war on the rocks

What Are the Chinese up to in Australia?

December 3, 2015

The crocodile-infested shores of Darwin, Australia will soon be welcoming a new, long-term guest: the Chinese. The Northern Territory government signed a 99-year lease valued at US$506 million that will turn the daily operations of Darwin Port over to China’s Landbridge Group. The deal gives the Chinese firm 100-percent operational control of the port and 80-percent ownership of Darwin Port land, facilities of East Arm wharf (to include a marine supply base), and Fort Hill wharf. While Landbridge spends the next five years searching for an Australian partner company to hold the remaining 20 percent, the Northern Territory government will retain local ownership in the interim. The Chinese firm has further pledged to spend $35 million in the first five years to expand the port, and $200 million over the next 25 years.

Given an annual revenue barely in excess of $5 million from the Landbridge project, the Australians have made a risky decision with prospects of only minimal fiscal returns. As home to a rotational force of some 2,000 U.S. Marines (MRF-D), a military component of the Obama administration’s rebalance to Asia, Australia is betting Chinese access to the Darwin Port will not strategically endanger the presence and training of Australian Defense Force (ADF) units and their American counterparts. The cost-benefit calculations of welcoming Chinese investment just a few miles from U.S. and ADF forces simply do not add up: Greater risks to national security emerge amid limited economic benefits for the Northern Territory. Speculation about whether Darwin will ultimately transition from a Chinese-managed commercial port to a clandestine hub for Chinese espionage of Australian and U.S. forces, or even more seriously, an impediment to the U.S.–Australian security relationship in use as a Chinese naval logistics facility merit closer examination, given implications for Australian and American security and defense ties.

Experts on both sides of the Pacific have correctly noted the risks of the port transaction, a mistake that opens the continent to longer-term vulnerabilities at the hands of Chinese businesses and government-affiliated actors. Andrew Krepinevich, president of the Center for Strategic and Budgetary Assessments, wrote for The Australian that the deal “threatens to undermine Australia’s relations with its closest security partner, the U.S., at a time when [Washington] is finally beginning to put serious effort behind its ‘pivot’ [to the region].” Former U.S. Deputy Secretary of State Richard Armitage expressed his own surprise that the Australian defense ministry agreed to the Landbridge deal, noting that Darwin is a natural “jumping off place” for ongoing U.S.–Australia exercises. Others point to questionable linkages between Landbridge CEO Ye Cheng and the Chinese Communist Party, given his membership in the People’s Political Consultative Conference, an advisory political body to the CPP dominated by Chinese businessmen. Analysts at the Australian Strategic Policy Institute have also identified close linkages between Landbridge and the People’s Liberation Army (PLA). Not only did the company form a military affairs office (wuzhuangbu, translated by some as “militia”) in August 2014, but former PLA officers populate key positions surrounding the CEO.

Yet, others, including Linda Jakobson of the Lowy Institute, offer a cause for caution in their analyses. She accurately notes that starting a military affairs office is not unusual; every large enterprise, university, and hospital in China has a similar militia-esque organization to provide basic security for daily operations. Australian Defense Secretary Dennis Richardson may have overlooked the potential for a signals intelligence listening station, but nonetheless refuted concerns of Chinese espionage since the commercial port Landbridge will be developing is but a small part of Darwin harbor. With the Australian naval base roughly four miles away, “the notion that the Chinese can establish a spy base there simply does not stand up to hard-headed scrutiny.” Frustrated by such speculation, Air Chief Marshal Mark Binskin declared that if monitoring ship movements were the Chinese intention, it would be easier “to sit at the fish and chip shop on the wharf.” Chinese port-watching over fish and chips in Darwin would hardly be inconspicuous; setting up signals intelligence collection facilities would.

Assessments looking at the Landbridge purchase from either side of the harbor tend to reflect a misunderstanding of Chinese strategy. Darwin is not the first Chinese-controlled commercial port in a foreign country, nor will it be the last. Since the early 2000s, Chinese state-owned enterprises (SOEs) have acquired stakes in or assisted in developing commercial ports and container terminals around the world. Take Hong Kong-based China Merchants Holdings International’s (CMHI) 85-percent stake in a port at Colombo, Sri Lanka, just 200 miles from India’s southern tip, or the firm’s ongoing Bagamoyo port development project in Tanzania. Cosco Pacific, another state-owned company, has invested in ports and terminals in Antwerp, Singapore, and Greece, among many others. In the case of Singapore, Cosco has a minority stake but manages and operates two berths alongside the Port of Singapore Authority (PSA). In Greece, not only was the Chinese acquisition of a container terminal at Piraeus port the largest modern foreign investment in Greece, but Cosco is presently finalizing a bid for a majority stake in the port.

Among China’s myriad overseas port projects, it is its investments in Djibouti that bear the most striking resemblance to current debates in Darwin. Just as Chinese commercial ports in Singapore, Greece, and Colombo failed to raise national security concerns, so too was Chinese investment in the Port of Djibouti largely overlooked. Like other host countries, Djibouti required investments to develop its port facilities and the Chinese proved to be a willing bidder. In 2012, CMHI acquired 23.5 percent of the Port of Djibouti for $185 million, an acquisition that included two-thirds ownership of the Doraleh container terminal, which placed a Chinese state-owned company just up the coast from Camp Lemonnier, a U.S. Naval Expeditionary Base and home to an AFRICOM task force.

When news of Chinese plans to establish a naval logistics center in Djibouti to support a stronger Chinese presence in the Indian Ocean region recently emerged, the ties between business deals and political-military discussions became ever more opaque. While the direct linkages between a SOE-operated port and the planned naval logistics hub may never be fully known, it would not fall into the realm of the unreasonable to expect that the Chinese management at the Port of Djibouti grew close enough to the local government to facilitate conversations beyond the business realm.

In Darwin, unlike China Merchants Holdings, Cosco Pacific and other commercial port development companies, Landbridge is a privately held company. Since 2001, the firm and its eleven subsidiaries have invested in ports, petrochemical facilities, timber-trading, and real estate development predominantly in China, with only a handful of ventures abroad. Notably, Darwin is not Landbridge’s first investment in Australia; the Chinese company also holds a majority stake in Brisbane-based gas producer WestSide Corporation. While Landbridge may appear to have the flexibility that comes in operating as a private, rather than state-owned, enterprise, shareholder linkages to the central government and a Chinese-dominated board of directors may well ensure Landbridge’s business decisions are no less separate from Chinese strategic interests than the ventures of a state-owned enterprise. Without knowing the shareholder audience and their linkages to Beijing, the Landbridge-Darwin arrangement could just as readily be operating to fulfill state objectives — of espionage, of driving a wedge between Australia and the United States, and of laying groundwork for a future logistics center.

To be certain, the Landbridge-Darwin deal is not immediately about establishing Chinese logistics facilities. The chance for Chinese espionage on Australian and U.S. forces is real, particularly signals intelligence collection. So, too, is the likelihood that the Chinese presence will begin to drive a wedge in the U.S.–Australia alliance. As Djibouti has proven, despite strong reassurances from the Chinese that overseas basing is not one of Beijing’s priorities, a closer business relationship can yield the opportunity for discussions on military linkages. Thus, the immediate strategic risk posed for both Australia and the United States comes from whether the Chinese management at Landbridge uses the Darwin port as a means for wielding economic and political influence in Australia, wooing their hosts through business deals en route to establishing a future logistics center not too dissimilar from Djibouti.

If the port under Landbridge’s management opens strictly for business purposes, we should not expect much of an impact. The Northern Territories needed external investment, and the Landbridge-Darwin transaction supports the continued “going out” of Chinese companies in pursuit of high-profile infrastructure projects. Darwin may well become an important linkage in China’s expanded maritime silk road, a plan for “regional economic domination” which entails connecting the South Pacific to Shanghai, Singapore, and other maritime trade hubs north of the equator.

If, however, the port has a larger strategic endgame and will ultimately be used as a “diplomatic flashpoint” to drive the Australians away from their security ties to the United States, the Chinese could begin to hint to their Australian hosts that it may no longer be convenient for the U.S. Marines to maintain a presence in Darwin, let alone cooperate with the ADF in periodic training exercises. Signals intelligence and other forms of espionage conducted by the Chinese under the auspices of Landbridge’s daily port operations would weaken ADF and U.S. readiness, not to mention regional posture and preparedness. To send a clear message to the Australians, Landbridge could also apply pressure through its holdings in the Darwin port, causing a ripple effect in the economy to which Australians would no doubt be responsive.

Given that these possible developments would inhibit one of the most noticeable military components of the rebalance to Asia, not to mention directly endangering one of Washington’s most important regional alliances, the United States government should begin to encourage its counterparts in Darwin and Canberra to establish ground rules for the management of its high-risk, low-reward business venture at Darwin port. The continued presence of the U.S. Marines in Darwin should be a non-negotiable criterion for both Canberra and Washington; and, in the case the Landbridge management hints that the American military presence is no longer welcome, or if signs of covert intelligence operations are detected, perhaps it will be time for the people of the Northern Territory to rethink their business decision.

 

Lauren Dickey is a PhD candidate in War Studies at King’s College London and the National University of Singapore, where she focuses on relations between mainland China and Taiwan. She is also a member of the Pacific Forum Young Leaders program at CSIS.

 

Photo credit: Ken Hodge