How security concerns threaten China energy deals with Australia and UK

Concerns over cybersecurity and the conflict in the South China Sea are preventing potential new global markets for China from signing on as business partners.

First Look

Australia will bar Chinese bidders from leasing a state-owned power grid, citing national security concerns.

The Chinese state-owned State Grid Corp., and Hong Kong’s Cheung Kong Infrastructure Group both entered bids for a controlling stake in Ausgrid, a state owned electric company with 1.6 million customers, over 99 years. But according to Australian treasurer Scott Morrison, such a deal would not be in the “national interest.”

China has committed significant resources to domestic innovation on its quest to become a world power. But as the nation attempts to expand into new global markets, its ambition to secure core technologies has triggered cybersecurity fears. Chinese hackers, some thought to be state actors, have been named responsible for sensitive data breaches across the globe. The US Office of the National Counterintelligence Executive (ONCIX) has deemed China “the world’s most active and persistent perpetrators of economic espionage.”

As The Christian Science Monitor reported in a January cover story:

China is so relentless because it does not want to get caught in a technology trap, where Chinese producers dominate the low-value end of economic production and continue paying expensive royalties to European, Japanese, and US patent owners. It doesn’t want to be the world’s sweatshop – stuck in a labor-intensive, energy-demanding, environmentally destructive manufacturing economy.

Australian officials have not disclosed specific security concerns, but some analysts suggest that a Chinese-controlled Ausgrid could be vulnerable to cyberattacks from Chinese hackers. In addition, Chinese foreign investment, particularly from state-owned companies, has become increasingly contentious in Australia as China takes a more aggressive stance in territorial disputes in the South China Sea, the Associated Press reports.

The conflict over the South China Sea has caused China's neighbors to be even more cautious in its dealings with the nation, the Monitor reported in May. 

China’s neighbors are alarmed by Beijing’s rising defense budget and its increasingly assertive behavior in the South China Sea, where it has built pinprick reefs and shoals into weapons-ready islands. Their response? To weave a thickening web of new ties among themselves.

From Japan to India, and from Australia to Vietnam, “all sorts of new security configurations have evolved,” says Bonnie Glaser, a regional analyst at the Center for Strategic and International Studies in Washington D.C.

“The issues are real, they’re matters obviously of national security interest to the Commonwealth and elaborating on those obviously would not be in the national interest either,” Mr. Morrison told reporters, according to the Associated Press.

Both companies have until next Thursday to respond to Morrison’s preliminary view. A deal could have funneled more than AUS$10 billion (about $7.6 billion), into Australian infrastructure projects. 

Security concerns have impeded Chinese investments elsewhere, too. British Prime Minister Theresa May has delayed the construction of Hinkley Point C, a nuclear power plant extension in Somerset, England. The plant had been backed by China's General Nuclear Power Corp (GNPC), not to mention billions of pounds in Chinese money.

Some Chinese officials expressed worry that Britain was "closing the door" to potential business relationships between the two nations.

“The China-UK relationship is at a crucial historical juncture,” China’s ambassador to Britain, Liu Xiaoming wrote in the Financial Times. “Mutual trust should be treasured even more. I hope the UK will keep its door open to China and that the British government will continue to support Hinkley Point – and come to a decision as soon as possible so that the project can proceed smoothly.”

It’s too early to determine whether China’s Ausgrid snub was politically motivated. It may simply be that the country’s economic rise has inspired resentment for competing foreign companies.

"It is pretty clear that Australians and local bidders are becoming frustrated that they cannot compete in the bidding process of assets being privatised on the back of premiums Chinese or HK players are willing to pay," Lindsay David, co-founder of LF Economics, told the BBC.

This report contains material from the Associated Press.