US political, business and academic figures to promote its military and security goals.

5. Bob Hawke, The Hawke Memoirs (Melbourne: William Heinemann 1994), page 353.

6. Anne Hyland, “Bank on China’s future”, Australian Financial Review, 19 November 2001.

7. Ibid.

8. Ibid.

9. Bob Hawke, “Be rational — there’s no stopping China”, The Advertiser (Adelaide), 29 July 2005.

10. Stephen Mills, The Hawke Years: The Story from the Inside (Melbourne: Viking, 1993), page 180.

11. Ibid., page 181.

12. Ibid p.182

13. John Lyons, “Dog Days”, The Bulletin, 24 August 2005.

14. Peter Wei Gang Lu, MBA, “Colonial Insurance vs. National Mutual Insurance: the Battle for a China License”, Australian Graduate School of Management, University of News South Wales, 1998, page 26.

15. John Lyons, op. cit.

16. Ibid.

17. Ibid.

18. Paul Keating, keynote speech, 3 August 2005, at the IBM Forum 2005: Innovate for Growth Singapore.

19. Paul Keating, “China’s economic and financial reforms: the never-ending story?”, at the Euromoney the China Conference, Beijing, 5 December 2002.

20. Genetic Technologies (GTG): Company Announcements, 25 November 2004: “John Dawkins joins GTG board of directors”.

21. DFAT appointments to the Australia-China Council, 20 October 2000, Statements by Government Representatives, page 4.

22. Brian Toohey, “Securing public servants for private ends”, Australian Financial Review, 5 December 2003.

23. The latter case was discussed in the ABC television Four Corners documentary, “Trust and Betrayal”, produced by Andrew Fowler and broadcast 1 November 2004.

24. The Society of Knowledge and Competitive Intelligence Practitioners Australasia (SCIPAust) 2003 Conference: Informed Decisions: Managing Risk for Competitive Advantage, Four Points Hotel Sheraton, Sydney, 29 August 2003.

Australian Homeland Security Conference: Safeguarding Australia, National Convention Centre, Canberra, 24-25 August 2004: Notes on keynote speakers.

25. Newsletter of the Australian Consulate-General in Shanghai, vol. 5, nos.11-12, 2002.

See also David Ambrose’s profile in Australia-China Council Report 2005, page 5.

26. FitzGerald, op. cit., pages 5, 71 and 156.

27. Lincoln Wright, “Chinese rockets could reach Australia”, Sunday Herald Sun (Melbourne), 23 October 2005.

28. Patrick Goodenough, “CIA chief sees threat in Chinese military buildup”, Cybercast News Service (CNSNews.com) (Alexandria, Virginia, US), 17 February 2005.

29. John Bowan, The Beijing 2008 Olympic Games: China in the Limelight (Sydney: The Lowy Institute for International Policy, August 2004): Issues Brief, page 23.

30. Jacquelin Magnay, “Australians pitch in to help Beijing win games”, The Age (Melbourne), 16 June 2001.

31. Peter Phillips’s entry in Canberra Region Business Database (Canberra Business Council), under category “Currently Exporting/Capacity”. Accessible on the Internet.

32. Interviewed by ABC Radio National’s The Business Report, “How to succeed at the Olympics by really, really trying”, 21 July 2001.

33. Government Relations Australia, About GRA (World Wide Web).

34. ACTEW Corporation: 2004-05 Annual Report, page 139.

35. ACTEW Financial Report for the year ended 30 June 2003, note 30.

36. Who’s Who in Australia 2005 (Melbourne: Crown Content, 2004), page479.

37. “Utility chief’s high salary ‘beggars belief’”, ABC Radio 666 (Canberra, ACT), 21 June 2005.38. ACT Auditor-General Tu Pham financial report on ACTEW China Pty Ltd for the year ended 30 June 2005, page 11, note 8.

38. ACT Auditor-General Tu Pham financial report on ACTEW China Pty Ltd for the year ended 30 June 2005, page 11, note 8.

39. ACTEW Annual Report 2005, page 2.

40. ACTEW China Pty Ltd: Financial Audits with Years Ending to 30 June 2002, page 249.

41. ACT Legislative Assembly: Hansard, 8 May 2003, page 1832.

42. ACT Legislative Assembly: Hansard, 2 June 2005: Select Committee on Estimates, page 1115.

43. “Much riding on China’s Olympic bid”, ABC television Lateline, 13 July 2001.

44. Jacquelin Magnay, “Australians pitch in to help Beijing win games”, The Age (Melbourne), 16 June 2001; Matthew Forney, “Beijing’s final sprint”, Time Asia, 9 July 2001.

45. Matthew Forney, “Beijing’s final sprint”, Time Asia, 9 July 2001.

46. Jacquelin Magnay, “Australians pitch in to help Beijing win games”, The Age (Melbourne), 16 June 2001.

47. Ian Holland, “Post-separation employment of ministers”, Research Note: Information, Analysis and Advice for Parliament (Department of the Parliamentary Library, Canberra), No. 40, 28 May 2002, page 3.

48. Bill Hayden, Hayden: An Autobiography (Sydney: HarperCollins, 1996), pages 461-2.

49. Philip Ayres, Malcolm Fraser: A Biography (Melbourne: William Heinemann Australia, 1987), page 366.

50. Ibid., page 366. (The complete ASIO report and the undated, unsigned letter to the “Prime Minister”, on ONA Director-General letterhead, are in Fraser Papers, M1268/SV, Box 2, ONA file).

51. David Szady, quoted in Jay Solomon, “FBI sees big threat from Chinese spies”” The Wall Street Journal, 10 August 2005. See also: John Hill, “Defections reveal extent of China’s espionage operations”, Jane’s Intelligence Review, 11 October 2005. 52. Richard Bullivant, “Chinese defectors reveal Chinese strategy and agents in Australia”, National Observer (Melbourne), No. 66, Spring 2005, pages 43-48.

53. Cameron Stewart, “ASIO to hit China on spies”, The Australian, 2 June 2005.




Dr Andrew Campbell is a former intelligence analyst at the Office of National Assessments.



National Observer No. 68 -Autumn 2006