A former Australian ambassador to China says Beijing's influence here might become a thornier problem for the Federal Government than the dispute over the South China Sea.

Key points: Chinese funding designed to generate "uncritical approval of China", former diplomat says

Chinese funding designed to generate "uncritical approval of China", former diplomat says Says China "targeting ethnic Chinese community in Australia"

Says China "targeting ethnic Chinese community in Australia" "Australian Government needs to find balance between debate without stirring Sinophobic backlash"

In a discussion paper for the high-powered China Matters conference, Stephen FitzGerald wrote that Beijing's sway over ethnic Chinese communities in Australia was palpable and extended to "the surveillance, direction and at times coercion of Chinese students through [People's Republic of China (PRC)]-directed or controlled student associations".

Some of the activity in Australia was being "directed by the Propaganda Department of the CCP Central Committee, whose role in China is to police people's adherence to the views of the Party State and enforce 'correct' thinking", the paper said.

The former diplomat said what made China's influence peddling exceptional was that it brought "Australian and Chinese national interests, and values, into direct contention, challenging fundamentals of our system like freedom of speech and the media and enquiry, and the very validity of our political system".

He pointed to the flow of Chinese Government funds though universities, the media and political parties saying it was designed to "generate among Australians and the Australian government a broad, uncritical approval of China's government and its foreign policies".

"Embassy and consulate officials have become more open in fronting universities and other institutions to voice displeasure at particular actions or decisions, with the suggestion that 'China' will not be happy if these are not changed or reversed," Professor FitzGerald said.

"Nationalist media in China have labelled Australian politicians who question PRC influence-buying as 'paranoid'."

President Jinping calls for all Chinese to 'unite'

One of the targets of this deepening influence in Australian society was the ethnic Chinese community.

"The influence is palpable through the now near-monopoly PRC control of Chinese language media and censorship of its content; the surveillance, direction and at times coercion of Chinese students through PRC-directed or controlled student associations; the enlisting of ethnic Chinese business people to these and other causes serving China's interests; and the pressuring and attempted muzzling of ethnic Chinese critics of the PRC," he said.

"President Xi Jinping has been explicit about this aspect of China's influence offensive, calling on all ethnic Chinese overseas, without distinguishing between PRC and foreign citizens, to 'unite' and work for the cause of China."

Professor FitzGerald described the push as "a soft power offensive with a hard edge".

"Behind it lies the strategic foreign policy Xi has called a special 'diplomacy for countries around China's periphery' (Australia being one such)," he said.

"The objective is to co-opt these countries to the enterprise of realising 'China's dream', specifically its Great Power status and the legitimacy of its power ambitions."

Professor FitzGerald argued the Australian Government had to find a balance between encouraging a transparent national debate about the soft power offensive without stirring a populist, Sinophobic backlash.

"There are legitimate concerns about PRC influence but some of the recent hysteria surrounding PRC-derived funds is also concerning," he said.

'Overly zealous finger-pointing could encourage xenophobia'

Professor FitzGerald believed the controversy over political donations would be more easily solved than finding ways to counter Chinese Government influence in the media and banning donations to universities would be "catastrophic".

The exercise of soft power was not unique to China so was, in some ways, "legitimate and unexceptional".

"At another level it is exceptional," Professor FitzGerald said.

"Because this wielding of influence in Australia is on behalf of the undemocratic Chinese political system and its methods of citizen control.

"Some of the interventions in Australia, for example, are directed by the Propaganda Department of the CCP Central Committee, whose role in China is to police people's adherence to the views of the Party State and enforce 'correct' thinking.

"It is exceptional because it brings Australian and Chinese national interests, and values, into direct contention, challenging fundamentals of our system like freedom of speech and the media and enquiry, and the very validity of our political system.

"It also demands loyalty to China of Australian citizens of Chinese descent, a direct challenge to Australian sovereignty.

"On the other hand, overly zealous finger-pointing and suspecting the hand of the PRC at every turn will encourage xenophobic commentary and exacerbate tensions within already fragmented Australian Chinese communities."

Professor FitzGerald was Australia's Ambassador to China between 1973 to 1976.