The Chinese Bearing Gifts in American Wrapping: A Solution to Australia’s Dilemma?

The New Asian Perspectives Blog has already featured an article dedicated to the tensions in Australia–China relations caused by the blocking of investments in strategic agricultural and electric power grid assets for national security concerns. It seems that the sides have already found a compromise following a tough conversation between Prime Minister of Australia Malcolm Turnbull and President of the People’s Republic of China Xi Jinping: Chinese companies won a participatory interest in a 50-year lease on the Port of Melbourne; not directly, however, but under the cover of an American infrastructure fund.

The Port of Melbourne has become the third largest port in Australian, in which Chinese companies have acquired a long-term lease. In 2015, the Chinese company Landbridge agreed on a 99-year lease for the northern Australian Darwin Port in the Timor Sea, with the Australian government, despite the fact that the port is used by the United States Marine Corps and Air Force, and despite negative comments by the American establishment. In 2014, when Tony Abbott – who was formally considered to be more of a “pro-American hawk” than his successor Turnbull – was Prime Minister, the Chinese company China Merchants got a 50 per cent share in the port of Newcastle, the world’s largest coal export hub, for a term of 98 years.

REUTERS/Mick Tsika

Port of Melbourne

China Merchants declared that it was going to participate in the tender for the Port of Melbourne as well. If it succeeded, it would have secured control over the sea ports located in two largest Australia’s cities. However, a massive public outcry sparked by large-scale Chinese investment in the “green continent,” as well as the tightening of state policy, changed the situation. After Chinese companies failed to acquire the Kidman agricultural company and the Ausgrid electricity infrastructure company – the moves were blocked by the financial authorities – it seemed that the issue of Chinese participation in the Port of Melbourne was put on hold. An influential Chinese investor and “rainmaker” even declared that Australia was heading down the same populist ­­de-globalization and protectionist route as other Western countries.

After the results of the tender were announced, it turned out that a Chinese company will still own a share in the Port of Melbourne – not China Merchants, but China Investment Corporation Capital, a sovereign fund that acquired a 20-per-cent share for $1.5 billion through the mediation of its American partners. According to the Australian press, the Chinese firm was part of a tender-winning consortium with Lonsdale and the American company Global Infrastructure Partners. The Australian companies Future Fund and Queensland Investment Corporation, as well as a Canadian pension fund OMERS, also took part in the tender.

The Australian regulatory authority approved the deal subject to comply with certain conditions, which have yet to be announced. However, journalists paid attention to the fact that the initial PR campaign around the deal did not focus on Chinese participation. It suggests that the participants in the process were willing to avoid a new round of public discussion; however, even if there was such intention, it is still too early to say whether or not it was successful. Among the questions that emerge in connection with this deal, the most interesting is whether the aforementioned scheme for Chinese investment in Australian assets through the mediation of American partners will create a strong precedent for further investment. And will such approach make it easier for Australia to manoeuvre between China and the United States? Or will it be even harder, given that it will have to negotiate with more partners at the same time?