10 Nov 2018
Australia can learn from Josh Frydenberg’s rejection of CK Group
Six lessons stand out following Josh Frydenberg’s decision to stop Hong Kong’s CK Group from taking over the gas giant APA on the grounds that it “would be contrary to the national interest”.
First, relations with Beijing haven’t collapsed. It’s not clear how well synchronised the Treasurer’s announcement was with Foreign Minister Marise Payne’s visit to Beijing. But contrary to months of Canberra agonising about how badly Beijing would react to a refusal of the takeover, relations continue as normal.
For all of the anti-Australian rhetoric one reads in the Chinese Communist Party’s English-language newspaper, the Global Times, the party will not trash relations with Australia simply because we put national security interests before bilateral relations. China needs Australia’s commodity exports and is sufficiently worried about Donald Trump’s tough-minded trade policy that it can’t afford to alienate every potential partner in the Asia-Pacific. Australia can have an effective relationship with China without cringing or capitulation.
The second lesson is that Frydenberg has made a definitive judgment that the “undue concentration of foreign ownership” in Australia’s critical infrastructure is contrary to the national interest. That seems like a commonsense judgment and it reflects precisely how countries such as China and the US protect their critical infrastructure from foreign control.
But Frydenberg’s view runs against the ideological mindset in his Treasury Department, which prioritises foreign investment over national security. Yes, foreign investment is important, but it’s well past time that some sensible limits were placed around the extent to which critical infrastructure can be put in the hands of entities that are ultimately subject to the tender mercies of the Chinese Communist Party and its intelligence services.
The third lesson is that Australia has a new and necessary focus on protecting critical infrastructure, specifically in the form of the Critical Infrastructure Centre in the Department of Home Affairs, which Frydenberg describes as “a key source” of advice.
This matters because infrastructure such as the electricity grid, gas pipelines, ports and airports and key medical facilities increasingly are run using industrial control devices linked by the internet. These are vulnerable, often remarkably so, to hacking. Frankly, Australia is several years behind the pace of the advanced economies in terms of building greater cyber protection for essential infrastructure. The centre’s role in reviewing foreign investment is important and welcome.
Lesson four is about the manifest failure of the Foreign Investment Review Board to perform adequately its responsibilities in vetting the proposed CK Group acquisition. Frydenberg’s media release says: “The FIRB was unable to reach a unanimous recommendation, expressing its concerns about aggregation and the national interest implications of such a dominant foreign player in the gas and electricity sectors over the long term.” If this decision wasn’t a no-brainer for the FIRB, what foreign investment would it ever be happy saying no to? The record of FIRB decisions across the past decade is 169,178 investment approvals and four refusals — now five counting the APA decision.
The methods the FIRB uses to evaluate investment proposals are not disclosed and mystify the business community. The board reports to the Treasurer but evades any broader and more systematic cabinet decision-making.
Frydenberg’s media statement quite clearly shows that the FIRB failed one of the most fundamental tests of public administration. This should lead to a wholesale redesign of the FIRB. It should be removed from Treasury and operate as a stand-alone statutory authority under its own act of parliament, with the obligation to factor national security into its recommendations, or be relocated into the Department of Home Affairs, which doesn’t treat security as a diversion from “economically rational” investment decisions.
Lesson five: clear political leadership is a wonderful thing. The fact the FIRB could not reach a unanimous recommendation starkly shows Frydenberg made the decision himself. This is what we elect governments to do. Frydenberg’s decision is an important marker for future policy thinking about national security and foreign investment decisions.
Finally, the soundness of this policy outcome stands in stark contrast to the Victorian government’s secret memorandum of understanding with China on the Belt & Road Initiative. How could it ever be acceptable that an Australian state government could keep secret from its own electors the undertakings that it has given to China’s communist rulers?
There are only two possibilities for what the secret MOU contains: either there are specific undertakings for business deals or there are simply general expressions of intent about what might happen in the future.
If it’s the first option, the MOU is dangerous and should be released. If it is the second, with non-binding generalities, then the MOU is useless — and that’s something Australians have a right to know about as well.
Overall, it’s clear that only the federal government can deliver policy substance on foreign relations and foreign investment, a point that hopefully now is being better understood by Victorian politicians.