SYDNEY • Australia upheld its decision to block foreign bidders from buying a majority stake in state-owned power network Ausgrid for more than A$10 billion (S$10.25 billion), triggering a warning from China that the move will hurt bilateral ties.
The deal would go against the national interest, Australian Treasurer Scott Morrison said in a statement yesterday, confirming last week's preliminary ruling that scuppered efforts by government-controlled State Grid Corp of China to buy 50.4 per cent of the electricity distributor. Hong Kong billionaire Li Ka Shing's Cheung Kong Infrastructure Holdings (CKI) was also rejected.
Within minutes of the announcement, China's Commerce Ministry said the ruling will "severely" reduce the appetite of Chinese companies to invest in the country. It also said the decision reflects the uncertainty of the investment environment in Australia.
CKI reiterated comments from last week, saying that Australia made a decision based on "reasons beyond the obvious" that were unrelated to the company. State Grid Corp did not respond to requests for comment.
For Australia, the move risks souring relations with its biggest trade partner, which has accused the government in Canberra of protectionism. It is also a blow to the New South Wales state government, which has spent months negotiating the sale of Ausgrid and may not be able to command the same price tag now that foreigners are blocked from taking a controlling stake.
NATIONAL SECURITY AT STAKE
It's important that the government does take national security concerns seriously when it comes to foreign investment in critical infrastructure.
MR PETER JENNINGS, executive director of the Australian Strategic Policy Institute.
"In making this decision, national interest concerns have been paramount," Mr Morrison said in an e-mailed statement. "We will continue to work closely with New South Wales to ensure that national security requirements are met under any future transaction process."
New South Wales Premier Mike Baird said the state government will "move immediately to relaunch the transaction process" and believes market interest in the asset is strong.
Mr Morrison's announcement comes as Australia balances the need for foreign investment to drive economic growth against mounting public opposition to sales of farmland, real estate and strategic infrastructure particularly to Chinese investors.
Despite overseas capital being vital to Australia's future expansion, the government is arguably making it harder for foreigners to invest.
Last year, it tightened scrutiny of sales of farmland to Chinese, Japanese and South Korean buyers. The government board that vets investments now includes a former spy chief.
The prospects for Chinese suitors haven't improved since the July 2 election saw protectionist independent or minor party lawmakers elected to the Upper House, the Senate.
The National Party, the junior partner in Prime Minister Malcolm Turnbull's coalition, which has been a vocal critic of investment by Chinese state-owned companies, also has a bigger voice in the government now.
Mr Peter Jennings, executive director of the Australian Strategic Policy Institute, said he supported Mr Morrison's decision to bar foreigners from taking a majority stake in Ausgrid, which supplies power to 1.6 million homes and businesses in and around Sydney.
"It's important that the government does take national security concerns seriously when it comes to foreign investment in critical infrastructure," he said.
He expressed concern, however, that the vetting process carried out by the government's Foreign Investment Review Board lacks transparency and appeared ad hoc at times.