Is Wang Liqiang a spy for Chinese military intelligence? Or is he a fraudster who cheated someone out of 4.6 million renminbi (£500,000) through a car import investment scheme and was trying to get away with it?

That’s the question the Australian government and its intelligence agencies must confront.

The story is being followed with intense interest not only by the public in Australia, but worldwide, amid rising concern about the spread of Chinese influence and the infiltration of universities, politics and business.

Western diplomats say that Beijing’s long-term aim is to detach Australia from its alliance with the US and other western powers. It appears that Wang may have been exploiting Australian fears to secure public sympathy and asylum in order, perhaps, to save himself.

“If and when Beijing has a military conflict with the US, the role of Australia will be critical, as it was during World War Two,” one diplomat said. “Australia has a large ethnic Chinese community and is heavily reliant on China for exports. That makes it vulnerable.”

Those vulnerabilities were highlighted when Wang’s case surfaced in late November. An Australian television programme, 60 Minutes, broadcast an interview in which he claimed that the General Staff Department of China’s military was using two Hong Kong-listed companies to control media in the city. This was a hugely sensitive claim, as it came during the worst of the trouble in Hong Kong. He also stated that the Chinese were recruiting agents among Hong Kong’s students.

Wang also described an operation to interfere in Taiwan’s 2018 election, in which the pro-independence Democratic Progressive Party of President Tsai Ying-wen was heavily defeated. Beijing has long threatened to take control of the island, which has been effectively independent since the end of the Chinese civil war in 1947.

Wang also alleged that a Melbourne car dealer named Nick Zhao — an Australian citizen of Chinese origin — had been offered AUD$1 million in donations to run as a candidate for the ruling Australian Liberal Party in elections earlier this year. In March, Zhao was found dead in a Melbourne hotel room. Police have yet to determine cause of death.

Wang gave a statement to the Australian Secret Intelligence Organisation (ASIO), in which he said: “I have been personally involved and participated in a series of espionage activities that were in breach of principles of democracy and morality as well as activities intended to control media and public opinion.”

Mike Burgess, ASIO’s director-general of security, said in a statement on November 24 that his agency was treating Wang’s allegations seriously and had been investigating the matter for some time.

But police in Shanghai responded the following day, saying that Wang was a fugitive in a fraud investigation. In a statement, the Shanghai Bureau of Public Security said that in February, Wang had cheated a man named Shu of more than 4.6 million renminbi with a fake car import investment scheme. It added that on April 10, Wang had travelled to Hong Kong with a Chinese passport and a Hong Kong permanent residence card, both of which were fake.

The story was widely reported in Hong Kong. The anti-Beijing media said that it was evidence of the “Mafia-style” nature of the Chinese government. It confirmed suspicions that Beijing had infiltrated Hong Kong’s protest movement by paying people to commit violence that was then used to discredit the cause.

The pro-government media went with the official version of the story, saying that, at 27 years old, Wang was too young and inexperienced to be involved in such large-scale operations. He was using his version of events to secure asylum for himself, and his wife and son in Australia.

China is Australia’s largest trading partner in both imports and exports. Australia is China’s sixth largest trading partner; it is China’s fifth biggest supplier of imports and its tenth biggest customer for exports. Of Australia’s manufactured imports, 25 per cent come from China.

According to the 2016 census, 1.2 million Australians identified themselves as of Chinese ancestry, accounting for 5.6 per cent of the population. In 2017, there were more than two million Chinese students in Australia, of whom 1.4 million were in higher education.

All this gives Beijing considerable leverage in Australia and access to its public institutions and universities.

On January 25, 2018, Sam Dastyari, a member of the opposition Labour Party in the Australian Senate, was forced to resign after accepting money from Chinese companies. It is alleged that he subsequently supported Beijing in its ambition to control the South China Sea, which is at odds with the policy of the Australian government.

Andrew Hastie, the intelligence committee chief, told the 60 Minutes program that, “This isn’t just cash in a bag, given for favours, this is a state-sponsored attempt to infiltrate our parliament using an Australian citizen and basically run them as an agent of foreign influence in our democratic system.”

In late November, a spokesperson for the Australian government said the country was providing more resources to intelligence and security agencies and setting up a “counter-foreign interference” coordinator.

During the Second World War, Australian ports played a critical supporting role for the US Navy. Bases in Fremantle and Brisbane were used to launch attacks and sink Japanese naval vessels in the Pacific, operations that were hugely important to the Allied victory. Both ports were out of range of Japanese aircraft based in New Guinea.

“If there is a war between China and the US, it will be in the South China Sea,” one Western diplomat said. “These bases will again play a key role. They will enable the US and its allies to close the Straits of Malacca to Chinese military and merchant shipping. This would cripple the Chinese economy. This is why Beijing wants to detach Australia from its alliance with the US.”