Scott Morrison cited “national security” as the reason to block the Ausgrid deal. Photo: Bradley Kanaris Professor Peter Drysdale of ANU found Australian exports to China will still grow by 28 per cent. Photo: Sasha Woolley
Late on a frigid afternoon two days before Christmas last year, at a power station in western Ukraine, a worker was startled to see his computer’s mouse suddenly lurch across the screen of its own accord. As he watched, it clicked through to the controls for the circuit breakers, and shut down one after another of the region’s substations, locking him out. The remote intrusion was repeated at two other stations, and light and heat was cut off from hundreds of thousands of Ukrainian homes.
It was a complex and sophisticated cyber attack, long planned and involving multiple remote actors: the first ever confirmed hack to take down a power grid, according to detailed post mortems by the FBI and others. The security experts investigating declined to expressly identify the attackers, but we’ll just call them “the Russians”, since everyone else does. Power was restored within hours, but eight months later operations are still constrained by damage caused by malware used in those attacks.
“So far, only Russian APTs have proven capable of entirely shutting down an enemy’s power grid,” says James Scott, senior fellow at the Institute for Critical Infrastructure Technology, a US think tank that specialises in infrastructure security risks. APTs are “advanced persistent threat” units, covert offensive hacker teams, usually, but not always, state-sponsored.
It’s a scenario that has resonance for Australia after Treasurer Scott Morrison’s decision to reject two China-linked bidders for Ausgrid on unspecified national security grounds. But the risks are real, if more subtle than that, the institute’s Scott says.
“The notion of China turning a nation’s grid on and off as a form of leverage is unlikely, outside of perhaps invasions,” Scott says. “Rather, allowing China to own the grid provides it with economic leverage over the nation and social leverage over the population. For instance, China could control an economy by regulating electricity prices (all businesses run on electricity), they could collect information about business usage and growth, or they could collect information about individual and population usage.”
It has been argued by some troubled by the anti-foreign investment message sent by the decision that ownership is irrelevant, that if China wanted to hack into Australia’s power grid, it could do so without buying it. This is not true, Scott says. Not yet, anyway.
“Chinese cyber-attackers are more numerous than sophisticated,” he said. “Purchasing the infrastructure provides China with the hard and soft power (leverage and espionage respectively) that it can use in its dealings with foreign nations. At the moment, if China wanted that threat over foreign nations, it would have to purchase the grid because its APTs currently lack that capacity.”
Peter Jennings from the Australian Strategic Policy Institute, a strong voice in the argument against the Chinese-linked companies’ Ausgrid bids, says he has been telling the story of the Ukrainian grid’s bad December day a lot lately.
“We now find ourselves at a tipping point,” he says, “for the notion of how China is emerging as a state makes our dependence on that economic relationship now something of a risk factor. I think this is going to be a horribly difficult problem for governments to work out how to navigate. The way Xi Jinping seems to want to take China, it is simply no longer possible for Australia to believe that there is only growth and no risk in terms of doing business with China.”
The alternative view was put succinctly to this reporter by an electricity sector worker who supports selling to the highest bidder. “It’s like you put your car up for sale for ten grand,” he says, “and someone comes along and offers you 14 grand and you say no, because you’re Chinese. Your money’s no good here.” ‘It’s a bunch of people talking in completely different worlds’
No one reading reports on China’s brazen cyber espionage, even the non-classified stuff, would be particularly surprised by the Treasurer’s decision. But plenty of people were – not least the NSW government, apparently, which has already promised voters a lot of goodies from the $10 billion they were going to get from the sale. The state government has no mechanisms or expertise for assessing foreign security risks and apparently relied on Commonwealth advice throughout the process.
The divide in Australian policy circles on China is stark. It was somewhat pejoratively summed up by Tony Abbott’s insightful coinage “fear and greed”, and the Ausgrid decision is where the two camps have collided spectacularly.
“It’s a bunch of people talking in completely different worlds,” says Jennings. “It’s almost a breakdown in public policy with economists and strategists talking past each other. They read different journals, they’re motivated by different concerns, and really up until now it’s fair to say they haven’t really treated each others’ views that seriously.”
China optimists, overwhelmingly on the economic or business side of the debate, were dismayed by the messiness of the process and the apparent inconsistent application of the foreign investment rules. Former foreign affairs minister Bob Carr, who leads the China-backed ACRI think tank at UTS, pronounced it “a policy sacrifice to the witches’ Sabbath of xenophobia and economic nationalism stirred up in the recent federal election”.
The economic case for optimism about China was outlined in forensic detail this week in a major report, produced with the support of both countries, which examined the bilateral relationship and found nothing but upside. Even on the most pessimistic scenario for China’s growth trajectory, lead author Professor Peter Drysdale of the ANU found Australian exports to China will still grow by 28 per cent and Chinese exports to Australia by 20 per cent over the next decade. China’s soaring middle classes want Australian cheese, Australian universities, Australian vitamins.
For speakers at the Sydney launch of the Australia China Joint Economic Report hosted by Asialink and Corrs Chambers Westgarth on Wednesday, security concerns were just a bump in the road.
China “urged a measure of regulatory certainty” in our foreign investment regime, Drysdale said, in reference to the Ausgrid deal.
Chinese investors expect Australia to have a national security policy, said Dr He Fan, an economist from Renmin University, but the “main complaint is that the policy needs to be more transparent. Make the rules more clear. Fifty-one per cent is too much? Just give us the number, we’ll adjust the investment.”
Speaking at the same event, Carr repeated his concerns about the decision, asking why State Grid, a Chinese state-owned enterprise, was allowed to buy into the South Australian grid, which supplies Woomera, a rocket range, and why late last year State Grid got the go ahead to bid for another NSW electricity distributor.
“There are serious questions and inconsistencies that ought to be addressed,” he said.
There are a lot of answers to those questions. There is the Treasurer’s, who said on radio this week, “just because someone is able to own one asset, doesn’t mean they can own another one”, arguing the character of Ausgrid and the structure of the proposed deal made this a different case.
There is the fact the foreign investment review regime was changed late last year expressly to take into account national security concerns, and the former ASIO head David Irvine was appointed to the Foreign Investment Review Board in December.
There is the fact of China’s increasingly aggressive tactics in the South China Sea, where they have been building military bases in disputed waters; and increased awareness of China’s policy of actively pursuing infrastructure and port acquisitions throughout the Asia-Pacific.
And there is ASPI’s Jennings, who says bluntly that three years ago, when State Grid was permitted to buy the South Australian distributor, “we had a FIRB that didn’t take security issues as seriously as it should have”.
Morrison’s office would not confirm it, but experts believe the Port of Darwin was the tipping point. When the Northern Territory government sold 80 per cent of the port to Chinese company Landbridge in November, the Americans made their displeasure at the surprise well known. Within weeks, the government was quietly rolling out foreign investment regime reforms, including the register of agricultural land and the appointment of national security experts to the board.
Sales of the Port of Melbourne and the Port of Fremantle are on the horizon.
“There has tended to be a bifurcation of economic and security issues in discourse about China, but of course they’re connected,” says Marina Tsirbas, from the National Security College at the ANU. “In the investment context there now seems to be a more overt expression of the fact that foreign investment including potentially Chinese investment can have national security implications. That’s more overt than 10 years ago, where I think the Treasurer would have just said national interest.” But she doesn’t believe China’s territorial aggression has impacted the decision. “I think the change of perception may be more in the public eye.”
The broadly bipartisan line since John Howard was prime minister has been that Australia does not have to choose between its history and its geography: that we could continue to walk a happy line with our major security partner being the US and our major trade partner being China. But finding that line is getting trickier by the day.
There’s a future where China’s growing power and assertiveness put Australia’s security and autonomy at risk; but there’s also another version, where economic interdependence and trade is a disincentive for hostilities and helps to temper security problems in the relationship. At this point, we can only hope the second version wins out.
This story Administrator ready to work first appeared on Nanjing Night Net.