Tag Archive for: foreign investment

Overseas investment is getting riskier. The government needs to step up

Australian companies operating overseas are navigating an increasingly volatile geopolitical landscape where economic coercion, regulatory uncertainty and security risks are becoming the norm. Our growing global investment footprint is nationally important, and the Australian government must support it more strongly.

The government needs to do this above all to counter market manipulation by China and even its seizure of Australian assets, but other risks are piling up, too.

Australia’s outward foreign investment is not just about business; it is a strategic imperative, with the country’s superannuation funds, trade stability and national security all tied to the success and resilience of its companies operating in high-risk environments around the world.

Many Australians understand the importance of inward foreign investment in driving economic growth, but far fewer appreciate the scale of Australian capital flowing overseas. Australia’s total investment abroad now stands at $3.8 trillion—82 percent as large as the stock of foreign direct investment in Australia.

Manufacturers, financial institutions and miners lead our outward foreign direct investment (FDI), the establishing or buying of businesses in other countries. It embodies Australia’s deep economic integration with global markets. Yet, as geopolitical risks intensify, Australia can no longer take the security of these investments for granted, especially in the mining sector.

Australian minerals companies have built a huge global footprint. S&P Global data shows that Australian-headquartered and ASX-listed companies operate 331 mines and downstream processing plants domestically and that 120 Australian companies manage 212 mining and processing facilities overseas.

In 2024 alone, Australian companies invested $4.6 billion in exploration, of which 53 percent spent in Australia and the rest on all other continents except Antarctica. The $195 billion in outbound mining FDI recorded in 2023 further illustrates the scale of this global presence, alongside $215 billion in manufacturing FDI, much of which is tied to minerals processing.

Australian miners have a long history of navigating complex global environments. However, rising geopolitical tensions, economic coercion and regulatory instability make risk management increasingly difficult. The sector’s dependence on foreign capital and markets leaves it vulnerable to supply chain disruptions, trade restrictions and political interference, which threaten profitability and long-term strategic resilience.

Front of mind here is China’s increasing economic coercion. China’s actions serve to reshape global minerals markets, creating risks that extend far beyond trade disruptions. Through market manipulation, aggressive acquisition tactics, and political interference, China is systematically undermining competition. It is attempting to seize control of critical minerals projects and even emboldening hostile regimes to detain Australian mining executives as leverage for financial gain.

Chinese-linked companies have used coercive tactics and state-backed influence to try to take control of Australian-owned mining operations, particularly in some African countries with weak governance in minerals. In 2024, an Australian company was awarded US$90 million in compensation after the Tanzanian government unlawfully seized a nickel deposit, highlighting the unstable regulatory environment Australian firms can face abroad.

Meanwhile, Russian-backed military regimes in Mali and Niger, combined with jihadist insurgencies in key West African mining regions, are increasing security risks for Australian businesses. The closure of US military bases in Niger in 2024 further complicated the security landscape, raising concerns about the long-term viability of Australian investment in these regions.

While the Australian government sponsors the West Africa Mining Security Conference, tangible support for Australian companies operating in high-risk regions is minimal. Unlike Canada, which maintains 17 trade offices across Africa, Australia has just one, in Nairobi. Despite Australia’s large mining and petroleum investments in West Africa, there is just one diplomatic post to service nine countries. This lack of diplomatic and commercial representation leaves Australian companies at a significant disadvantage in security and investment advocacy.

Meanwhile, escalating tariff disputes between the United States and China and retaliatory trade measures from Canada, Mexico and the European Union further complicate Australian companies’ investment and trade outlook. The full impact on Australian-controlled production at home and abroad remains uncertain but potentially severe.

Australian mining depends heavily on foreign investment and financial mechanisms, including cash-backed offtake agreements. China dominates the financing and sales mix, making it an essential partner and a strategic risk. China’s deliberate manipulation of mineral prices, particularly in rare earth markets, and its covert and coercive attempts to acquire key mining assets directly threaten Australia’s economic sovereignty.

Multiple takeover attempts of Northern Minerals and allegations of similar activities around control of Global Lithium Resources demonstrate China’s ongoing efforts to increase control over Australia’s critical minerals industry. This threatens national security and broader supply chain diversification efforts.

The Australian government must take decisive action in response to the rapid escalation of geopolitical risks.

First, a dedicated task force led by the Department of Foreign Affairs and Trade should provide real-time risk assessments and direct assistance to companies navigating complex security and regulatory environments. Second, the Australian Securities and Investments Commission must collaborate more closely with the Foreign Investment Review Board to detect and counter corporate coercion threatening Australia’s national interest. Third, Australia must prioritise deeper engagement with like-minded partners, including the US, Canada, Japan, the EU and South Korea, to accelerate the development of more secure, diverse and sustainable critical minerals supply chains.

While Australia has made cooperation commitments under multiple critical minerals agreements, implementation has been slow and inadequate. With global competition intensifying, there is no time to waste.

The roar of the paper kitten

Image courtesy of Flickr user yosuke muroya

Australian governments generally like to be front of mind in Beijing. But the heightened level of Chinese government awareness of things Australian, as evidenced by the editorial run by The Global Times on 30 July 2016, is perhaps not quite the kind of attention that Foreign Minister Bishop courts.

Australia’s ever-so-slightly-muscular joint statement, with Japan and the US, on the need for China to heed the Arbitral Tribunal’s determination on the validity of China’s South China Sea claim provoked shock-jock journalism that would certainly pass muster in some of Australia’s more flamboyant tabloids. Of course, had the Global Times editorialist a more subtle sense of humour, he might have labeled Australia a ‘paper kitten’ instead of a ‘paper cat’—if only for reasons of prosody.

Mack Horton’s spirited comments on Sun Yang’s drug history at Rio de Janiero’s Olympic pool elicited an equally cringe-worthy ‘fake news’ response from the Chinese swimming team’s manager—at least as reported by China Radio International on its English language website. So, irrespective of how Australia might be succeeding in its bilateral diplomacy, we are certainly performing well on the attention-seeking front.

The government’s decision to reject the joint bid between Hong Kong’s Cheung Kong Infrastructure Holdings (CKI), controlled by Li Ka-shing, and China’s state-owned State Grid for NSW’s power distribution network, Ausgrid, extends this new malaise into the field of foreign direct investment. While it elicited a less excited commentary from China’s official mouthpiece, the Xinhua News Agency, it certainly attracted attention.

The rejection of the Ausgrid bid sends mixed messages, however. Why, one might ask, would the government wave through a ninety-nine year lease by a Chinese state-owned enterprise on the Port of Darwin—clearly a strategic asset—when a bid by a commercial consortium is refused on so-called security grounds? Why, one might also ask, was it permissible for Li Ka-shing’s CKI to purchase a majority stake in South Australia’s poles and wires? Is the welfare of South Australians of less security concern than that of their NSW cousins?

This is where the government displays caution rather than confidence, capriciousness rather than consistency and confusion rather than capacity—all of which could be interpreted as populist xenophobia with a tinge of political opportunism. Moreover, to shelter behind opaque ‘security concerns’ extends the lack of transparency and accountability that distinguishes the management of Australia’s refugee policy to the management of foreign direct investment.

The government’s Ausgrid decision is further evidence of the bipolar disorder that sits at the centre of Australia’s China policy, brutally expressed by former Prime Minister Tony Abbott as ‘fear and greed’. If Australia is to continue to advocate the need for a rules-based international order as the critical underpinning of global political relationships, consistency would demand a domestic rules-based approach to economic and investment relationships. Quite simply, the rules must be clear.

Whether we like it or not, the fact is that many Chinese individual and corporate investors are attracted to Australian assets, be they urban real estate holdings, ports, agricultural land, pastoral leases, iron ore and coal mines, ports or transmission grids, because they want to hedge their exposure in China and in other markets.

Increasingly, Chinese investors are encouraged by the reliability of our legal system—to which they exercise increasing recourse—and the clarity of the regulations that underpin corporate, commercial and investment practice in Australia. They are also encouraged by the profitability of infrastructure assets in a largely unregulated market—a matter of increasing concern to the Australian Competition and Consumer Commissioner.

Rules matter. So does consistency. So too does national security. Given Australia’s reliance on foreign direct investment in maintaining economic growth, it is essential that the foreign investment guidelines are clear, equitable and non-discriminatory. To this end, it is equally important that any national security guidelines relating to foreign direct investment are at least as clear as those relating to entry to Australia by political extremists and others who might threaten harmony and security.

And this is where the problem lies: the national security principles that might inform consideration of foreign direct investment bids are totally invisible, if they exist at all. So companies that might be interested in bidding for infrastructure assets, and spending the considerable sums involved in preparing the associated documentation, are effectively flying blind. While it may be reasonable for the Treasurer to declare that, since he is the only one at a media conference holding the appropriate security clearances, he cannot divulge the precise reasons for rejecting a bid, it is not reasonable that the security ground rules are ‘unknown unknowns’.

It may be amusing that Australia now carries the ‘paper kitten’ title. But it is counterproductive for Australia to act as though it is a paper kitten, toying with major investment decisions on a whim. Paranoia about China’s ability to shut down the entire NSW electricity grid is not a sound basis for considering bids from Chinese investors. Evidence that China has the intention to do so is. We evidently have some way further to travel in building a mature economic relationship with Asia’s economic powerhouse.

As China slowly redefines itself in the aftermath of the ‘century of humiliation’, it will increasingly recalibrate its relationships with the West. Australia is both big enough and small enough to find itself a convenient whipping boy or, as Gideon Rachman recently wrote in the Financial Times, a lightning rod for a more generalised disaffection with the West.

We need a new approach on foreign investment and national security

Aggregate foreign ownership of Telstra is limited to 35% of the privatised equity.

In 2013-14 for the first time China ($27.7 billion) was the largest source country for approved proposed foreign investment in Australia, overtaking the US ($17.5 billion).

Also for the first time, Chinese private sector investment exceeded state-owned enterprise investment, both in terms of volume and value, (although sometimes the distinction between the private and state owned sector can be murky in China).

A useful report by KPMG and the University of Sydney on Chinese FDI in Australia can be found here. This global tracker on Chinese FDI is also helpful.

With this background, I read with interest my colleagues Paul Barnes and Peter Jennings’ article in Friday’s Australia Financial Review. They argued that the 99-year lease on strategic sections of the Port of Darwin to a company wholly owned by the Chinese firm Landbridge Group should prompt an urgent review of the Foreign Investment Review Board to assess whether it’s got the ‘right skills, resources and powers to assess the national security implications of foreign sales or long term leases.’

They suggest that in a worst case scenario operational control of the Port of Darwin could ‘facilitate intelligence collection of the tactics, techniques and procedures used by Australian Defence Force and US Marine elements during their North Australian deployments’.

They’re rightly concerned about China and FDI: a history of commercial and military espionage, including cyber-attacks on western targets. It’s worth noting that WA Premier Colin Barnett announced in May that the Fremantle Port is to be sold through a 49-year lease.

There’s obligations that can be put into leasing arrangements with foreign companies or controls on how an asset is managed. We can insist on local board representation. The Northern Territory government, for example, will retain an initial 20% stake in the Port in the case of the recent lease to a Chinese company. But Landbridge must find an Australian company to take the 20% share within five years.

We can put limits on foreign ownership, as we do with airports. Aggregate foreign ownership of Telstra is limited to 35% of the privatised equity.

The strength of our economy is a national security asset, so liberating debt from state governments is important. Governments owning assets can be an economic drag.

State and territory governments will want to ensure that when it comes to asset sales or long-term leases that they’re as commercially attractive as possible.

But as part of balancing economic strength and national security governments can, as I’ve said, put in controls that relate to the terms of a lease, impose conditions that relate to business continuity, or place requirements that certain types of customers will be dealt with in certain ways. The Port of Darwin, for example, is under a strict security regime as mandated by the ISPS Code. And in the event of a major defence emergency the Defence Act allows the Commonwealth to ultimately step in and exercise control.

The first set of issues raised in Paul and Peter’s op-ed revolves around identifying factors that should lead to the FIRB exercising heightened scrutiny.

The Commonwealth could help here by classifying the nature and type of critical infrastructure assets, noting that what was once of national security importance may not be in the future.

It’s hard to believe, for example, that the ABC’s radio transmission towers were once regarded as major strategic assets because they were viewed as critical to a national communications network. Now governments don’t feel that they need to own the telecom infrastructure.

A second set of issues revolves around setting out the relevant elements FIRB should consider when it comes to national security.

The national security implications of asset leasing/sales needs a mechanism for the Commonwealth to talk with the jurisdictions about what conditions should be in relevant contracts for critical infrastructure leasing or sale.

Relevant national security factors would need to be identified by the FIRB, such as the risk of access to sensitive information or limiting government access to information, possible means of disabling the asset or compromising its ability to supply during a conflict, or compromising security of public or private networks, with high risks to public safety.

My colleagues’ article points to a case in the next few months when the government may have to decide whether a Chinese state-owned enterprise can buy or lease (or possibly part of a consortium) TransGrid, a NSW government-owned electricity transmission firm. TransGrid supplies power and telecommunications to Defence bases in NSW and Canberra.

There’ll be stricter security requirements for foreign bidders, including a majority of local directors and security checks for nominated directors. But this wouldn’t prevent other internal actors inserting disruptive code into control systems. ASPI executive director, Peter Jennings, will discuss those insider threat issues and the general effectiveness of mitigation measures when it comes to FDI and national security in a future post on The Strategist.

This case echoes the Abbott Government’s December 2013 approval of the $6 billion purchase of electricity group, SP Ausnet, and its related Jemena business which has electricity, gas and water assets, by Chinese government-owned State Grid Corporation. A condition was imposed that at least half the directors must be Australian citizens.

If owning the asset meant a corporate that was the agent of a potentially hostile power could implement software that would allow it to disable the grid’s operation in the event of a conflict, that would be a concern.

But if our NSW/Canberra military bases could switch to alternative suppliers rapidly in a crisis, if they feared power being cut off, then the rationale for blocking the foreign acquisition would be weaker. (It should be noted that changes in technology may impact on what’s ‘critical’ when it comes to ‘poles and wires’.)

FIRB would need to have access to the skill sets to make such assessments. So I like Paul and Peter’s suggestion that the FIRB should publicly release a detailed evaluation framework that spells out the specific criteria that must be assessed in reviewing any sale or long-term lease of critical national infrastructure. (I argued for greater FIRB openness here some years ago.)

The FIRB’s evaluation process, they rightly suggest, ‘must involve the Defence and intelligence agencies best able to assess espionage and sabotage risks. It needs to be clear that these agencies are there to assess national security vulnerability not simply to validate the security status of their own facilities’.

The second option my colleagues suggest is possibly redesigning the FIRB as an independent statutory authority separate from the Treasury with a ‘clear charter to examine and decide on foreign investment applications and a strong national security assessment function’.

Late on Friday federal Treasurer, Scott Morrison, said that the government was ‘acutely aware of the sensitivities regarding foreign investment in strategic national assets and critical infrastructure’ and that the government is assessing options to ‘strengthen the federal government’s ability to protect the national interest in these cases’.
It’d be worth looking at the performance of the US Committee on Foreign Investment housed within the US federal government.

The CFIUS reviews select inbound investments on national security grounds and seeks to balance free market principles against national security considerations, ‘specifically averting or mitigating foreign control of US companies that are operating in potentially sensitive sectors’.

We need more analysis on the role of foreign investment policies in protecting our strategic assets.