Should China be allowed to buy the West’s family jewels?
Seen from the Far East, the UK’s China policy must look like a Chinese puzzle. In 2012, when David Cameron met with the Dalai Lama in St Paul’s Cathedral, the then-prime minister didn’t seem to care much about what Beijing would think. Britain didn’t want its relationship with China “disrupted”, Cameron said, but the spiritual leader was “an important religious figure”. In so doing, he continued a long list of UK leaders unafraid of “hurting” Beijing’s feelings – as a furious China complained then – for the sake of displaying friendship towards Tibet.
Fast-forward three years, and here’s what the Dalai Lama had to say. "Money, money, money. That’s what this is about. Where is morality?"
It was the religious leader’s turn to be upset – after Cameron refused to meet with him during a second UK visit in September 2015. And he had a point. Cameron had paid a price for ignoring Beijing’s warnings the first time round: a year after his casual sit-down with the Dalai Lama, his demands for a Chinese visa were still being refused. That had thrown a major spanner in the works. “This is ridiculous,” he told officials in 2013. “I have made overseas trade a cornerstone of my premiership and I’m not being allowed to go to China. I’ve got to go to China!”
Cameron and his team soon went the extra mile to “make Britain China’s best partner in the West”. In October 2015, George Osborne, then UK Chancellor, embarked on a high-profile, five-day trip to the country. Lauding the start of a “golden era” between London and Beijing, he bagged about £30 billion ($39 billion) of Chinese investment into the British economy. Even China’s state media was impressed, praising his “pragmatic” decision “not to stress human rights” during his visit.
“I don’t see the value of increasing tensions in the region by sending US warships”
Less than a year later, cards have been reshuffled again. Gold continues to colour Sino-British ties – but the relationship has turned to rivalry, with the UK beating China by a narrow margin in the 2016 Rio Olympics. And the irony doesn’t stop there. Earlier this month, the new, post-referendum UK government announced that it would pause Osborne’s cherished £18 billion Hinkley Point C project, a nuclear plant in which a state-backed Chinese group was to be a junior investor.
The U-turn has made Beijing irate – all the more so as it suffered another snub shortly thereafter, this time from Down Under. On August 10, Australian Treasurer Scott Morrison preliminarily blocked bids from China’s State Grid and Hong Kong's Cheung Kong Infrastructure (CKI), the only two suitors in the running to buy Ausgrid, Sydney’s electricity distribution network. The rationale was clear: “My preliminary view is that the foreign investment proposals put to me are contrary to the national interest,” Morrison said in a press release.
That Western countries feel queasy about China’s appetite for their assets deserves some sympathy. Chinese hackers, after all, are said to account for a significant share of the hundreds of attempts to attack critical infrastructure every year. The world’s most populous nation has also become a more assertive power of late, elbowing out neighbours in the South China Sea and ignoring a related international ruling. It is growing less and less tolerant of international “meddling”.
“Our claims in the South China Sea are based on a map that dates back to 1946. I don’t see the value of increasing tensions in the region by sending US warships,” a top executive at China’s sovereign wealth fund recently told me.
But Western leaders should also be careful not to justify policy reversals on loosely defined national security interests – especially when it's obvious China is the elephant in the room. That makes the West vulnerable to accusations of double standards, in turn nullifying attempts to lecture Beijing on free trade, openness and cyber security.
In that respect, the Ausgrid decision was particularly clumsy. “Many investors I talk to are very confused. Does Australia want their money or not?” asks an adviser to Asian institutions I spoke to this month.
Given that the sale kicked off nine months ago, one can only wonder why the Australian Treasury let the process drag on for so long before killing it at the last minute. Presumably “national security concerns” of this importance already existed when the company was put to market?
The timing of the decision, coming just weeks after a tightly contested election, also looks fishy. In order to govern, it seems as if the ruling Conservative party must now pay heed to senators from smaller factions – some of which have recently shown a taste for China-bashing.
Such rhetoric has indeed grown louder in Australia since a Chinese-led group bought Port of Darwin, a North Australian harbour that serves as a base to US marines. Critics reckon the deal, sealed last November, gave the Chinese a front-row seat to spy on American and Australian naval operations. They say Canberra failed to properly research the buyers before cashing in the cheque.
“If they really are a national security threat, then we're already screwed”
But the case of Ausgrid is different. China’s State Grid, the world’s largest power company, already holds stakes in energy infrastructure in the Australian Capital Territory, Queensland, South Australia and Victoria. CKI, for its part, says it owns more infrastructure in Australia than in Hong Kong and China. In the words of Michael Pascoe, a columnist at the Sydney Morning Herald, “if they really are a national security threat, then we're already screwed”.
Also, while State Grid is state-backed, CKI is a private company owned by Li Ka Shing, Hong Kong’s richest man, as well as Western blue-chip investors like Vanguard, BlackRock and Norway’s sovereign wealth fund. It’s hard to imagine the firm play a central part in an anti-Western plot.
All of which highlights what’s really missing in the West's foreign takeover policies: clear and tangible rules. "In a world where private companies based in Hong Kong are considered potential enemies, Japanese investors can be forgiven for fearing they might be caught in the net as well,” a Tokyo-based consultant told me last week.
Being consistent matters. Australia wants to sell big infrastructure assets to raise money, so as to be able to build new airports and fund renewable energy projects. Post-Brexit, the UK is also hungry for foreign investment, so as to mitigate reduced European capital injections. And the Western world at large wants China to open up its energy, telecoms and transport markets. All this won't happen if Asian investors feel the dice are loaded against them whenever they go West.
But there’s an even bigger prize at stake: a gigantic infrastructure programme, stretching from Albania to Zimbabwe, that China wants to roll out over the coming decades. Beijing’s “One Belt One Road” initiative aims to recreate the ancient Silk Road by linking East and West via rail, ports and airports as well as massive energy projects. Estimates of the total investment required range from $4 trillion to $8 trillion – about half the size of all EU economies combined.
A soon-to-be-released report by law firm Pinsent Masons I read last week shows that the proposed plan spans at least 44 countries, including eight projects in Eastern Europe and 12 in the Middle East – regions where the expertise of Western firms could help them win deals. Most projects, however, are likely to be financed by China-led funds, development institutions and banks. Should Chinese players too often feel disqualified on a whim in the West, Western companies may find themselves shut out of OBOR deals in retribution.
Standing up to Beijing to support allies or uphold values is very laudable. But when Western governments take aim at China for short-sighted, political motives, they do their cause more harm than good – and stand to lose a lot money, money, money.