Australia, one of the most China-dependent economies outside the developing world, is beginning to curb investment from the Asia-Pacific titan. China accounts for 30 percent of Australia's trade, in addition to investing in key sectors. But this reliance has long caused ripples of controversy, because it touches on the deeper fears of isolation and of foreign control arising from Australia's geopolitical position. Amid a roiling controversy over Chinese influence over Australian politicians and parties, the country unveiled tighter restrictions on investments, citing national security concerns while turning an eye toward China.

 

The new restrictions would focus on investments in farmland and the electrical grid. Government figures from October showed a spike in Chinese investment in agricultural land, rising from 1.5 million to 14.5 million hectares (from 3.7 million to 35.8 million acres) — creating controversy and calls for scrutiny. China has also been keenly interested in utility investment. The state-owned State Grid Corporation of China owns minority stakes in the transmission company ElectraNet in the state of South Australia and in AusNet Services in the state of Victoria. It also has a controlling share of Jemena, which operates transmission and natural gas pipelines in the states of Queensland, New South Wales and Victoria. 

 

After the controversy in 2015 over the leasing of the port at Darwin to a Chinese company, the federal treasurer increased scrutiny of Chinese investment deals. In 2016, the treasurer blocked bids by the State Grid Corporation of China and Cheung Kong Infrastructure Holdings of Hong Kong for a controlling share of Ausgrid, based in the state of New South Wales. Instead, the electrical network company went to Australia's two leading pension funds. And in April 2016, the treasurer blocked the purchase of the S. Kidman & Co. Ltd. cattle operation, which covers 101,000 square kilometers (39,155 square miles), by China-based Hunan Dakang Pasture Farming Co. Ltd.

 

Abetted by the national furor over Chinese influence, the new rules would strengthen and formalize this scrutiny. Deals would be subject to mandatory examination by the treasurer along with the Foreign Investment Review Board and the Department of Home Affairs. The rules on electrical company investment would apply to transmission, distribution and some generation. On agriculture, they would require proof that farmland worth over $12 million had been marketed widely to locals for 30 days before it could be offered for sale to foreigners. 

 

But Australia does not want to push China out; it only wants to shape its purchases in a way that complements its national interests. For example, while the Kidman sale was blocked by the treasurer, the land later went to a consortium that has Shanghai CRED of China as a minority owner. The new rules also do not touch the major targets for Chinese investment: energy and mining. These two sectors accounted for 70 percent of investment since 2005, although mineral investment has tapered off substantially since 2014. These rules are simply fail-safe measures for vulnerable sectors and are not comparable to the potential U.S. "national security" trade retaliation measures. With the United States leading the way on anti-China trade measures and with Australia knitted into the Western defense architecture, Canberra will have to tread carefully. To continue reaping benefits from both relationships, Australia will have to walk a tightrope and avoid imperiling its broader strategic position or its domestic political balance.