Australia isn't the only country that is sensitive about Chinese foreign investment, but excluding the Chinese and Hong Kong bids from the Ausgrid tender highlights an inconsistent and opaque process.
In Britain, new Prime Minister Theresa May has put a last-minute hold on the agreement for Hinkley Point nuclear power station. One of her advisers expressed concerns about security implication of Chinese funding. An exasperated Chinese ambassador vented his frustration in the Financial Times.
Meanwhile, Germans are having doubts about the Chinese purchase of the cutting-edge robot manufacturer Kuka. The technology transfer to China could result in the Chinese dominating the global market.
Australia has benefited greatly from foreign investment and is "open for business". But rejecting proposals is nothing new. Treasurers have knocked back China's bid for a bigger stake in Rio Tinto, a US bid for Graincorp, Singapore's bid for the Australian Securities Exchange and a Chinese bid for the Kidman cattle properties.
Security was an issue only in the last case, and that was a surrogate for other concerns about "selling the farm". Other deals that might seem sensitive were waved through: Singapore's purchase of Optus and the Chinese long-term lease of port Darwin.
More puzzling still, both the vetoed bidders already have extensive infrastructure ownership in Australia
No clear principles emerge from this experience. The "national interest" criterion is nebulous. It leaves the decision open to influence by those with loud voices and narrow views, and leaves foreigners genuinely flummoxed - and upset.
Our two economies have great synergy because of their differing comparative advantage. How well we work together will have a big bearing on our future prosperity. We need a more structured FIRB process, not an ill-informed outcry every time a new proposal is made.
Of course the approval process should include serious analysis of security risks. In doing this, let's try to put a bit of realism into these ill-defined arguments.
Let's be transparent about the criteria. In most cases, the owners of vital services (whether power grids or ports) can't do us much harm without doing much more harm to themselves. After all, the physical infrastructure is in Australia, subject to our laws and regulations. China could do more harm by closing down imports from us.
Instead of the negative process of looking for detrimental characteristics, the Foreign Investment Review Board should ask foreigners to show why their proposal has significant positive benefit for Australia.
Do the foreigners bring special expertise in technology or management? Are they ready to partner with Australians? Are they taking over an "Aussie icon"? Are they ready to pay a fair amount of tax in Australia, not arranging their affairs to have profits accrue in tax-avoidance centres like Ireland or Singapore?
Does the proposal open up markets in the foreigner's home country? This should be particularly relevant for China, which needs supply-side security in basic commodities - minerals, energy and food. How can they help us break into their huge market? If these benefits were articulated clearly, the cost of rejecting projects would be apparent. If the benefits aren't convincing, then maybe the proposal should be rejected, without needing other grounds.
The trickiest issue is to articulate why we might discriminate between different foreigners on the basis of "community concerns". This has something to do with not wanting to be dominated by overly powerful foreigners. China is huge relative to us, and even modest proposals can overwhelm us: "The elephant in the canoe." But why would we allow US or British bidders yet reject one from China?
China is just at the start of its global integration: these dilemmas are not going to go away. As Australians see more Chinese ownership of real estate, agricultural land, mines and infrastructure, managing this nationalist push-back will be a challenge.
Chinese projects will be rejected on essentially emotional grounds, just as they have been in the past.
Stephen Grenville is a non-resident visiting fellow at the Lowy Institute for International Policy.