25/08/2016 - 13:41

Ausgrid call shows where trade power lies – for now

25/08/2016 - 13:41

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ANALYSIS: Balancing WA’s trade needs with Australia’s broader geopolitical and strategic interests is a challenge for leaders in this state.

Ausgrid call shows where trade power lies – for now
VITAL: WA iron ore sales underpin the state’s trade relationship with China. Photo: Rio Tinto

ANALYSIS: Balancing WA’s trade needs with Australia’s broader geopolitical and strategic interests is a challenge for leaders in this state.

Until very recently, not many Western Australians would have heard of Ausgrid. And while the NSW-owned company provides nothing anyone in WA will ever use, it is a business that could have a negative effect on this state’s economy.

Ausgrid controls the Sydney electricity distribution system, the poles, wires, and sub-stations that make up an essential service. For the past century it has been owned by the NSW government, but is currently for sale – and that’s why it has become a problem for WA.

Until a few days ago, two of the potential bidders for Ausgrid, which has been valued at $10 billion, came from China. One was an arm of the Chinese government called State Grid, and the other was Cheung Kong Infrastructure of Hong Kong.

Neither Chinese bidder was deemed acceptable by Australian security services, with spy agencies such as the Australian Security Intelligence Organisation and arms of the Department of Defence saying that China should not be allowed to control a service critical to Australia’s biggest city.

It was on security grounds that the Foreign Investment Review Board rejected both potential Chinese bidders for Ausgrid, leaving the NSW government to find other, more acceptable, potential buyer.

The Ausgrid situation has triggered a fresh debate about the delicate path Australia is treading when it comes to choosing an investment partner and a security partner.

And it’s on the questions of trade and defence that WA enters the debate because:

• China is unquestionably Australia’s most important investment and trading partner; the two countries complement each other perfectly in business – one providing the raw materials, the other providing the bulk labour to convert those materials into manufactured goods;

• the US is unquestionably Australia’s most important security partner, providing a defence umbrella that has protected this country since WWII; and

• WA is a key to both Australia’s defence and trade but it is also a state that does not necessarily benefit from decisions made on the eastern seaboard, and certainly not from those made in Canberra.
If, as is feared, the Ausgrid knock-back affects Australia’s relationship with China, then it will be WA that pays the highest price because of its close trading ties with the Asian powerhouse.

What appears to be happening is similar to a number of other controversial events, for which WA has been punished in the name of national policy.

The GST is the best example of how a national tax has been distorted at a cost to WA and a benefit to other states, with consumers in the west effectively subsidising those elsewhere because less than half the tax collected in WA is returned.

The GST, when introduced, was supposed to be a states’ tax, with money raised in a state spent in that state.

Unfortunately, the rules and distribution system were developed to bleed cash out of one region to prop up other, less successful, parts of the country.

In both cases – Ausgrid and GST – what seems to be good for eastern Australia is not good for WA.

A third example of policies being hatched in the east and imposed on the west was the ill-conceived super tax on profits from mining iron ore and coal during the Rudd and Gillard governments in Canberra.

Glaringly an attack on WA and Queensland, home of the country’s iron and coal export industries, it is no longer possible to refer to that as an east versus west situation, since The Nationals WA under renewed leader Brendon Grylls proposed a similar tax on two of WA’s iron ore miners.

The principle of what’s happening – policies that seem good for one part of the country being imposed nationally – is why WA has a legitimate grievance about the way it is being treated.

From a historical perspective it can be argued that there is nothing new in this imbalance. It’s what lead to the start of a secession movement in the 1930s, and an occasional flare-up of that debate.

No sensible person is today proposing secession, but there is an emerging need for the WA government to consider developing its own policies when it comes to dealing with international trading partners. And while dealing China is never easy, there is a case for WA having its own China policy.

On most foreign policy issues the positions of the WA and Australian governments would be identical, but on some questions of trade there would be differences.

The Ausgrid decision is a perfect example, but there will be more to come as China flexes its economic and military muscles.

Interestingly, as the Ausgrid situation developed in Sydney, another electricity-and-China-related event was occurring on the other side of the world.

Britain’s new prime minister, Theresa May, has upset a Chinese plan to snatch a slice of her country’s electricity system through participation in a proposed nuclear power station at a site called Hinkley Point.

Until Mrs May replace David Cameron as British PM, the Hinkley Point project was proceeding as joint venture between a French company, EDF, and its Chinese partners. That deal is now being ‘reviewed’, which is code for ‘dumped’, because the British leader has a less-than-positive view about Chinese intentions for critical electricity infrastructure.

Whether there is a link between Ausgrid and Hinkley Point has not yet been explained, but if you look back a bit further there was a third example of China’s unwanted involvement in sensitive areas – the banning of the Chinese company Huawei from the Australian telecommunications network.

Neither the British nor the Australian governments seem to want any Chinese company close to sensitive infrastructure such as electricity and communications – though no-one has clearly explained why (we’re just left to guess).

Island building in the South China Sea is another example of China projecting its power deeper into South-East Asia, much to the annoyance of other countries that claim sections of that sea.

Australia’s position on China’s push to expand its borders is aligned with those of its defence partner the US; if WA had a foreign policy, it would undoubtedly adopt the same position.

But when it comes to questions of trade policy, WA and the rest of Australia have reason to differ because what’s good for Sydney or Melbourne is sometimes not good for Perth.

Australia’s rejection of China’s bid to acquire Ausgrid, when coupled with the disagreement over China’s South China Sea island building, has confirmed the importance Australia places on security and its ongoing close defence ties to the US – undoubtedly a good thing.

Annoying China, which is the price to be paid by remaining close the US, will not have any immediate impact on the Australian economy, but it could have a long-term effect on the WA economy.

This problem of walking a fine line between Australia’s security interests and its trade interests was always going to emerge as China started to transfer its economic power into global political power.

A testing time has arrived for WA, and while the Ausgrid situation has not triggered a showdown with China over trade, there will be more events that could directly affect WA exporters that rely heavily on sales to China.

Doing business with China has never been easy. A cascading series of events seems likely to make it a lot harder in the future.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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