The newly elected government of Australian Prime Minister Malcolm Turnbull is set for its first big test on foreign investment, with two Chinese companies bidding for control of the country’s largest electricity network.
State Grid Corporation of China and Hong Kong-based Cheung Kong Infrastructure are expected on Monday to submit separate bids of more than A$10bn ($7.47bn) for a 50.4 per cent stake in Ausgrid in a privatisation that is unlikely to attract a local bidder. But the sale of the New South Wales electricity distribution company is drawing sharp criticism from independent politicians, who have gained influence in parliament following a knife-edge election on July 2.
“State Grid is China’s biggest state-owned company. Any sale to a foreign government-owned company should raise significant national interest concerns,” said Nick Xenophon, a senator whose eponymous party is likely to win three seats in the upper house of parliament.
In a letter to the government seen by the Financial Times, Mr Xenophon expressed concern about State Grid’s market dominance if its bid was successful. He also asked whether Canberra had sought the advice of the intelligence and defence forces in relation to the proposed sale, adding that he intended to table a bill to tighten Australia’s foreign investment rules when parliament resumed.
Bob Katter, a Queensland MP with a fondness for guns, cowboy boots and social conservatism, also criticised the proposed sale of Ausgrid, warning that Australia risked becoming “an economy for imperial China”.
Chinese investment in the US, Europe and Australia has hit record levels, underlining Beijing’s growing importance as a driver of global growth and source of inward investment. But it is prompting scrutiny from regulators, including in Australia where Scott Morrison, treasurer, recently blocked the sale of the vast S Kidman & Co cattle farm to a Chinese group.
Some analysts warn that the election of 10-15 independent and minor party Senators, who will hold the balance of power in the upper house, will heighten pressure on the government to tighten scrutiny of foreign takeovers.
Lynne Chester, lecturer in political economy at the University of Sydney, said Chinese deals tended to attract much more public and political attention than investment from other countries. She also said the concerns of Mr Xenophon and Mr Katter rang hollow given that State Grid already had investments in energy networks in South Australia, Victoria and Queensland. The power to approve deals rested with the treasurer and not parliament, she added.
“Katter and Xenophon can grandstand but they can’t block anything,” Ms Chester said.
Mr Morrison’s spokesman said the government had strengthened Australia’s foreign investment rules but would not comment on the sale of Ausgrid.
In March Australia tightened its foreign takeover rules to ensure all sales of ports, electricity networks and other public infrastructure were scrutinised by the Foreign Investment Review Board. This followed the contentious A$506m sale to China’s Landbridge Group of a 99-year lease on Darwin port — a strategically important area as US marines are stationed at a nearby naval base — without a formal review by Firb.
The New South Wales government, which is selling the 50.4 per cent stake in Ausgrid, told the FT that it had had extensive engagement with Firb throughout the process. Last year, the treasurer sanctioned NSW’s sale of TransGrid, the state’s electricity grid, to a consortium backed by Canadian and Middle Eastern investors for A$10.3bn.
Canberra is treading a fine line between responding to public concerns about a surge in Chinese investment while attracting investment that can spur growth and innovation.
“Australia cannot meet its infrastructure funding needs without foreign investment — and that’s always been the case,” said Tom Butcher, co-head of infrastructure at Bank of America Merrill Lynch. “Chinese investors in Australian infrastructure are typically industry players who are bringing their expertise and know-how to Australian assets. They’re not just financial investors.”
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