Ausgrid: electricity decision fails to shock

Poor Scott Morrison. Public policy storms don’t get more perfect than this. Nor are they generally quite as revealing of the increasingly complex environment in which policies are made these days.

The decision to reject ‘Chinese’ bids from Cheung Kong Infrastructure Holdings and State Grid for New South Wales’ power distribution network is emblematic of the difficulties facing Australia’s beleaguered policymakers. It also helps explain why they are often held in such low regard.

Despite the ritual invocation of the “national interest”, it was even more difficult than usual to say precisely what it might have been in this case. Not only did this issue highlight the frequently dysfunctional and contradictory nature of Australia’s federal system, but there was an equally significant divide between economic and security interests too.

On the one hand, business interests argue the opportunities presented by the rise of China are at least as important as any possible strategic threats. The growth of China’s middle class is simply too important to ignore, and it’s vital not to get China offside by sending negative signals. Given Australia’s historical reliance on foreign capital this argument is especially compelling.

On the other hand, however, security analysts like Peter Jennings argue that Australian policymakers need to resist efforts by their Chinese counterparts and representatives in this country to shape the debate here. Even more ominously, Jennings warns of the possibility that China might have the capacity to shut down parts of Australia’s power grid if they wanted to.

The very possibility that China – or entities close to the Chinese state – might consider doing so could cause policymakers to think twice when contemplating a more robust response to China’s expansionist policies in the South China Sea, for example. For supporters of Australia’s alliance with the US this represents a potentially important an unwelcome constraint on our ability to act freely and independently.

Many observers in China already question whether independent Australian action is possible, but for rather different reasons. From a Chinese perspective, Australia is already constrained, but by its loyalty to the US, not China’s possible economic leverage.

Many in China will undoubtedly see this decision as reflecting American pressure and concern about the strategic consequences of Chinese investment in the wake of the decision to lease the Port of Darwin to another Chinese enterprise with close ties to the state.

Whatever Morrison decided to do in such circumstances would be criticised by some powerful and influential voices. A key problem is that it is difficult to demonstrate an unambiguous threat to security as a consequence of any Chinese investment, even in what looks like a “strategic” asset. Security types will always suggest that we can’t take chances and it’s better to err on the side of caution.

Perhaps it is. But many in China will undoubtedly ask why such national interest concerns aren’t raised when the investment comes from just about anywhere else.

It will be hard to present this decision as not being all-about-China. The widely held view that there is something very non-transparent and possibly sinister about the way some Chinese state-owned enterprises go about their business, especially when it involves technology and/or strategic investments has clearly carried the day.

The question now is whether this will actually make it more difficult to reject subsequent decisions about “sensitive” investments in the agriculture sector, for example. The fact that they are sensitive primarily because the Nationals think they are, and because a weakened prime minster doesn’t want to encourage internal critics, doesn’t make them any less consequential.

The only people enjoying all of this may be students of contemporary Australian policymaking. This decision captures in microcosm the complex reality facing Morrison and his counterparts elsewhere.

When economic and geopolitical interests collide, and when there is consequently no easy, uncontroversial “national interest” to invoke that passes close scrutiny, any decision will be sub-optimal, as the economists say.

A serious and informed debate about exactly what a country like Australia’s “national interest” actually is might be very useful in the wake of this decision. A clear set of universally applicable guidelines for the Foreign Investment Review Board to apply in a neutral way might help to deflect accusations of xenophobia and insularity.

Until such a framework is developed, we can expect to hear plenty of grumbling from our most important trade partners.