Move to block infrastructure purchase by Chinese entities looks like politically driven policy made on the run.

The Turnbull Government's decision to block two Chinese companies buying electricity lines firm Ausgrid will play well with many voters.

But it has ramifications far beyond that.

Last week Treasurer Scott Morrison blocked Chinese government-owned China State Grid Corp and privately held Hong Kong company Cheung Kong Infrastructure from buying the Ausgrid electricity network that delivers power and communications services to about 1.6 million homes and businesses around New South Wales.

It will not have gone unnoticed by the Chinese that the decision comes only a few weeks after the election of Pauline Hanson and some of her colleagues to the Senate.

Advertisement

Up for sale was a 50.4 per cent stake of a 99-year lease of Ausgrid. Although the sale price hasn't been revealed, bids from the two Chinese entities are believed to be somewhere between A$10 billion ($10.6b) and A$15b - so high that other bidders dropped out of the race.

The Government has every right to stop the Chinese buying important infrastructure assets and might have had very good reason for doing so in this case. The Chinese have taken to cyber espionage with gusto.

According to reports this year, Chinese and Russian state-sponsored hackers make hundreds of attempts to infiltrate Australian government networks every month. In this context, it makes a lot of sense not to hand over control of communications infrastructure to the Chinese state.

But the Government has so mishandled the process of making this decision that it has raised doubts among business about how it formulates policies, or indeed if they are formulated at all.

First, it took nine months to intervene in the sale process, and we'd have to ask why they let it drag on for so long only to kill off the deal at the last minute. If the Government has concerns about State Grid or Cheung Kong Infrastructure (CKI) owning the assets now, then presumably it had the same concerns when the sale process got under way.

The Government has so mishandled the process of making this decision that it has raised doubts among business about how it formulates policies, or indeed if they are formulated at all.

SHARE THIS QUOTE:

This brings us to the question of exactly what those concerns are. The Treasurer has highlighted "national security issues" because Ausgrid provides critical power and communications services to business and government. But he can't tell us any more about what the national security issues are because of - you guessed it! - national security.

The two Chinese bidders have a few days to address these national security concerns but, like the rest of us, they haven't been told exactly what they are. No wonder Morrison didn't sound confident when asked about the bidders' chance of resubmitting bids that would address these concerns.

Then there is the question of why State Grid has been allowed to buy energy infrastructure in the Australian Capital Territory, Queensland, South Australia and Victoria, although this might be related to their having a lower level of control over these assets.

And what of CKI? This is a commercial enterprise founded by Hong Kong billionaire Li Ka-shing, not a state-owned company, so how do national security grounds apply to it any more than they would to, say, a Canadian pension fund or a New Zealand power company?

The Chinese will conclude they were rejected because they were Chinese and Turnbull and Morrison are playing to domestic political interests. This is no way to treat what will be an increasingly important source of capital for Australia in the years to come.

(One thing in our favour is that we're not alone in this. Countries all around the world are concerned about Chinese infrastructure purchases, and the Chinese are nothing if not pragmatic, so this shouldn't stand in the way of future deals.)

But offending the Chinese is only part of the problem.

More broadly, the decision sends a message that the Government is making policy on the run and in response to day-to-day political pressures, such as it did this year when Turnbull decided tax reform was too hard or when he announced he would haul the bank chiefs before Parliament in response to a promise by the Opposition to hold a royal commission of inquiry into the banks.

The business community is increasingly despairing of Treasurer Morrison. This is another example of the Government letting politics dictate policy. Business is looking wistfully across the Tasman at the strong, stable and coherent government provided by John Key.

It raises questions about how Turnbull will deal with the likes of Hanson in the Senate when he needs to keep them onside and win their votes to pass legislation. How much will he favour expedience over the national interest?

As always, certainty drives confidence which in turn drives investment. If the Turnbull Government wants to promote economic growth, it would do well to have clearly articulated policies and stick with them, rather than flip-flopping with the politics.