Spying by China is far easier than it was during the Cold War era. Some one million Chinese citizens visit Australia every year on tourist visas. Thousands already live in Australia, and many come and go for business and mix with Australians at all levels of society. They are free to go anywhere an Australian is, and there are far too many for the security services to monitor.

"Chinese Australians doing business in China are very susceptible to pressure from the legal system in a way round-eyes aren't," says Paul Monk, an intelligence expert and author of Thunder From the Silent Zone: Rethinking China. "They put pressure on Chinese Australians, saying 'you are ours'."

The Chinese intelligence services are exploiting Australia's openness, security sources say. The huge number of regular conversations between Chinese citizens and Australian businessmen, public servants and politicians creates a stream of intelligence that is collated by China's security services.

"They are just people with links with China who pass on information in small bits," the expert says. "In themselves the pieces of information are not that significant. But connecting it's an extraordinary effort. It's very hard to avoid it and negate it."

Information held by the Defence Science and Technology Group of the Department of Defence and CSIRO are also among highly desirable information sought by Beijing. Katherine Griffiths

The top targets are commercial secrets, such as negotiating positions on gas and iron ore prices, and sensitive government information, including secrets held by the Defence Science and Technology Group of the Department of Defence and CSIRO, security sources believe.

"There is an unspoken rule that we spy on each other," said Alan Dupont, a former military officer and defence analyst. "But to target in a massive way the business community of your trading partners and friends, in a way China has done, is unprecedented."

The all-pervasive power of the Chinese Communist Party means its intelligence services have no difficulty getting men and women doing business in China to cooperate. "If you want to play in the Chinese space you have to play by the Chinese rules," the unnamed expert says.


Richard Fontaine, president of the Center for a New American Security (CNAS) in Washington, said cyber security issues were shaping up as a key test for the Australian government in how it deals with China.

Spies are interested in industrial information as much as anything geo-political. Data about iron ore prices and volumes is invaluable to analysts in Beijing. Tony McDonough

"China have got to believe at some point that Australia will have something to say about the scope of intellectual property theft and corporate direct espionage in Australia," said Mr Fontaine, a former financial policy advisor to Senator John McCain.

"It's one thing to say given the scope of your cyber security activity it's going to be hard for Chinese companies to make significant investment in Australian critical infrastructure, it's yet another level for Australia to say we're going to slap sanctions on your entities if this kind of stuff continues."

Falling behind

ASIO is, by its own admission, unable to keep up. Even though the domestic security agency has been given a lot more money by Labor and Liberal governments, the Chinese intelligence apparatus is just too big to defeat. In a little-noticed budget submission this year, the Attorney General's Department, which often represents ASIO, acknowledged the security services are unable to protect all of Australia's secrets.

"The gap is likely widening between the scale and scope of harm experienced to Australia's sovereignty, government systems, and commercial and intellectual property, and the ability of ASIO and partner agencies to successfully mitigate that harm," it said.

"Chinese Australians doing business in China are very susceptible to pressure from the legal system in a way round-eyes aren't," says strategist Paul Monk. Michel O'Sullivan


ASIO declined to comment and a spokesman for Attorney-General George Brandis, who oversees ASIO, did not respond to an interview request.

Government officials have debated how open they should be with the public about Chinese spying. The US government, which is one of the top targets of Chinese security services, has disclosed a large amount of information and even filed public lawsuits in the US legal system against individual Chinese military officials.

Practical examples of Chinese espionage have heightened suspicion among regular Americans towards China, perhaps making it more politically difficult for future administrations to take bold steps to improve relations.

Australian intelligence officials are wary of disclosing information or speaking to journalists, forcing the media to rely on anonymous sources who want to help inform the public about what they see as serious security threats.

The all-pervasive power of the Chinese Communist Party means its intelligence services have no difficulty getting men and women doing business in China to cooperate. Chinese MBA students at an Australian university. fionamorris@iinet.net.au

ASIO officers answer a phone number allocated for the media with "yes" and don't give their name. The public version of the ASIO annual report, which sets out the security threat to Australia, doesn't mention the word "China".

"We are aware of a constant array of foreign intelligence activity directed against Australian interests here and around the world," the report says.

Reading the signals


Security experts still mention a speech Turnbull gave at the London School of Economics in 2011. Turnbull, who was then a shadow minister, said China had no expansionist intentions in the Pacific and implied the US needed to accept it would not be the dominant regional power.

China's decision to use its navy to assert its territorial claims over the South China Sea make Turnbull's speech look naive today.

There are conflicting signals about Turnbull's current position. His office says that it isn't seeking closer relations with China. One analyst said Turnbull accepted the security threat from China but is under a lot of pressure from the business community – and big Liberal Party donors – not to upset the Chinese government.

Yet security sources say the intelligence establishment is so wary of Turnbull and other ministers' position on China that it is reluctant to fully explain just how great a threat China is. Chinese investment in infrastructure, including in the South Australian and Victorian power grids and the Port of Darwin, could be used against Australia in a way hard to envisage now.

"It is a bit like a trojan horse," said one expert. "We don't know it is always going to be rosy, and if it stops being rosy we are going to be extremely vulnerable."

Understanding China

A valuable insight comes from former intelligence analyst Monk has followed the activities of Chinese intelligence officers in Australia for over two decades, and has got to know some of them personally.

"China's intelligence gathering is pervasive but not overtly intrusive and by and large not breaking any laws but it is on an industrial scale," says an unnamed expert. Sahlan Hayes


A few years ago a Canberra-based Chinese officer asked Monk out to lunch. His post was ending and he wanted to introduce his successor to Monk, who became a writer, analyst and commentator after leaving the bureaucracy.

The two men flew to Melbourne and booked a table at Flower Drum, reputedly the best Chinese restaurant in Australia. Over lunch, they asked which part of the bureaucracy funded Monk's business.

"I am not funded by any government department," Monk says he told them. "I am an independent operator. Because I am not a government official we can talk - I can be frank with you."

According to Monk, they looked at him with amused disbelief. The suggestion that someone in Monk's position - with access to powerful people and a public profile on sensitive topics - wasn't on the state payroll was absurd.

Monk says the conversation was an insight into the Chinese intelligence services. "It is far more ambitious and better resourced now than ever before," he says. "There is no question that their espionage of the standard [conventional spying] kind has been hyperactive.

"Unlike Russia during the Cold War, you have a diaspora who are living in and accepted as citizens in other countries and a booming economy everyone wants to do business with because they are making money hand over fist.

"If you are a Chinese intelligence officer you can have a field day."