[Theme music starts]

ELIZABETH:

From Schwartz Media, I’m Elizabeth Kulas, This is 7am.
Australia’s relationship with international investment, especially from China, has been remade in the past six years. What was once a question of business has become one of national security. David Uren on how ASIO helped transform the Foreign Investment Review Board.

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ELIZABETH:

So David, where does this story start? Is it with the Abbott government and their free trade agreement with China?

DAVID:

Yeah so the very early days of the Abbott government were very close between Australia and China.

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DAVID:

Abbott came in, he'd been very keen to complete free trade agreements which was very much part of his agenda and was something that he felt that the Rudd Government had not paid sufficient attention to.

ELIZABETH:

David Uren is former economics editor of The Australian. He's the author of multiple books on the Australia Chinese trade relationship which he covered in the latest issue of Australian Foreign Affairs.

DAVID:

So his Trade Minister Andrew Robb had worked very hard on setting up concluding trade agreements with Japan, with Korea and most particularly with China. So we had Xi Jinping — Chinese president — coming to Australia.

Archival tape -- Tony Abbott:

“I welcome his excellency Xi Jinping on his first visit to Australia as President of China…”

DAVID:

Xi Jinping indicated he would extend his tour to visit Canberra. He also brought a vast tribe of business people with him. It was quite a gala event...

ELIZABETH:

And a warm welcome...

DAVID:

A very warm welcome. Abbott invited him to address Parliament

Archival tape — Xi Jinping:

“The right honourable Tony Abbott PM of Australia...Senators and members of the House, ladies and gentlemen, dear friends, good afternoon.”

[Music ends]

DAVID:

Abbott was very effusive about the role of Chinese investment in Australia and commented that, and I think this was a really telling comment, that we trade with people when we need them but we invest when we trust people. Abbott really highlighted what he saw as a level of trust between Australia and China, particularly around the matter of investment.

So the China-Australia Free Trade Agreement took effect from the beginning of 2015.

ELIZABETH:

So after that agreement you signed, what sorts of investments were being made and did it lead to a boom in investment?

DAVID:

Yeah indeed it did lead to a boom. It reached just about 50 billion dollars in 2014/15. At this stage, China was becoming the largest single source of foreign investment into Australia. So it was looking at infrastructure, it was looking at agriculture, and it was also looking at housing.

Archival tape — Unknown male:

“Our globalisation strategy by acquiring more potential projects overseas...”

DAVID:

This led to quite a bit of controversy in the media. Kelly O'Dwyer in her role as a sort of junior finance minister, initiated an inquiry into foreign investment in the housing sector and the result was a considerable toughening in the approach.

One thing I should just add in terms of this rising backlash was that the National Party has a general hostility to foreign investment. So really sparked by both the concerns about foreign investment in the housing sector and the concerns of the National Party, the Abbott Government embarked upon the first overall review of Australia's foreign investment legislation since it had been introduced by the Fraser government in 1975. And the consequences of that review have been that the Tax Office has a much greater role, but also national security forces were given a much greater ability to intervene in the whole process. So I think that review set the stage for a much more interventionist approach by the regulators.

ELIZABETH:

And yet one of the things that has slipped through before that revision takes full effect is the lease on the Port of Darwin.

DAVID:

Yeah, so I think the lease on the Port of Darwin was really a watershed moment in terms of Australia's approach to foreign investment from China.

Archival tape — Unidentified Female Reporter:

“Former NT treasurer has defended his govt’s decision to lease the Darwin port to a Chinese company…”

Archival tape — Unidentified Male Reporter:

"Mr Toller told Sky news that security risks were overblown..."

DAVID:

The Northern Territory Government had had concerns about the Darwin port and its capacity. Traffic was rising. The government didn't have the funds to really expand its capacity. It sought help from the federal government, which indicated that it was not going to help finance it, so it started looking around for private operators, put it out to tender, and the highest bid came from um a Chinese private group called Landbridge.

Archival tape -- Unidentified Male:

“ We have to act in the national interest of the country. That’s what’s happened in the port of Darwin…”

Archival tape -- Unidentified Male:

“It’s the fact they sold off our Northern most port, which is a strategic asset, I believe that should’ve been maintained in public hands...?”

DAVID:

And the Northern Territory Government was aware there might be some concerns here and so it ran up past the Department of Defence, it ran up past the Foreign Investment Review Board, even though as the lease of an asset by a state government Foreign Investment Review was not required.

So this deal happened over a 99 year lease of the Darwin port granted to a Chinese company.

There was also some some pushback from the United States when Barack Obama visited Australia. I think it was really in the wake of that that the nature of foreign investment regulation really began to shift.

ELIZABETH:

And what was the big change between our open approach to investment under Abbott and where we are now, where we’re deeply skeptical of Chinese investment?

DAVID:

Look. An important part of it has a reappraisal of China. I think at the time when Abbott was greeting Xi Jinping, Xi Jinping was still a relatively new leader. He was seen as a modernising influence in China. He was cracking down on corruption. And I think there was hope that he would extend the process of economic reform, and Abbott even expressed hope that he might lead the country to democracy.

Well I think over the passage of the next 18 months or so it became apparent that none of this was to be the case.

ELIZABETH:

And then the domestic situation in Australia also shifted because the Turnbull prime ministership meant there was a change in our position too.

DAVID:

Yeah indeed. Many expected that Turnbull would be a supportive figure in terms of the Australia China relationship. He knew China very well, he had a few phrases of Mandarin in his vocabulary but that was not to be.

I think early in the Turnbull government, in response to the controversy over the Darwin port, his Treasurer Scott Morrison put David Irvine the former head of ASIO and former head of the Australian Secret Intelligence Service onto the Foreign Investment Review Board, and in due course he became chairman of the board, that the national security agencies have really taken a much larger role and I think that that really marked quite an important turning point in terms of the approach towards foreign investment.

ELIZABETH:

We’ll be right back.

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ELIZABETH:

David, a significant change in Australia's approach to foreign investment came when the Turnbull Government appointed a former head of ASIO to the Foreign Investment Review Board. What happened after that decision?

DAVID:

So in the first few months Morrison, as Turnbull's Treasurer, blocked two Chinese investments. The first was a bid for the Kidman cattle properties, which stretch across South Australia, Northern Territory, I think into WA a little bit as well. You know it was an odd one to block. Although it had a large amount of land, it was pretty scrubby - you know some of the worst land in the country in a way.

There was something of the symbolism that was you know a stumbling point, a political stumbling point, for the Turnbull government.

But the second one was much more substantial. This was the decision by the Foreign Investment Review Board to block takeover bids for Ausgrid, the New South Wales electricity grid owner. New South Wales Government had this up for privatisation. It had received really substantial bids. Everybody was expecting it to go through.

When Morrison called a press conference and said no foreign bids could be entertained. When asked why he said, well it’s national security ,and media asked him well national security how? And he said well he was the only person in the room with the security clearance to know the answer to that. And he refused to elaborate.

ELIZABETH:

So how does the review board arrive at decisions like that?

DAVID:

At around this time, and again this was partly a response to the Darwin port, the Government introduces legislation to control all investment in critical infrastructure. Gives the government quite significant powers to direct operators of critical infrastructure to comply with government orders.

It's a very interventionist piece of legislation. So that the government now has has really substantial powers so that it's not just looking at foreign investment as it comes into the country but it has the ability to regulate and control major pieces of infrastructure that may have foreign investment in it already.

ELIZABETH:

And do we know what was driving Turnbull through this period.

DAVID:

So Turnbull had made an interesting appointment shortly after he took office of hiring the Sydney Morning Herald and Age's former China correspondent John Garneau to his staff.

Initially John was there as media adviser but he shifted more to a foreign and advisory role and the Turnbull government crafted new foreign interference legislation.

Archival tape — John Garneau:

“China's activities have become so brazen and so aggressive we can’t ignore it any longer.”

DAVID:

It was quite a sweeping piece of legislation and Malcolm Turnbull made it very plain to the Chinese just who it was directed at when he was unveiling it to the Canberra media saying that this legislation shows that the Australian people have stood up.

Archival tape — Malcolm Turnbull:

“The Chinese people have stood up, an assertion of sovereignty, of pride. And so we stand up...The Australian people stand up.”

DAVID:

That's said to have been the phrase that Mao Zedong made when announcing the People's Republic in 1949, the Chinese people have stood up and just in case the Chinese people missed the allusion Malcolm Turnbull made this comment in Mandarin. Um…

ELIZABETH:

So not so veiled really.

DAVID:

So not so veiled at all. And this caused huge offence in China and I think that really marked a significant deterioration in Australia's relationship with China.

ELIZABETH:

And so what was the impact on investment of this legislation, which as you say was sweeping?

DAVID:

The one thing one can see is that that investment from China plunged. China was itself trying to slow the outflow of funds. So Chinese investment had fallen to all countries but it dived a lot further in Australia.

Something that one started to see was that the annual reports of ASIO started to make reference to foreign investment. Until about 2014 ASIO reports have never so much as touched upon foreign investment but suddenly they started becoming quite discursive on the topic. Well the official foreign investment policy is we welcome foreign investment. We've not traditionally described it as a threat. You know there'd be people in the National Party or on the edges who might describe it in that way. But it's not been part of an official characterisation really since the government of John Gorton which was a very nationalist government in the 1960s.

ELIZABETH:

So investment is down. What now?

DAVID:

Fear of China has swung too far in the minds of, I think some within the security agencies. I think that there's a danger of jumping at shadows. The problem with national security is that its idea of threat is always unbounded. This is a very new realm. Australia has not seen anything like this previously.

It's striking also that we're seeing some parallel developments around the world. The OECD highlights that Australia is really the Pathfinder in some of these areas. The kinds of national security controls that are now being exercised over critical infrastructure and telecommunications with the legislation that Australia has introduced have not yet been applied anywhere else in the world. Australia is being used as a template by other countries looking to place additional controls on incoming investment.

ELIZABETH:

David thank you so much.

DAVID:

That’s alright. My pleasure.

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ELIZABETH:

Elsewhere in the news:

The shadow minister for home affairs, Kristina Keneally, says Australia has a moral responsibility to bring home Australian women and children stranded in northern Syria. She says some were taken to the Daesh-controlled territories against their will and they deserve to be brought home. The US has abruptly withdrawn its troops from the region and Turkish forces have moved in.

And in Japan, Typhoon Hagibis has killed at least four people in the prefectures around Tokyo. Seventeen more are missing. Evacuation orders were issued for more than 800,000 households in the capital. Hagibis is the worst typhoon to his Japan in 60 years.