China and the World

Darwinian instinct

Australia sends out mixed signals on investment review process

Obama talks with Turnbull at a meeting with Trans-Pacific Partnership leaders, alongside the APEC Summit in Manila

“Malcolm, we’ve got to talk”: Obama is said to be unhappy about port deal

Three major Chinese investments in Australia – or attempts thereof – have come under intense scrutiny in the past week. The first is a bid by a private Chinese firm to buy a cattle farm; the second is the reported refusal to allow the State Grid Corporation of China to join a deal to privatise the New South Wales electricity grid; and the third is an agreement by the state government to grant the Chinese company Landbridge a 99-year lease of the Port of Darwin in the Northern Territory.

In each case local opposition has been voiced on national security grounds, providing a useful lens on how Australia views China and its rise.

It also casts fresh light on that evergreen conundrum for Australian policymakers: how best to manage their country’s relationships with the world’s two largest powers, the US and China.

Concerns over the port in Darwin stem from the background of the Chinese firm that has leased it. Opponents of the deal have focused on the apparent connection between Landbridge and the Chinese military, including a page on the company’s website that proudly refers to its in-house armed militia.

Prime Minister Malcolm Turnbull went on the defensive over the lease after speaking to President Obama at the APEC meeting in Manila this month. Reportedly, Washington is annoyed, not least because it was not informed in advance. But Turnbull explained: “The Northern Territory parliament conducted an inquiry. I had a committee that looked into it earlier this year and it reported in April and recommended that the… Northern Territory Government consult… with FIRB [Foreign Investment Review Board] and with the Australian Defence Department.”

Peter Jennings, the executive director of the Canberra-based Australian Strategic Policy Institute, told WiC via email that the Darwin dispute is symptomatic of a deeper problem in how the country’s FIRB assesses Chinese bids for Australian assets.

“I think the aggregate volume of potential Chinese FDI is stressing an already broken FIRB system,” he warned. “It’s also the case that Chinese business is qualitatively different because of the nature of the Party system and a lack of transparency in how businesses are managed. It is idle to pretend that this is just ‘business as usual’ where Australian critical infrastructure is concerned.”

Other political leaders have countered that the security concerns about the Darwin deal are overstated, including Trade Minister Andrew Robb. “The fact of the matter is Defence has step-in rights, so if something happens for whatever reason and they want to take control of the port, they can,” he insisted.

Professor Hugh White of the Australian National University says the debate over Darwin also highlights Canberra’s diplomatic challenges in managing its two most important relationships.

This week he told WiC: “Clearly the closer we become to China economically, the more we will face choices between the US and China. Washington is deeply displeased by what has happened, as we must expect. Canberra has been in denial about this, assuring us the ‘we don’t have to choose’, but in fact we face such choices all the time, as the Darwin case shows.”

Previously the Chinese have expressed their own concerns about the American presence in Darwin, after it was announced that a contingent of US marines would be based there.

More recently Beijing protested at the (as it turned out, erroneous) news that B-1 bombers would be stationed there (Washington later clarified that Assistant Secretary of State David Shear “misspoke” when he told a Congressional hearing the aircraft would fly from Darwin).

The case of the Kidman Ranch – the largest cattle station in the country – is different. This time the government blocked the sale to all foreign buyers (including the Chinese) because the cattle station borders on the Woomera Protected Area, a testing site for munitions used by the defence ministry.

Liberal Senator Richard Leyonhjelm, who has an agribusiness background, criticised the decision. “We were promised a rejection of defensive policy – but there is nothing more defensive than a policy driven by fear of the ‘Yellow Peril’. The cattle industry would not exist but for foreign investment,” he wrote in Farm Weekly.

Nick Xenophon, an independent member of the Senate, welcomed the refusal, but called for more clarity about the investment review criteria after “the gobsmacking decision” on Darwin’s port.

“What doesn’t make sense here is that an iconic cattle property is to be kept in Australian hands on national interest grounds. But a key strategic asset like the Port of Darwin is subject to a foreign takeover with barely a whimper from the Foreign Investment Review Board,” he said.

When criticisms of Chinese investment are raised, accusations of racism are rarely far behind. For instance, former leader Tony Abbott warned against such sentiment in countering Labor’s concerns that sections of the China-Australia Free Trade Agreement (ChAFTA) might allow more Chinese workers into the country. But Chinese investors don’t seem to have been much deterred. Acording to KMPG Australia, the Chinese have invested A$70 billion ($49 billion) in Australia in the past seven years, becoming the single largest foreign investor last year.

China is already Australia’s largest two-way trade partner too.

The annual survey on Australian attitudes to the wider world from the Lowy Institute paints a more mixed picture, however. A ‘solid majority’ (77%) see China as ‘more of an economic partner to Australia’ than a  ‘military threat’, while only 15% see China as ‘more of a military threat’. Attitudes seem to be softening too, with a 9-point drop in the percentage of people (39%) thinking it ‘likely’ that ‘China will become a military threat to Australia in the next 20 years’.

Australians also view China as the most important country to them economically, ahead of the US.

But 70% of respondents to the Lowy poll also said that their government is allowing too much investment from China.

“Our historical polling suggests that Australians may have a particular aversion to Chinese investment in residential real estate compared with other forms of Chinese investment in Australia,” the survey’s authors suggested.

The same sense of hesitation seems to apply to purchases of rural land, following a deal between the ruling Coalition (made up of the Liberal Party and the rural-based Nationals) and the Greens to reduce the approval threshold for foreign investment in farmland from projects worth A$252 million to A$15 million.

Buyers from China, Japan and Korea will all be scrutinised by the FIRB, despite signing free trade agreements with Australia in the past 12 months. China’s Ministry of Commerce sees the move as hostile, and an official was quoted as calling it “serious discrimination against China”.

But Australian unease at allegations of Chinese espionage aren’t fully unfounded, says Peter Jennings from the Strategic Policy Institute.

“Beijing is an aggressive intelligence gatherer against Australia in terms of government and private sector interests. I believe there are justifiable concerns about the potential for China to seek to gather information of value to it under the guise of business engagement,” he warns.

Jennings has also been outspoken on State Grid’s bid (made jointly with Australian financial group Macquarie) for Transgrid, the New South Wales transmission business, arguing that it should be treated in the same way as the 2012 decision to block Huawei from a role in constructing Australia’s national broadband network.

A report in the Australian Financial Review last weekend suggested that defence and intelligence officials have recommended the government reject the State Grid bid too.

And on Wednesday the Senate stepped in and ordered a wider review that will encompass Transgrid, Darwin port and the blocked sale of the Kidman Ranch. It will report back on February 4.

Hugh White at the Australian National University says the confusion highlights the need for a fresh perspective on how to handle Chinese investment in Australia (see WiC173 for a review of White’s book The China Choice). “The fears about Chinese investment do clearly reflect a growing sense that China is, or might become, a strategic threat to Australia,” he suggests. “But they also show that Australia has not yet thought through the wider implications of China’s rise.”

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