China's list of grievances against Australia was "a massive own goal" by the great power, the outgoing Foreign Affairs Department secretary Frances Adamson has said.
The former ambassador to China also said the regional power remains dogged by insecurity and holds a deeply defensive mindset in dealing with other nations.
In an address to the National Press Club in Canberra on Wednesday, Ms Adamson spoke frankly about China, saying the regional power was too ready to suspect other nations of attempting to contain it, instead of judging issues on their individual merits.
"Few really grasp that this great power is still dogged by insecurity as much as driven by ambition," she said.
"That it has a deeply defensive mindset - perceiving external threats even as it pushes its interests over those of others.
"I always find it useful to remind myself when faced with strident official representations that the pressure exerted outwards on other countries must also be felt within, at an individual level, by those subject to that system.
"Insecurity and power can be a volatile combination; more so if inadvertently mishandled. We need to understand what we are dealing with."
Asked about the list of "14 grievances" against Australia released by China last year, Ms Adamson said it had backfired on the great power, including at the recent G7 summit in Cornwall.
"It was a massive own goal by China," she said.
"I couldn't understand why they did it, and I don't know that they really understood themselves exactly what they were doing with that list.
"I think it's played very negatively for them, and most recently in Cornwall."
Despite China speaking of a "new type of international relations", as if it was fairer, the nation's approach was actually "the same old power politics, the raw assertion of national interests", she said.
"The implication being that China's size and strength make its interests more 'special' than those of others, and that these must prevail," she said.
Ms Adamson said the reduction in the number of Western journalists in China would lead to less understanding about the nation.
"This siege mentality - this unwillingness to countenance scrutiny and genuine discussion of differences - serves nobody's interests," she said.
"It means, among other things, that China is undergoing a steep loss of influence in Australia and many other countries."
Ms Adamson said the task of incorporating a more powerful China into a regional order where the rights of others were respected, and counter-balancing that power when those rights were not, would be a challenge for decades to come.
The Department of Foreign Affairs and Trade secretary said the time since 2013, when Xi Jinping was elevated to president, had arguably brought the most consequential change to China.
"The clock has been wound back in terms of the priority accorded to ideology, quashing voices of civil society, and erecting new barriers to external connections and the free flow of information."
Ms Adamson warned against demanding a uniformity of viewpoint in Australia on dealing with China, saying open debate was a hallmark of a liberal system and that the best policy came from contestability.
"This is as true of the China challenge as it is of economic or social policy."
Ms Adamson, who finishes her role at DFAT this week, will become South Australia's next governor.
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