21 September 2015
by John Kehoe

Washington watching Prime Minister Malcolm Turnbull over China, regional security

Washington and Wall Street are watching the new Prime Minister closely, with the possibility of shifts in policy affecting relations with China, regional security, trade and foreign investment.

In the United States capital there is an open question about whether Malcolm Turnbull will operate a foreign policy more independent of the US and tilt Australia closer to China.

Behind the scenes in intelligence and security circles, Turnbull's close ties to China through years of business, family and political dealings are a point of chatter.

The new Prime Minister was warmly welcomed to office by US President Barack Obama via telephone last week. They discussed "mutual-interest" issues, including regional security, concluding the Trans-Pacific Partnership trade accord and the fight against Islamic State.

Turnbull has deep connections in American politics and business, dating back to his reign as a Goldman Sachs partner in the late 1990s.

Similar policies
Chris Johnson, a former Central Intelligence Agency senior China analyst, who liaises regularly with senior government figures in Washington, Beijing and Canberra, says there is an expectation Turnbull will continue with similar policies to Tony Abbott on US alliance issues like defence, trade and existing military actions in the Middle East.

"On China, it depends who you talk to," says Johnson, now a senior adviser at the Centre for Strategic and International Studies. "Some would say he has a more balanced view, others would say he leans to one side."

Turnbull, who has a deep interest in international affairs, is definitely a supporter of the long-standing US-Australia alliance. His wife Lucy is deputy chairwoman of the US Studies Centre.

Turnbull's multilateral instinct and less-hawkish views of China, including creating room for Beijing to play a greater role in international institutions, while encouraging it to conform to international rules, are broadly in line with the Obama pivot to Asia.

The two leaders share similar views on climate change and gay marriage.

But historically the main game in the US-Australia alliance is defence, security and intelligence gathering.

The Pentagon and political conservatives like presidential aspirant Marco Rubio take a harder line against China, particularly since its heightened aggression towards neighbours in disputed water in the South China Sea. Turnbull has said China's actions on the reefs and islands are "counter-productive".

Strong advocacy
On the other hand, Turnbull's strong advocacy as Communications Minister to overturn a ban on Chinese telecommunications giant Huawei from building the National Broadband Network was certainly noticed among senior US officials, sources say.

He deemed it a "very credible business", in contrast to the US, which banned the firm from bidding for government contracts because of espionage concerns.

The US is angry about alleged widespread cyber hacking and intellectual property theft by state-owned Chinese firms. It will be a point of contention when President Xi Jinping visits Obama at the White House this week.

Turnbull would not condone such behaviour. But in a speech during Australia-China business week in August he chose instead to hail China's innovation and derided criticism of its "copycat" manufacturers, saying "China now accounts for 50 per cent more patent applications per year than the United States".

Little wonder intelligence officials in the US and Canberra are watching on with great interest on where Turnbull lands on security matters.

Australia's sophisticated spying in the Asia region is its main currency with Washington, which in return guarantees national security to Canberra.

Those who have spoken to Turnbull, a lawyer and libertarian at heart, have the impression he does not trust intelligence agencies totally because of their potential ulterior political and economic agendas.

Small inner circle
It is said Turnbull does not trust anyone fully apart from his wife and a small inner circle of confidants. Perhaps it's a hangover from when his employer Kerry Packer allegedly threatened to kill him after their relationship soured.

Adding to the intrigue, Turnbull's informal speech to dozens of outsiders at the Australian embassy in Washington in 2014, when he openly lamented the huge damage to Australia from leaks by US National Security Agency contractor Edward Snowden, raised some American eyebrows.

Some would have preferred he limited his concerns to behind closed doors, despite being within his rights to point out the damage.

The US put Australia in a difficult position with Indonesian political leaders, who Snowden revealed Canberra spied on.

Abbott was angry about the leaks, though his public commentary was restrained.

Turnbull views the Snowden affair as a giant wake-up call for intelligence gathering.

The tech-savvy Turnbull believes that in the age of vast amounts of data and classified information capable of being sprayed around the internet via activists such as WikiLeaks, a new cost-benefit analysis is required on gathering and storing intelligence.

Suffered commercially
The businessman inside the former communications minister is acutely aware that US tech firms like IBM and Cisco Systems suffered commercially in China, because the Snowden affair raised perceptions that American hardware vendors were leaving backdoors open for NSA spooks.

More broadly, Turnbull, a serious student of world affairs, does have big admirers in powerful Washington circles.

Perhaps no one is more optimistic about his ascension than Kurt Campbell, the former assistant secretary of state for East Asian and Pacific Affairs and one of the architects of the Obama administration's Asia pivot.

"He will be an impressive force on the international stage and elevate Australia's role," Campbell says.

Campbell has enjoyed numerous discussions with Turnbull about geopolitics, world economics, technology and the huge potential of India.

Acknowledging it is "undeniable" that Turnbull has close ties to China, Campbell refutes suggestions the new Prime Minister will tilt Australia away from the US, arguing it "could not be further from the truth".

"That is so simplistic and runs counter to how the Prime Minister will want to maximise relations with Washington, Beijing, Jakarta and the rest of Asia.

Maintained friendships
"He knows the rest of south-east and north-east Asia well and he has maintained friendships, business and personal ties with the United States for years."

Turnbull knows John Podesta, a former senior adviser to presidents Bill Clinton and Obama and current chairman of Hillary Clinton's presidential campaign.

His friendship with Campbell, a close ally of Hillary Clinton, would hold the bilateral relationship in good stead if she becomes president.

Turnbull has developed friendships with key fundraisers for Republicans and Democrats. He also spent plenty of time in Silicon Valley, encouraging technology executives to set up regional headquarters in Australia.

A renowned networking prowess has enabled Turnbull to maintain relations with investment banking peers, including financiers who have served in senior roles in US administrations. Former US Treasury secretary Hank Poulson was the global head of Goldman Sachs when Turnbull was the firm's Australian chairman. For years, Turnbull has been seen showing up at events and dinners in New York, where the Turnbull family owns an apartment.

Former Goldman colleagues are not surprised at his ascension.

Larger ambitions
"He was a highly successful investment banker, but you had the impression he had larger ambitions," former American colleague Peter Rose says.

Turnbull hosted in 2014 the chairman of global investment management giant Blackstone Group, Stephen Schwarzman, at his harbourside home at Point Piper in Sydney. China would almost certainly have been discussed.

The Schwarzman Scholars program sends young westerners for a one-year master's degree at Tsinghua University in Beijing.

Like Turnbull, billionaire Schwarzman contends that understanding China's role in global trends will be critical for business and political leaders.

Similarly, Turnbull's background as a banker and internet entrepreneur explains why his holistic view of international relations is heavily influenced by economics.

As Asia and defence scholar John Lee notes, Turnbull has eloquently explained how the advent of new technologies like 3-D printing and automation could revive manufacturing in developed economies, but cost jobs in low-cost manufacturing countries like China, Thailand and Vietnam. Such a disruption in Australia's neighbourhood could have big implications at home.

"There are very few leaders on the world stage who understand technology and how the role of the state is evolving as effectively as Turnbull," Campbell, now chairman of The Asia Group in Washington, says.

Economic reform essential
Turnbull's numerous speeches on China make clear that he sees more economic reform as essential for Beijing to successfully integrate into the world economy and to avoid political upheaval.

Pointedly, in a speech in August, Turnbull said China was Australia's "most important" economic partnership, given its huge demand for our commodities and education services.

It was a direct contradiction to Foreign Affairs Minister Julie Bishop, who has publicly stated, very deliberately, the US is Australia's closest economic partner because of its large foreign direct investment.

Hence, Americans will welcome Bishop's retention as deputy leader and Foreign Minister, to assist with continuity in strong relations.

Turnbull will probably want to avoid being drawn into a deepening strategic rivalry between Australia's enduring defence and economic partner in the US and its new-age economic partner in China.

"It's a more natural position for Australia, given the trade connections to China," Washington-based CSIS south-east Asia adviser Ernest Bower says.

Turnbull is sensitive to suggestions he is soft on China and most in Washington do not view him as overly dovish. He has sought to hose down suggestions he is a subscriber to the more extreme school of thought of Hugh White, who has urged Australia to become less dependent on Washington because of China's meteoric rise.

China has never liked the security relationships the US has with Australia and other Asian countries, and would surely see the promotion of Turnbull as an opportunity to test weakening such linkages.

The early days of the Turnbull government are unlikely to lead to a dramatic foreign policy shift. It would be almost unthinkable for the 2500 US marines rotating through Darwin to depart, or that Australia will pull back from military commitments Abbott made in Iraq and Syria.

The real litmus test will take time, as Turnbull the Prime Minister makes new decisions on issues not inherited from Abbott.

An early test will be how the government responds to the sale of Kidman pastoral properties near the sensitive Woomera rocket range in South Australia. Two Chinese bidders have been shortlisted and AFR Weekend revealed on Saturday that national security concerns had been flagged.

On other foreign investment matters, US companies such as agribusiness Archer Daniels Midland which had its $3.4 billion takeover of local grain-handler GrainCorp blocked by the Abbott government in 2013, may be encouraged to think a more free-market oriented Turnbull would look more favourably upon any future buyout proposals.

More broadly on geopolitics, as Turnbull well knows, it will not be a simple black and white choice between Washington and Beijing. Turnbull's posture in the multi-polar world will be far more nuanced as he seeks to become "closer friends of both these giants" and draw closer to other countries in the region, including India.

In the meantime, Turnbull's appointment of Marise Payne as defence minister and surprise appointment of Joe Hockey to succeed Kim Beazley as ambassador in Washington will be closely examined.

Even more keenly observed from the US will be how Australia's 29th prime minister positions Australia with Washington, Beijing and Asia.