Illustration: Andrew Dyson Today Hockey and the rest of the Abbott Government should be celebrating a policy achievement. They are poised to sign a memorandum of understanding to join as a founding member of a pioneering financial enterprise. By holding out longer than Beijing wanted they were able to deploy some leverage to improve the Chinese-led bank's inadequate governance rules. Instead, today's likely signing ceremony in Bo'ao is looking more like a postscript to a story about cravenly reactive diplomacy and internal Cabinet brawling. And if senior ministers have been trained then the same cannot be said for others facing the persuasion professionals deeper inside the Chinese system. According to Mark Stokes, of Project 2049 Institute in Washington, the agency that has primary responsibility for "planning and executing external influence operations" is the Liaison Department of the People's Liberation Army General Political Department. Stokes has shown how this military intelligence organisation works through a range of quaintly named fronts, the most aptly named of which is the China Association for International Friendly Contacts (CAIFC), which specialises in duchessing retired statesmen.

CAIFC officials have boasted, for example, of a "close friends of US presidents" program, through which they deepened China's friendship with Henry Kissinger during an all-expenses-paid tour of the Three Gorges on the Yangtze River. "One can only have friendship after gradually establishing feeling," a CAIFC official told China scholar Anne-Marie Brady for her book, Making The Foreign Serve China. Once the courtship is complete, the association's officials work to relay and accentuate words you never knew you said, and deftly find pressure points that can guide you into action. Australia has no Kissinger but it does have ambitious businessmen with prime ministerial connections. Today, CAIFC is hosting mining tycoon Andrew Forrest and a selection of his high-wealth friends at the opening day of the Bo'ao Forum on the tropical Chinese island of Hainan. Forrest's people no longer deny that CAIFC is a military intelligence front organisation, as they did to me two years ago. And since my earlier report they say they have been proceeding "with eyes wide open" and kept the Australian government informed of all dealings. This week, as the price of iron ore hit new lows and Forrest prepared for his big event at Bo'ao, he lashed out at Australia's caution about joining the AIIB. He wondered whether stated concerns about bank governance were really disguised efforts to protect American soft power. "Australia needs to be independent in this part of the world," he reportedly said. "We don't need to treat China as the enemy."

Forrest is a famously passionate advocate for his personal beliefs, as well as his business interests, and he hardly needed CAIFC to inform his views about the Asia bank. The background facts, however, tell a very different story. After Hockey's conversation with Finance Minister Lou, at the beginning of last year, Australian diplomats adroitly shepherded the proposal to join the bank into an intergovernmental committee, where it could be properly examined from all angles. Later, in July, the US hardened in its opposition to the bank after a National Security Council meeting. Nevertheless, for the past five months, public debate has been dominated by claims that Australia had succumbed to US pressure, or "security apparatchiks", or a Cold War-era fear of policy independence. Australia's decision to sign an MOU about joining the bank, which will surely be announced by Australia's Finance Minister Matthias Cormann in Bo'ao today, should be a showcase example of Australia implementing its undeclared strategy of "engage and hedge". It should demonstrate how Australia is independently welcoming China into the international system while doing all it can to encourage the Chinese Communist Party to play by the kinds of rules and transparency norms it tends to disregard at home. Instead of drawing praise, the Abbott government has been framed to be reactively responding to the ridicule of business leaders, retired statesman, public intellectuals and anonymous internal political opponents. And that leads to the broader point.

The failure of successive Australian governments to talk with honesty and nuance about China has left the field wide open to conspiracies of all persuasions. Perversely, that failure has made the China challenges look even more daunting than they are. The Chinese political system is not as monolithic and inexorably powerful as it can seem. It is home to competing aspirations, conflicts of interest and vulnerabilities, just like ours. If Forrest continues his "open eyes" policy a little further, for example, he'll notice that the quiet background figure who has been hosting him, Xing Yunming, will not be appearing in this year's group photographs. Xing is actually a lieutenant general and also the director of the PLA's Liaison Department, although he never declared those titles on any business card. It is indeed eye-opening that one of Forrest's important conduits to China has just been caught up in a vast military intelligence purge and taken away for corruption. John Garnaut is Fairfax Media's Asia-Pacific editor.