INDONESIA'S military intelligence agency is using sophisticated Chinese surveillance equipment to target Australian officials, companies and individuals.

And Jakarta and Beijing are conducting a growing number of combined spying operations against Australia, according to well-placed sources.

Following revelations by News Corp that Australian cell phones were being bugged for between $300 and $1000 by companies directly linked with the Indonesian military, it can be revealed that information intercepted by the phone taps is distributed to military authorities in China via Indonesia's military intelligence agency Badan Inteligen Strategis (BAIS).

The phone taps are only a tiny element of a targeted espionage operation that uses fixed and mobile interception equipment to bug Australian diplomats, corporations and private citizens.

This includes vans equipped with the latest Chinese listening technology. Much of the equipment is based on western designs that have been stolen by China and provided to Indonesia by China's 3rd Department of the Peole's Liberation Army (PLA). The BAIS is closely linked to the 3rd Department.

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That department is responsible for all of China's signals and cyber intelligence and the 4th Department handles cyber warfare.

The spying scandal that has strained relations between Canberra and Jakarta has also exposed the massive spying effort by Indonesian spooks against thousands of Australians working in their country.

According to online spy journal "Intelligence Online", the deal between the agencies began after Chinese air force chief, General Ma Xiaotian, visited Jakarta in March, 2011, to attend the Asia Pacific security and defence fair.

General Ma is a former deputy chief of the general staff with responsibility for the 3rd Department.

An intelligence source told News Corp that the Indonesia-China relationship was very close and the Chinese were very interested in using that relationship to spy on Australia and other western nations with interests in Indonesia.

"There is a clearly coordinated attempt by China and Indonesia to squeeze what they can out of us," the source said.

"The Chinese are interested in bureaucratic banter, business gossip about resource contracts and military activity. There is a long list of issues they are interested in."

Unlike Australia and the US, China's spying is based on the old Soviet KGB model where saturation methods are used to gather mountains of information about the target.

Former Australian spy Warren Reed said electronic spying was very difficult to counter.

"The first step is recognising and understanding the problem," he said.

Meanwhile, online defence journal Jane's Defence Weekly reports that China has offered to build a network of coastal radars for Indonesia along some of the most strategically vital coastline in the world.

Details of the Chinese system are unknown, but it is believed to be a radar network that will have sites in Lombok, the Sunda Strait, western Borneo and the southwest coast of Sulawesi.

It is understood that the offer was made during a state visit to Beijing in March by Indonesian President Susilo Bambang Yudhoyono.

Chinese President Xi Jinping visited Indonesia in October on his maiden Southeast Asia tour.

President Xi knows Indonesia well as he was regional party boss in Fujian where the families of many of Indonesia's Chinese tycoons came from.

China is Indonesia's second largest trade partner with two-way trade valued at $66 billion compared to Australia's $15 billion.

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