The Ausgrid logo is displayed on a sign in Sydney, Australia, on Wednesday, March 23, 2016. While State Grid Corp. of China is hardly a household name, its geographic footprint extends from South America to Australia, where it's a contender to acquire a stake in Sydney-based power network Ausgrid. Photographer: Jeremy Piper/Bloomberg
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Australia moved to block the A$10bn-plus ($7.7bn) sale of a controlling stake in the country’s biggest electricity distribution network to two Chinese companies on national security grounds.

The preliminary decision reflects public and political unease over the scale of Chinese investment in critical infrastructure and farm land in Australia — echoed around the globe — that has intensified following the recent election.

“In particular, during the review process national security issues were identified in critical power and communications services that Ausgrid provides to businesses and governments,” Scott Morrison, Australia’s treasurer, said on Thursday.

“I am, of course, open to consider what the bidders put to me, but at this stage no suitable mitigations have been identified that would, for the proposed transaction structure, appropriately address the identified risks,” he added.

Mr Morrison insisted to reporters that the government remained positively disposed to foreign investment despite the decision to block the transaction. The stake is being offered by the state government under a 99-year lease

State Grid Corporation, which is owned by the Chinese government, and Hong Kong-based Cheung Kong Infrastructure, which is controlled by tycoon Li Ka-shing, have each submitted bids of more than A$10bn ($7.47bn) for a 50.4 per cent stake in the New South Wales electricity group Ausgrid. No local bidders took part in a privatisation process that has been thrown into disarray by the decision.

In a statement responding to the decision, CKI said: “We believe that the Australian government must have reasons beyond the obvious which led them to make today’s announcement. The issue is unrelated to CKI.”

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 Mr Morrison recently blocked the sale of the vast S Kidman & Co cattle farm to a Chinese group.

The proposed sale of Ausgrid has drawn sharp criticism from independent politicians, a bigger voice in parliament following July’s knife-edge election that gave the government a single-seat majority. Pauline Hanson’s One Nation party and the Nick Xenophon Team, which control seven seats in the Senate, have both publicly opposed the sale of Ausgrid to foreign buyers.

“This decision may herald the start of the coalition’s rollback on openness to foreign investment and free trade due to the new political realities in parliament,” said Duncan McDonnell, politics lecturer at Griffith University.

The New South Wales government said it was confident another buyer could be found in time for the next state budget to record the proceeds of the transaction. But given the lack of local bidders, the sale process is likely to be delayed and raise less cash.

Australia’s business lobby and some politicians are becoming increasingly concerned that foreign investment has become a political football, which risks damaging the economy.

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