CKI bid for APA to test Australia’s stance on China

The federal government has a serious global political challenge on its hands as Hong Kong-based CKI bids for APA.

The federal government has a ­serious global political challenge on its hands as the Foreign Investment Review Board reviews the $13 billion bid by Hong Kong-based utility CKI for gas pipeline company APA.

With last week’s decision by the Australian Competition & Consumer Commission not to block the bid, its fate is now being reviewed by the FIRB on national interest grounds, with any final decision to be made by the Treasurer.

On the face of it, it should be a pretty innocuous transaction given the long history of operation in Australia by the group, which was founded by one of Hong Kong’s richest men, Li Ka-shing, and is now overseen by his son Victor.

CKI is very much a Hong Kong company and very much not a mainland Chinese company.

The group owns electricity ­assets and pipelines in Australia and has done so for years. It also owns 50 per cent of Vodafone, which has also operated in Australia for years.

Over the past few years, Li Ka-shing has been cutting back his group’s operations in mainland China, a move that has earned him some criticism in China.

Shenzhen-based communications giant Huawei was recently banned by the Turnbull government from participating in Australia’s 5G network on the basis it could be influenced by Beijing.

There is no question that Huawei is a mainland-based Chinese company, but CKI has its roots firmly planted in the days when Hong Kong was a British colony.

Since 1997, Hong Kong has operated as a Special Autonomous Region of China subject to its own laws and, in theory at least, given its own freedoms for its people to operate.

A decision to block the CKI bid on “national interest” grounds that it, too, may be influenced in some way by Beijing would not only be factually wrong but would represent a huge statement on Australia’s side that it no longer regards the official “one country, two systems” — under which Hong Kong operates — as continuing to stand.

It would also be seen as a diplomatic blow to Hong Kong, which has been working hard to retain both its independence from Beijing and the global perception of its independence.

CKI was shocked when it was banned at the last minute from bidding for NSW power company Ausgrid in 2016.

That process was a shambles with the NSW government well down the track on a shortlist of CKI and China’s State Grid to buy the assets when the federal government suddenly decided that it should not be bought by any foreign group because of some unspecified last-minute national security issue.

It defies credibility that the federal government could have suddenly discovered there was some unspecified national security issue in selling Ausgrid (believed more recently to be because it supplies electricity to the security installation at Pine Gap) given its possible sale was flagged for years by the NSW government.

Then-premier Mike Baird went to the polls in NSW in March 2015 on a platform of selling off the state’s electricity assets and began the sales process soon after his re-election.

For the federal government to suddenly find in August 2016 that there were unspecified, secret ­national interest grounds with selling Ausgrid was a shock to all concerned.

It appeared for all the world that suddenly the federal government did not want China’s State Grid to be the successful buyer but had to exclude CKI as well so as to look even-handed and for the decision not to be seen as an anti-Beijing one. But that is all behind us now.

The question facing the Morrison government is whether to block CKI’s latest bid for the APA pipelines on foreign ownership grounds or give it a tick.

The fact is that Western governments around the world — in Australia, the US and Europe — have been steadily tightening their controls on bids for local companies by foreign companies, partly in reaction to the worldwide spending spree by Chinese companies that seem to have had almost unlimited access to capital.

Some of it has come with ­“security” arguments and some of it has been a reflection of the sheer scale of Chinese companies wanting to snap up assets.

The federal government’s decision on Huawei follows moves in the US against Chinese telecommunications companies.

Germany, which has had a healthy and robust relationship with China over many years, recently became more wary of its private companies being snapped up by Chinese bidders.

The German government recently blocked a takeover of ­machine toolmaker Leifeld by Chinese company Yantai. Yantai pulled its bid after the Merkel government signalled it would invoke new powers to block foreign takeovers. This was the first time that a bid by a Chinese company had been blocked by the German government and has been seen as a sign of a shifting worldwide sentiment.

In America, where Donald Trump is furiously rattling his ­sabres against China on all fronts, the administration recently moved to tighten controls on foreign bids for US assets, making it clear its moves were being made in response to bids by Chinese companies. But, again, Hong Kong is not China and CKI is not a mainland Chinese company.

When he held the position of treasurer, Scott Morrison had the carriage of making a final decision on FIRB recommendations and he is well versed in the process.

That said, just how the federal government handles this latest bid, or if it decides to let it through, will be closely watched globally for any precedents it may set.