Chinese Spies and Our National Interest

The Computer Emergency Response Team (CERT) is Australia’s front-line defence against increasingly aggressive Chinese—and other foreign or criminal—cyber espionage and cyber crime. It is nestled under the wing of the Attorney-General’s Department and complements the Cyber Security Operations Centre, inside the Defence Signals Directorate, within the Defence portfolio. As of April, CERT had close to 500 Australian companies on its books as clients warranting protection against such threats. Welcome to the world of twenty-first-century spying. At a time when there is increasing debate about China’s rise and our dilemma in balancing our economic relationship with it against our strategic security concerns, how preoccupied should we be with the challenge of Chinese espionage?

The subject of spies and conspiracies and all manner of dark arts holds a perennial fascination for a great many people. Personally, I’m a Le Carré fan, because his novels are more sombre and realistic than the popular spy genre. And, as I put it to a veteran of ASIO about a decade ago, when he approached me about the unfinished business of Soviet penetration of Australia’s intelligence and policy circles during the Cold War, “When it comes to such matters, I am unequivocally one of Smiley’s people.” For those unacquainted with the work of George Smiley, I recommend Le Carré’s marvellous end-of-Cold-War novel The Secret Pilgrim, published in 1991. It was dedicated to Alec Guinness, who had starred as Smiley in BBC productions of Le Carré’s classic 1970s Smiley novels Tinker, Tailor, Soldier, Spy and Smiley’s People. The dedication was warranted. Guinness was a superb Smiley and I don’t think Gary Oldman, in the recent feature film of Tinker, Tailor, Soldier, Spy, laid a glove on him.

This essay was first published in Quadrant‘s June 2012 edition
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I identify with Smiley, because I have never subscribed to the cynical view that the West is the enemy of historical progress or “the revolution” and deserves betrayal, as the Cambridge Five and their numerous colleagues in treachery apparently believed, in the 1930s and afterwards. I also believe that Australia was deeply compromised by traitors during the Cold War: some of its own citizens became moles for the Soviet intelligence services. I despise the Left’s unyielding insistence that such allegations are paranoia and that, in any case, those who spied for Stalin and his successors were somehow “romantic” or “idealistic” figures. I grew up thinking of Stalin as the Dark Lord and the Kremlin as the Dark Tower and, the more I have learned about both, the more I see those childhood archetypes as largely justified. Finally, it seems clear to me, from what information I have been able to gather over the years, that very few of those who worked for the dark side in Australia during the Cold War have ever been identified or exposed to public obloquy. In particular, those who did so right through to the end of the Cold War have got away scot free.

Australia was rather poorly served during the Cold War by its counter-intelligence services, in large measure because they were deeply penetrated by the Soviet Union. This remains a subject that the Australian government is extraordinarily reticent about. That makes it possible for the Left to get away with the old Cold War canard that ASIO was a right-wing organisation obsessed with allegedly mythical reds under the bed. It turns out that the reds were not merely under the bed; they were in it. Yet it remains one of the most troubling aspects of post-Cold War revelations about Soviet espionage that, whereas much has come out about previously unconfirmed or altogether unknown Soviet spies in the United States, Britain, France, Germany and elsewhere, almost nothing has come to light about such spies in Australia. There is, however, disturbing evidence to suggest that Australia was perhaps at least as deeply penetrated as any other Western country during the Cold War and that this has been deliberately covered up over the past twenty years.

In late 2009, in an opinion column in the Australian, I drew attention to the anomalous fact that the KGB files on Australia have somehow never seen the light of day, despite the publication of two fat volumes, in 1999 and 2005, on the Mitrokhin revelations from the KGB archive. I noted that there were, indeed, revelations to be had about Soviet spies in Australia, but that these had apparently been suppressed, for no clear reason. I claimed that this had been done at the request of the Keating government. I added that, as prime minister, Paul Keating had, nonetheless, quietly set up two inquiries into Soviet penetration of Canberra and specifically of ASIO. Those inquiries were Operation Liver, by the Australian Federal Police; and a separate inquiry by senior diplomat and former head of ONA, Michael Cook. The AFP inquiry, I stated, was terminated by the Labor Attorney-General Michael Lavarch with the exclamation, “This has got to stop. There’s no knowing where it will end!” According to my understanding, I stated, Michael Cook deduced that there had been four Soviet moles inside ASIO, virtually up to the end of the Cold War.

As several serious, well-informed and responsible individuals have exclaimed to me since that piece came out, the silence in response to it was deafening. There was not a word of retort from Michael Cook, Paul Keating, Michael Lavarch, the AFP, ASIO or anyone else in a position to state that I was in error in any particular. Disconcertingly, there was no response, either, from the conservative side of politics. In the weeks following, I met with both the Inspector General for Intelligence and Security, Ian Carnell, and the Director General of ASIO, David Irvine, and neither gave me any ground for believing that I was in error in what I had claimed. Well before I had written it, I met with Cook and asked him whether the claim put to me that he had identified four Soviet moles in ASIO was correct. In a conversation that had been perfectly serious and cordial, his only response to this question was to say that he would not be divulging any information on that subject. Since then, I have been informed that, in fact, Cook’s report was based on Operation Liver and was not a separate inquiry; that up to ten suspected moles were quietly retired and that one of these individuals had worked inside ASIO from 1952 until 1985, ending up as head of security vetting. Moreover, ASIO was not the only part of the Australian government penetrated and, while some of those who spied back in the 1940s have been exposed, virtually nothing has come to light since the Petrov defection in 1954.

My present purpose is to address the matter of Chinese espionage, but if what I stated in 2009 about Soviet penetration of ASIO is in substance correct, and given that there has never been any public accounting for that debacle, what basis do we have now for confidence in the effectiveness of our counter-intelligence services against the Chinese? If it was possible for a Soviet mole to work undetected within ASIO for more than thirty years and end up as head of security vetting, why would we believe ASIO now to be secure against comparable penetration by the Chinese? My own view is that we have very little basis for confidence. The Russians counted on ideology and venality to place moles in the West. They continued to have successes right through to the end of the Cold War. The Chinese have advantages that the Soviet Union never enjoyed: a booming economy, a huge trade relationship with their target countries, not least Australia; interested lobby groups working on their behalf; very large pools of Chinese migrants in this and other Western countries; huge numbers of students and tourists coming here and to the other leading Western countries every year; and a widespread view that they are now a capitalist country set to overtake the United States, a view which encourages both apologias on their behalf and band-wagoning.

Let me relate a story that is both amusing in a dark kind of way and instructive in our present circumstances. Katrina Leung became a leading figure in the Chinese community in Los Angeles in the 1970s. In 1982, she was quietly recruited by the FBI, America’s ASIO. With their support, she was given American citizenship in 1984. She was codenamed Bureau Source 410; otherwise known as Parlour Maid. For twenty years, while remaining a high-profile figure in Los Angeles and the person it was said that you had to go to if you wanted to get something done in China, she travelled back and forth to Beijing, meeting an incredible range of people and reporting back to the FBI’s top Chinese-speaking counter-intelligence specialists in California, James Smith and William Cleveland. She quickly became the FBI’s top secret source on China, the Chinese political leadership and the Chinese Ministry of State Security. The FBI paid her $1.7 million during those years for her seemingly stunning intelligence on what top Chinese leaders were thinking. Briefings based on her reports went all the way to the White House.

There was just one problem. Even before she was recruited by the FBI, Katrina Leung was working for the Chinese intelligence service. She continued to do so for all those twenty years. Moreover, from shortly after the time he recruited her, James Smith became and remained her lover. From 1987, so did William Cleveland. Both would visit her and confide in her. Smith took briefcases full of classified documents to her home and she would filch them, copy them and transmit them to Beijing. In December 1990, the National Security Agency (NSA) intercepted a telephone conversation in Chinese between a woman in Los Angeles and her Chinese handler in Beijing, whose name was Mao Guoha. She revealed to him, among other things, that William Cleveland was about to make a trip to China. The NSA sent the intercept to the FBI. It was passed on to Cleveland. When he listened to it, he recognised the woman’s voice at once: it was that of Katrina Leung.

Cleveland (and Smith, when he learned of the intercept) each realised they had a serious problem. They covered it up for the next twelve years and kept up their sexual liaisons with Parlour Maid. She was kept on the payroll. Smith kept taking briefcases full of classified documents to Leung’s house, when going there for trysts. She kept reporting to her handler in Beijing. Right up until 2002, neither Smith nor Cleveland apparently guessed what the other was up to with Parlour Maid. That, you might say, was need-to-know, compartmented information. She, meanwhile, kept sixteen foreign bank accounts, travelled to China at will, betrayed a string of sensitive FBI operations to her real intelligence masters and was paid handsomely by the FBI while doing all this. They thought they had a brilliant penetration operation running; but while their top agents were certainly penetrating Katrina Leung, she was penetrating the FBI in a manner that put the legendary Mata Hari in the shade. And when, eventually, she was exposed and brought to book, the FBI’s lawyers bungled the prosecution and she was given so nominal a penalty that she exclaimed in court, “I love America!” As well she might! But her loyalties had clearly been to China.

There is an element of Keystone Cops to this story. One can only groan at the extraordinary incompetence of the FBI and the stunning susceptibility of the Bureau’s most highly rated Chinese-speaking counter-intelligence officers to the oldest lure in the book of spies. But the case raises a set of questions which, I suggest, are what we should now ponder. First, how much Chinese espionage of all kinds happens? Second, how much of it happens here in Australia? Third, what does China gain from its espionage? Fourth, are we any better placed to thwart it than the FBI? And finally, does it really matter, at the end of the day? The short answers are:

• A very great deal;

• Plenty (remember CERT);

• The biggest haul of data and intelligence you can imagine;

• Our lot may well be even less effective than the FBI; and

• It all depends on how the economics works out, because that will determine whether the West, including Australia, continues to thrive or ends up floundering in some kind of Asian century; apart from which China itself faces grave challenges in the years ahead.

I cannot prove these things here and now, any more than I can prove that there were four Soviet moles in ASIO right into the 1980s. I offer my judgments not as one with privileged information on the subject, but as a former senior intelligence analyst who has always taken an interest in the subject and keeps an eye on developments. My observations are intended to be responsible and concerned; but they are certainly not definitive.

China’s spy agencies include the Ministry of State Security (MSS), the Ministry of Public Security (MPS) and the Military Intelligence Department (MID). The MSS is China’s foreign intelligence service; the MPS its internal security service. Katrina Leung worked for the MSS. Its headquarters are near the old Summer Palace in Beijing. The Chinese name for the MSS is Guojia Anquan Bu or GAB. You might say that Chinese espionage, with its fabled history dating back into the mists of time and enshrined in the vaunted treatises of Sun Tzu, is “the gift of the GAB”. It relies on tens of thousands of Chinese speakers with the gift of the gab travelling abroad, asking questions and reporting back to Beijing Centre—as well as the new dark arts of cyber espionage. It (and the MID) are targeting anyone and anything that can yield the Chinese Communist Party an advantage in its quest to make China the world’s greatest power by mid-century. Whether this is the best way to go about that ambitious goal is, of course, another matter; but that it is the goal and that the GAB is deeply involved in pursuing it there can be no doubt. It is now far better resourced and more sophisticated than ever it was in the days of Mao Zedong or the fabulous Fu Manchu.

The GAB has twelve bureaux:

• Recruitment for both domestic and overseas service

• Spy handling under diplomatic or commercial cover

• Taiwan, Hong Kong and Macao operations

• Technology: wiretapping, communications, photography

• Internal security: domestic surveillance

• Counter-intelligence

• Intelligence analysis and reporting

• Research

• Counter-surveillance and counter-defection

• Scientific and technical intelligence

• Computers and computer security

• Foreign liaison and cooperation

Academically speaking, MSS spies are trained in the agency’s own university, the Institute of International Relations, in Beijing. Spying tradecraft is taught at the Institute of Cadre Management in Suzhou, not far from Shanghai. Suzhou also happens to be the city from which, according to long-standing tradition, the most beautiful women in China come. I remarked on this, many years ago, to a Chinese businessman sitting next to me on a flight from Beijing to Shanghai. He quipped, “You are well informed! But I wouldn’t go looking for them in Suzhou these days. They’re all in Guangzhou, because that’s where the new money is.”

Long after Stalin’s time, many a recruit to the KGB felt the lure of what was seen as an elite, front-line service in the global battle against the evil empire of imperialism. Kim Philby, in his memoir, spoke of his own secret recruitment by the KGB in such terms, but did not apparently see his recruitment by MI6 in the same glamorous light. Imagine the sense of patriotism, pride and prestige for young Chinese men and women entering into such training now, at a time when so many Chinese believe that their country is set to become, in their own lifetimes, the greatest economic power; perhaps even the greatest military power in the world and maybe in history. Lee Kuan Yew, in 1996, remarked of China, “This is not just another big player. This is the biggest player in the history of man.” In the same year, then Chinese Premier Zou Jiahua, at a conference of Chinese intelligence agencies, praised “the tens of thousands of nameless heroes who cherish and loyally serve their motherland … quietly fighting in their specialised posts abroad”. This is the kind of swelling Chinese nationalist sentiment that we are up against.

Note Zou Jiahua’s mention of “tens of thousands”. Who was he talking about? Plainly not Chinese spies as the word spies is commonly understood in the West; not secret agents reporting to case officers in the Chinese embassy or planted inside foreign governments. As Madame Fu Ying remarked some years ago, in response to the defector Chen Yonglin’s claim that there were about a thousand Chinese agents in Australia, “If I had a thousand spies working for me, I wouldn’t have time to play golf.” She was right. If she had been running a thousand spies she wouldn’t have time to play golf. But ambassadors don’t handle spies. And China doesn’t handle most of its spies through its embassies. To assume that it does would be to fall into the trap of believing that China’s espionage services work in just the same way as the old Soviet intelligence services or the American or Australian intelligence services. They don’t. And this will be important to understand in any serious effort, should we mount one, to counter this kind of Chinese intelligence gathering in Australia.

Paul Moore, a specialist in classical Chinese language and literature and sometime head of the FBI’s whole China division, told David Wise, a US historian of intelligence matters:

if a beach was an espionage target, the Russians would send in a sub, frogmen would steal ashore in the dark of night and with great secrecy collect several buckets of sand and take them back to Moscow. The US would target the beach with satellites and produce reams of data. The Chinese would send in a thousand tourists, each assigned to collect a single grain of sand. When they returned, they would be asked to shake out their towels. And they would end up knowing more about the sand than anyone else. China does not normally pay money for intelligence, unlike the KGB and the CIA. Typically, you help them and they help you develop an export business. They don’t develop intelligence relationships with people, but general relationships, which may end up having an intelligence dimension. They don’t so much steal information as put sources in a position where they will be indiscreet or generous with information under false pretences.

This might be dubbed “Moore’s Law”, though, strictly speaking, he should have spoken of each Chinese tourist collecting somewhat more than a single grain of sand—perhaps a handful or so and from many different parts of the beach.

Let me underscore a few crucial aspects of Moore’s Law. The MSS doesn’t target the vulnerable so much as the eager. It doesn’t offer money so much as it offers contacts in China and assistance in setting up or furthering a business or a research project there. It will make appeals not to ideology but to helpfulness and friendship and a desire to see China modernise. It also places numerous agents among first-generation Chinese immigrants, whether in the USA or here. As one press report on economic espionage by Chinese Americans put it in late April:

A common thread in these cases is desire by the scientist defendants, many of them Chinese-American immigrants, to help China advance economically. A case under way in San Francisco involves theft of a DuPont production process for titanium dioxide, which is used to whiten the centers of Oreo cookies as well as the trademark “M’’ on “M&M’s” candies. One scientist in the San Francisco case, Tze Chao, said in pleading guilty that executives from China “appealed to my Chinese ethnicity and asked me to work for the good of the PRC”.

In the USA there are currently some 2600 Chinese diplomatic and consular officers; 25,000 visiting Chinese delegates each year; 127,000 Chinese students in schools and universities; and millions of Chinese citizens—1.2 million in California alone, with its large defence and aerospace industries and Silicon Valley. The counter-intelligence task here is incomparably more difficult than anything faced during the Cold War struggle with the KGB and the GRU. It’s like trying to find bombs hidden in shipping containers at America’s ports.

The absolute numbers of Chinese in Australia are smaller, but the proportional numbers are substantial. Now, let’s link this background stuff about Moore’s Law and the tale of Katrina Leung to recent developments in Australia. Recall the Joel Fitzgibbon affair of three years ago. Here’s the key press report from May 2009, as written up by the investigative journalist Philip Dorling:

Associates of the businesswoman Helen Liu claim Chinese intelligence services asked them to cultivate a relationship with Joel Fitzgibbon and his father, Eric Fitzgibbon, after they were flown first-class to China in 1993. Sources with close ties to the company that paid for the trip also allege that Chinese agents had electronically monitored the pair during their visit.

It was on this trip that Mr Fitzgibbon, then a NSW ALP official, and Eric Fitzgibbon, then a federal MP, first met Ms Liu, who has since become what the Defence Minister has described as “a very close” family friend. Sources familiar with the details of the trip allege Chinese spies eavesdropped on the private conversations of Eric Fitzgibbon, who as a serving MP had attracted their interest.

The sources, who are close to Ms Liu’s then business partner, Humphrey Xu, confirmed the trip was organised and paid for by Mr Xu through his company Diamond Hill International. According to the sources, Chinese intelligence officials expressed interest in the Fitzgibbons’ preparedness to accept benefits from Mr Xu and Ms Liu, and encouraged them to continue to develop their relationship with the Fitzgibbon family.

When asked about the 1993 trip, Joel Fitzgibbon said in March this year that he went in a private capacity and that his father “was invited to turn the first sod at a tourist development in China”. Both Joel and Eric Fitzgibbon deny receiving $US20,000 for their services on the all-expenses-paid 1993 trip. Eric Fitzgibbon declared the trip in the House of Representatives register of members’ interests.

In late 1995, Diamond Hill International contributed $20,000 to Joel Fitzgibbon’s campaign for the 1996 federal election. At the time, the donation was declared by the NSW Labor Party as a donation to a “party unit” with no direct reference to Mr Fitzgibbon. In 1996 the personal and business relationship between Mr Xu and Ms Liu broke apart and she took control of several joint companies including Diamond Hill International and Wincopy. Wincopy subsequently donated $20,000 to Joel Fitzgibbon’s 1998 re-election campaign. Her companies gave a further $50,000 to the NSW ALP between 2001 and 2007. Ms Liu has denied ever being involved in spying. 

“She’s just a Chinese business woman with whom I am friends and who happens to have good Party connections,” was the Fitzgibbon defence. Exactly so; although the nature of the gifts and contributions looks highly suspicious. But such gifts and contributions, such friendships, are the way it works and the target may never know what the game is until deeply into it. The donations to Joel Fitzgibbon’s election campaigns are straight out of the Katrina Leung playbook. That Mr Fitzgibbon may not have done anything so much as questionable doesn’t alter the troubling reality of the situation. It simply highlights the great difficulty in countering the ancient Chinese art of espionage. And let’s be clear: the Fitzgibbon case was high-profile only because he was Minister of Defence. It would be naive to believe that it is anything but the tip of an iceberg of considerable proportions. Think, for example, of the relationships of such figures as Alexander Downer and John Brumby to a company like Huawei and consider how much such people are in a position to divulge to their Chinese business friends.

In any case, Chinese espionage right now is occurring on a scale that dwarfs what the Soviet Union accomplished during the height of the Cold War. This is not something widely appreciated. It has three sources or enablers. First, China, unlike the Soviet Union, is now a commercially thriving state, doing vast volumes of trade all over the world. This gives it both the incentive and the means to conduct espionage of every kind to an extent that the Soviet Union could only have envied. Second, there is a huge Chinese diaspora and China’s intelligence services, unlike their Soviet counterparts, have always depended primarily upon first-generation immigrants to foreign countries and students or tourists travelling abroad, to gather much of their intelligence for them, a handful at a time. Third, China is now conducting cyber espionage—something that was never possible for the Soviet Union. It was not technically possible in the Cold War years and, in any case, information science was one of the many areas in which the Soviet Union was left behind by the West in the 1970s and 1980s. Consider the 17,526 documents purloined by the Cambridge Five over twenty years and more, then think of WikiLeaks. Bradley Manning downloaded 250,000 documents onto CD read/write disks, in about as much time as it would have taken Kim Philby to hold a single meeting with his KGB controller.

For years now, business people travelling to China have been warned either not to bring laptops and mobile phones with them, or to never leave them unguarded; because the MSS targets them and copies their content. Michael Hayden, former CIA and NSA chief, issued this warning not so long ago; but the well-informed have known it for quite a bit longer. Moreover, few foreigners have ever realised the extent to which the MSS collects intelligence on them into vast databases for future reference. If you have heard tales of the files collected by the FBI under J. Edgar Hoover or by ASIO during the Cold War, you have a faint inkling of what the MSS has done domestically and abroad for decades. And such collection often takes place, as you might expect on a little reflection, in the most apparently innocuous ways. This is intensive in the United States, targeting think-tanks and policy centres, for example; and has been even more so since China’s reform and opening era began than in the Mao years. Australia may be provincial, by comparison, but the same is true here. Think Chinese restaurants and ask how many Soviet restaurants ever operated in the West at any point between 1917 and 1991. Even now, Russian restaurants are as rare as hen’s teeth. Chinese restaurants are everywhere. Think the Mafia and pizza parlours.

In recent years, Western security and counter-intelligence organisations, including our own, have warned repeatedly that financial firms, banks and law practices are targets of cyber invasion by the Chinese. It need hardly be said that the same holds true for government departments, ministerial offices and the headquarters and personnel of leading firms doing business in China. In 2009, MI5 disseminated a fourteen-page white paper to a number of financial institutions warning of hacking by the Chinese. Such cyber espionage, MI5 added, is backed up by “honey traps” set to ensnare British businessmen. It’s a case, of course, of the two oldest professions in the world, as the saying has it, becoming interwoven, as they so often have been. Remember the brouhaha that ensued when Google announced that it had detected highly sophisticated Chinese hacking of its own cyber networks. The sophistication of these attacks was described as “staggering” and, while Beijing routinely denies that it bears any responsibility for them, no one of any seriousness or standing believes these disclaimers.

It’s important to register two things here: the scale on which Chinese cyber espionage is now being conducted and the fact that it’s happening here as well as elsewhere. “They are stealing everything that isn’t bolted down, and it’s getting exponentially worse,” according to Mike Rogers, a Republican Congressman from Michigan and chairman of America’s Permanent Select Committee on Intelligence. Economic and technological cyber espionage is intended to enable China to leapfrog over its American and other foreign competitors to further its goal of becoming the world’s largest economy, according to a US intelligence report of November last year. As national security and counter-terrorism specialist Richard Clarke has expressed it, “What has been happening over the course of the last five years is that China … has been hacking its way into every corporation it can find listed in Dun & Bradstreet.”

Clarke is a former special adviser on cyber security to President George W. Bush. Speaking at a conference on the subject last October, he stated that the Chinese have targeted every corporation in the USA, in Asia, in Germany. They are “using a vacuum cleaner to suck data out in terabytes and petabytes. I don’t think you can overstate the damage to this country that has already been done.” According to a Bloomberg editorial of mid-December last year, “The electronic theft of proprietary information from US companies has reached the level of grand larceny on a national scale. One declassified government estimate put the value of information stolen in the last year—everything from blueprints to merger plans—at almost $500 billion.” One specialist has described all this as the greatest illegal transfer of wealth in the form of intellectual property in history.

This grand larceny is the fruit of an operation originally launched in 1986, under the title Program 863, to close the gap with the West in areas such as nano-, bio- and information technology. Program 863 operates in such a way that the MSS and the Foreign Ministry can routinely disclaim any responsibility for it. Indeed, it would appear that much of it is conducted under the auspices of Chinese military intelligence and by special task forces created to make plausible deniability feasible. Given the extent of Australia’s trade with China, there is no good reason to believe that our own companies and ministries have not been targeted in the same way. I have no privileged information on what Chinese human and cyber spies have accomplished, you’ll be disappointed to learn; but our large mining companies are certain to be a target-rich environment for Chinese espionage. One must assume they look to their own cyber defences and personnel security. I need hardly add that Chinese espionage will be strongly centred, also, on our defence alliance with the United States, our force structure plans and our intelligence agencies.

At a time when prominent figures in this country are calling for us to distance ourselves from the United States and draw closer to China, the counter-intelligence challenge is becoming acute. It becomes ever easier for Chinese operatives to develop relationships and ask questions in the name of “balance” and “friendship”. This is all the more troubling if we ponder even a few successful, old-fashioned Chinese espionage successes in the United States, in addition to the work of Katrina Leung. Over the past thirty or forty years, Chinese spies have penetrated the CIA and US nuclear weapons laboratories and have passed to China crucial technological intelligence on some of the most sophisticated weapons in the US arsenal, including the neutron bomb, the W-70 nuclear warhead, the W-88 thermonuclear warhead for the Trident submarines and stealth technology. Gwo-bao Min, Wen Ho Lee and Larry Wu-tai Chin are not exactly household names, but if the story of Chinese espionage in America was better known, these would be names as famous as the top Soviet spies of an earlier era, such as Julius and Ethel Rosenberg and Klaus Fuchs.

Gwo-bao Min, for example, worked at the Lawrence Livermore Laboratories on missile defence and had access to the designs of every US nuclear missile. He had come to the USA in 1963, got a doctorate in aerospace engineering from the University of Michigan in 1970 and joined Livermore in 1975. In 1979 he travelled to China, and Chinese friends who helped him with his visa steered him to China’s nuclear scientists for close questioning. That visit to China in 1979 by Gwo-bao Min became a focal point in the investigation that the FBI launched many years later in an effort to determine who had leaked the secrets of so much American nuclear weapons technology to the Chinese.

Another key suspect in that case was Wen Ho Lee. Lee worked in X Division at Los Alamos, the most highly sensitive part of the laboratory where America’s nuclear bombs have been designed ever since the Manhattan Project in the 1940s. He downloaded vast quantities of highly classified data without accounting for why; made trips to China about which he lied; made contact with Gwo-bao Min and lied about that; and yet when prosecuted for espionage was acquitted and apologised to by the trial judge, because the case could not be proven beyond reasonable doubt. He walked free, sued for damages and accepted $1,645,000 in an out-of-court settlement in 2006. Like Katrina Leung, he must have decided that he just loved America.

Larry Wu-tai Chin was born in Beijing in 1922 and began working as a translator for the Americans in 1944 in Fuzhou. By 1948 he was working in the US consulate in Shanghai. When the USA pulled out of mainland China, he found himself in Korea, where he worked as an interpreter, interviewing Chinese POWs, in 1951. In 1952, he joined the CIA’s fledgling Foreign Broadcast Information Service and was based in Okinawa. For years within FBIS he had access to CIA reports, including those from covert agents in the Chinese world. He used to make regular visits to Hong Kong. In 1961 he was transferred by FBIS to California and in 1965 was granted US citizenship. He was given a Top Secret security clearance and, in 1970, transferred to the CIA’s FBIS headquarters in Rosslyn, Virginia. He now had very high level access to classified information and this remained the case right up to the point in July 1981, when at the age of fifty-nine, he retired.

At a special ceremony on his retirement, Chin was presented with a Career Intelligence Medal as the CIA’s best translator by CIA deputy director Bobby Inman. A week later, he flew to Hong Kong, where an MSS officer paid him a retirement bonus of $US40,000—the equivalent in today’s terms of several times that amount. He had been spying for the Chinese since 1944. He betrayed Chinese POWs that he had interviewed in Korea. In all probability a good many of them were incarcerated or executed on their return to China. He used to meet his case officer, Ou Qiming, on those visits to Hong Kong from Okinawa, all the way back in the 1950s. He had had an emergency contact in New York in the 1970s: one Father Mark Cheung, a Catholic priest at the Church of the Transfiguration in Chinatown. Cheung really was a priest; the MSS had sent him to a Catholic seminary to become a mole inside the Catholic Church. All the while, he had a wife inside China. When he visited her, he threw off his priestly attire and resumed his personal identity.

Chin, having been handsomely paid over the years and having invested his gains in properties, thirty-one of which he owned in the Washington DC area alone; lived comfortably in retirement. But over three years from 1982, two Chinese sources informed the CIA of Chin’s career as a spy, and his cover was blown when their testimony led the FBI to hard evidence of his espionage. For once, the FBI got its man. He was arrested in late 1985, and put on trial. Convicted on charges that could carry two life terms, he committed suicide in prison by self-asphyxiation, on February 21, 1986, before he could even be sentenced. Isn’t it remarkable that this man had worked for the Chinese intelligence service for thirty-seven years as a mole inside US intelligence and the CIA without ever being detected and that only Chinese defectors blew his cover? It’s almost enough to make one a little paranoid. But paranoia is not what I advise.

Now, you might ask, “What is the evidence that any such spies have operated in Australia?” After all, we don’t have nuclear weapons or stealth aircraft or other high-profile targets for Chinese espionage. Well, the question of evidence regarding espionage in Australia in general is a strange and elusive subject; and the targets of foreign espionage here are often indirect. Throughout the Cold War, we were seen by the Soviet Union as a prime target because of our close relationship with the United States, Britain and Canada. It is clear that high-level intelligence was going to the KGB out of H.V. Evatt’s office when he was Chifley’s Minister for External Affairs. Several of his staff, including Alan Dalziel, have always been suspected of being Soviet spies. Des Ball, one of the leading specialists on Cold War intelligence matters in Australia, recently gave it as his opinion that John Burton, Secretary for External Affairs, and even Evatt himself, may have been spies and were certainly fellow travellers indulgent of actual spies in their midst.

In 1981, CIA veteran Ted Shackley told Brian Toohey that Australia had been more deeply penetrated by the Soviets than any other Western country. Think about that. He was convinced that there was a high-level Soviet mole in either Defence, Foreign Affairs or the office of the Prime Minister at that time. A decade later, Oleg Kalugin, a former KGB head of counter-intelligence, wrote of having had a mole in ASIO. And these moles were interested chiefly in Australia as a key regional ally of the United States.

There can be no serious doubt that Chinese espionage in Australia in our time, like Soviet espionage during the Cold War, is directed at US secrets confided to the Australian government; at the nature of the Australian alliance with the United States; and, of course, also at inside information regarding commodities trade and the Australian economy. There is also relentless pressure on Chinese dissidents in exile, whether they are democracy and human rights activists, Tibetans, Uyghurs or Taiwanese.

Fear of espionage has, for a hundred years, been prone to stir up popular fantasy and paranoia. I do not seek to stoke any such fire. I do believe, however, that Chinese espionage is a serious issue. I am not inclined to believe that our intelligence services are on top of the problem and I have no confidence in the willingness or capacity of our diplomatic cadre or immigration officials to stand up against any but the most blatant Chinese offences. It has been refreshing, however, to see that, based on warnings from ASIO, the government has banned Huawei from bidding for involvement in the NBN project, over the hypocritical objections of Beijing.

For the most part, of course, the MSS does not commit “blatant” offences. It knows its business well, as I trust my handful of anecdotes showed. Rather, however, than use all these points as a platform from which to declare that we need to double and redouble our counter-intelligence budget, I prefer to ask a provocative question: How much does this espionage really matter, when all is said and done? I ask that question because, as a moment’s reflection will remind you, despite the scale and success of Soviet espionage, the West won the Cold War. And it was not counter-intelligence and espionage that won it for us; though the role it did play is fascinating to ponder.

We need to be realistic about the challenge we face, without becoming paranoid. Many years studying the history of Western intelligence and working inside it have left me with the belief that, all things considered, the secret world is considerably over-rated. Too much is kept secret and the whole game of secrecy feeds on itself. The books of William Burrows—Deep Black (1986) and By Any Means Necessary (2001)—are excellent inquiries into the work of America’s U-2, SR-71 and KH-11 aerial and satellite surveillance programs of the Cold War. The Soviet Union was seen, by many of the most senior officers who ran these programs, as so malevolent and so secretive that enormous expense was justified in spying on it, just as almost unlimited expense was said to be justified in building up a nuclear arsenal to intimidate it. Even so, there was much that was never learned and much that was misinterpreted. The system that was supposed to guard us fed paranoia on the Soviet side and more than once came perilously close to triggering thermonuclear war. Meanwhile, the CIA, shaped by Dulles to be as ruthless and secretive as the KGB, engaged in activities that often reflected very badly on the United States. I have studied those activities.

The Soviet Union fell, in the end, because of its own economic, social and political deficiencies. Our task in the years ahead is not to stop the Chinese from spying on us, but to manage our economic and political affairs better than they manage theirs. The Chinese intelligence services are less efficient and less cohesive than fable and imagination might make them seem and they have had some notable strategic failures as well as successes. Consider that, in 1999, the MPS, for all its vast resources and arbitrary powers, failed to give the Communist Party leadership any warning at all before many thousands of Falun Gong practitioners appeared in Tiananmen Square to peacefully protest against the Party’s abuse of its power. Neither the MSS nor MID apparently gave the Party or military leadership any advance warning of North Korea’s first nuclear weapons test. Both failures are said to have alarmed and infuriated the Party leadership. Such failures need to be weighed in the balance against the concern we might well feel about the successes of a Katrina Leung or a Larry Wu-tai Chin.

In any case, the West has done far more damage to itself through economic mismanagement than the Soviet Union or China has ever done to it through espionage. The debts that are now all but bankrupting the United States, the EU and Japan were not caused by Chinese spies. China’s surge in economic growth was not accomplished by China’s spies. Nor will China’s massive thefts avail it very much, unless it is able to become far more technologically creative and unless we in the West continue to fumble the economic football. Sure, China is pouring resources into a huge peacetime military build-up, but the most acute imbalances and shifting balances in the world are those of productivity and solvency. If we are to get our counter-intelligence and defence strategies right, we must keep a sense of proportion and ensure that we fight only those battles that really matter and only when we can win them.

The chief battle, then and now, is economic, and it’s a battle the West is losing. In 2010, Nobel laureate in economics Robert Fogel estimated that, by 2040, China’s GDP will have soared to $US123 trillion, or about eight times the current US GDP; and that China’s gross domestic product will be 40 per cent of world output, or twice the combined output of the USA and the EU. That, he concluded, is what Chinese economic hegemony will look like. At the same time, the US Congressional Budget Office was estimating that US national debt would climb to as much as 700 per cent of GDP by 2080. We live, of course, in a time of such extravagant and alarming projections, including the more alarming climate change scenarios. They should be used to concentrate the mind; they should not be permitted to take it over. I am sceptical of such long-range linear extrapolations. China, as its own premier pointed out publicly on March 14, faces enormous hurdles in the years immediately ahead, and 2080 is a very long way off.

As Yogi Berra famously said, “It ain’t over till it’s over.” Those who know about landmines differentiate between pressure mines and jumping mines. When you step on a pressure mine, it blows off your feet and leaves you crippled and bleeding on the ground. A jumping landmine doesn’t explode when you step on it. It waits until you step off it. Then it pops up to about groin height before detonating. Having accumulated three trillion dollars and euros in foreign exchange reserves and created an economy enormously dependent on exports to the USA and the EU, China is standing right now on a gigantic jumping landmine. Its biggest “intelligence” challenge is figuring out what to do to rebalance its economy and hedge against the weakening of both the dollar and the euro. It faces immense demographic and institutional challenges in the coming decade or two and, as Wen Jiabao candidly stated: China could face an historical tragedy and an upheaval on the scale of the Cultural Revolution if it fails to negotiate these challenges. That, I suggest, is the perspective in which to set both Robert Fogel’s extravagant curve and our own concerns about Chinese spies.

There may, of course, be those who think that we, too, have stepped onto a big jumping landmine: over-dependence on commodity exports to China at the expense of the more balanced and forward-looking development and management of our own economy. They would be correct. Our own greatest intelligence challenge in the years immediately ahead, therefore, is to think this one through. Sure, we would be prudent to keep a watchful eye on economic and strategic espionage by Chinese spies; but we should remember the main game, keep our eye on the prize and understand that the expensive and secretive world of espionage is, as often as not, inefficient, counter-productive and even irrelevant.

Writing after the end of the Cold War, Oleg Kalugin remarked wryly that there may have been some in the CIA who truly believed the KGB was efficient, adroit and masterful, but that those inside it knew it to be corrupt, inefficient, plagued by ideological obsessions and often groping in the dark. We should not allow our judgment to be clouded by myths and nightmares; nor should we imagine that what really counts in the world is secret intelligence. What counts far more is clear strategic thinking and economic efficiency. We are short of both right now—and it’s not China’s fault.