It’s time to clear the clutter on foreign investment policy
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It’s time to clear the clutter on foreign investment policy

Originally published in The Australian.

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Executive Summary

Scott Morrison used the rarely exercised power under the Foreign Takeover and Acquisition Act to block both Chinese and Hong Kong bidders from acquiring a significant stake in Ausgrid on national security grounds.

Without the benefit of seeing the relevant intelligence briefings, we can only trust the Treasurer has made the right call based on sound advices from spy agencies.

The most troubling aspect of the Ausgrid decision is not about the rejection of Chinese and Hong Kong bidders, but how the government handled the whole process. National security concerns about Chinese state-owned enterprises buying critical infrastructure are nothing new and especially after the heated national debate over the lease of Port of Darwin to a Chinese company.

This issue should have been addressed upfront before these two Chinese companies were even allowed to start the bidding process. Yet, all evidence seems to suggest the government had created this impression that Chinese and Hong Kong bids could proceed.

As revealed by The Australian on the weekend, the chairman of the Foreign Investment Review Board Brian Wilson actually phoned potential bidders, including the two Chinese firms, and said there were no restrictions on any of the bidders in the process.

A lawyer who was closely involved in the bidding process said the Chinese bidders thought all ­issues could be addressed through FIRB conditions.

Given the serious nature of national security concerns, both Chinese and Hong Kong bidders should not have been allowed to lodge their bids in the first place. Yet, they were given the green light and nudged along in the process. After State Grid and Cheung Kong Infrastructure spent tens of millions on fees for bankers, accountants and other financiers who worked on the deal, they got rejected at the end.

The government should be clear about its intention from the beginning. It is unfair to let businesses go through the bidding process when you know they poses national security risk.

The way Canberra handled the bidding process is symptomatic of a larger and more serious issue about our confusing foreign investment policy. Given international interests in high-quality Australian infrastructure assets, the government should clearly and carefully spell out its policy.

If there is one thing businesses hates more than restriction, it is ambiguity. Grant Dooley, who runs Hasting Infrastructure’s Asian business and a former consul-general in Guangzhou, made this point at the recent Lowy Institute AMP China Lecture.

He said: “I think we need to give them early enough guidance. All the Chinese want to know is where are all goal posts. I don’t want to spend $3m on due diligence and then suddenly find all goal posts have changed. Investors just want a transparent process and it is as simple as that.” The current decision bears an eerie similarity to another FIRB debacle in 2009, when the then executive director of FIRB, Patrick Colmer, gave an important speech on foreign investment concerning Chinese investment into mining industry. He said the government “is more comfortable when we see investments that are below 50 per cent for greenfield and below 15 per cent for major producers”.

Everyone in the market interpreted the speech as a major shift in the government’s position and the talk had generated a lot of controversy. The then treasurer Wayne Swan refuse to endorse ordisclaim Colmer’s speech and the director himself went into radio silent mode. The government even refused to publish Colmer’s speech and it was eventually released after laborious Freedom of Information request.

Like the Ausgrid decision, the government at the time didn’t want to make its intention clear from the onset. The result was utter confusion in the marketplace. At the moment, Australia has a lot of critical infrastructure on the auction block. The federal government should release a guideline for foreign investors.

It should not be shy in saying state-owned enterprises are only allowed to make a minority stake in critical infrastructure and they must partner with Australian partners to bid for assets. It could also specify the operation of critical assets must be in hands of security-cleared Australian entities.

No government can be criticised for looking after its own national security. However, it is a different story if the country creates false expectations by being vague on its own foreign investment policy. Canberra needs to set clear goal posts on what foreign investors can and can’t own and communicate the policy clearly to potential investors.


Peter Cai is a research fellow at the Lowy Institute

Areas of expertise: China's economy; China's diaspora; the Belt and Road Initiative