By Rob Taylor
CANBERRA (Reuters) - Australian Prime Minister Kevin Rudd told military officials on Thursday to explain if they secretly spied on his defence minister because of a close friendship with a Chinese-born businesswoman.
The Age newspaper said Defence Minister Joel Fitzgibbon was covertly investigated over ties to wealthy Chinese-Australian woman Helen Liu, 48, who has past financial links with Beijing.
Rudd said he had spoken to military chiefs, who launched an investigation into the accuracy of the report which could embarrass the government at a time of political sensitivity about Chinese investment in Australia.
"I'm advised that neither the secretary of the Defence Department nor the Chief of Defence Force staff have received any such reports," Rudd told reporters in Washington after visiting the Pentagon.
In the course of the secret probe, an official from the Defence Signals Directorate hacked into Fitzgibbon's office computer and found Liu's banking details, the Age said. Fitzgibbon rents a home from her family in Canberra.
"No one had ever raised any concerns with me about the relationship and if anyone had concerns about the relationship, they should have come forward and shared them with me," a furious Fitzgibbon told reporters in Sydney.
INQUIRY ORDERED
Defence department chief Nick Warner and military commander Air Chief Marshal Angus Houston ordered an inquiry into whether a probe into Fitzgibbon had been authorised.
Fitzgibbon said the covert probe may have been linked to his drive to reform defence spending, which has made some sections of the military unhappy. A refocus in spending is due within weeks.
Australia has begun a A$65 billion (31.2 billion pound) military modernisation, including new missile destroyers, fighter aircraft, tanks and aircraft carriers, but faces the prospect of budget cuts ahead of an expected recession.
The secret probe called into question the behaviour of some of the country's most sensitive security agencies, said former defence official and security analyst Alan Behm.
"It is not for a public service department to unilaterally undertake a review of its own minister or of the government. When that starts to happen, then we begin to erode fundamentally the principles by which we govern ourselves," Behm told state radio.
The report comes at a sensitive time for Australian-Chinese relations, with Canberra's foreign investment watchdog scrutinising applications by state-owned Chinese firms to buy into Australian resource companies.
Several lawmakers have called for the applications to be blocked, running national television advertisements.
Rudd, a Mandarin-speaking China expert, was criticised by newspapers at the weekend for lunching in secret with China's fifth most powerful ruling party member, propaganda chief Li Changchun, at his Canberra home.
Helen Liu has been a financial supporter of the ruling Labor Party in New South Wales state for a decade, with two of her former property development companies donating about A$90,000.
(Editing by Paul Tait)