Do US concerns over the sale of the Port of Darwin to a Chinese company suggest those who question foreign investment on strategic and security grounds have a point? By Sophie Morris.

Port of Darwin’s Chinese sale surprises US

Prime Minister Malcolm Turnbull and President Barack Obama following their meeting in Manila this week.
Prime Minister Malcolm Turnbull and President Barack Obama following their meeting in Manila this week.
Credit: Reuters / Jonathan Ernst

When Barack Obama chided Malcolm Turnbull for failing to alert the United States to the sale of the Port of Darwin to a Chinese company, the gentle rebuke was not conveyed in the formal briefing to reporters that followed their meeting in Manila.

Still, journalists have ways of finding things out and the exchange about the port was revealed the next day in The Australian Financial Review.

Obama reportedly told Turnbull the US should have been given a “heads up about these sorts of things”. “Let us know next time,” the president was quoted as saying.

Then Turnbull confirmed it, saying that when Obama had told him he had first heard of the deal in The New York Times, he had recommended he subscribe instead to the NT News.

It was a lighthearted suggestion to deflect a deeper tension as Australia tries to balance its strategic alliance with the US against its growing commercial relationship with an expansionist China.

These two forces are colliding in the Top End, where the US is rotating troops as part of its “pivot to Asia” and Chinese investors – and the Chinese government – are making no secret of their interest in infrastructure, such as the port and rail networks, as well as oil and gas projects.

In the Port of Darwin, these tensions have crystallised in one extraordinary story.

Amid a characteristically chaotic session of the Northern Territory parliament this week, independent Gerry Wood took time to reflect on the granting of the 99-year lease over the Port of Darwin to the Chinese company Landbridge.

Although NT Labor had raised concerns about the privatisation of the port without a mandate, Wood says his was the only voice in the NT parliament to have publicly questioned whether there could be security issues, given Darwin hosts both Australian and American troops.

He first raised this before Chief Minister Adam Giles announced on October 13 that Landbridge had secured the lease, for $506 million, a sum that is rumoured to be well above what other bidders were prepared to pay. Even ostensibly private Chinese companies can benefit from cheap loans from government-backed banks.

Wood’s concerns seemed justified this week as he read in the Financial Review of alleged close links between Landbridge and the People’s Liberation Army (PLA), including that the company was forming its own armed militia. The company disputes this, saying they are in fact voluntary firefighters. But China experts say it is not unusual for companies to set up their own armed units. Nor is it unusual for senior businesspeople to have a background in the army and continued close links to it, as is reportedly the case here.

Wood had already been given assurances by Giles’s office that the Department of Defence had thoroughly considered the deal, and approved it. Indeed, Defence secretary Dennis Richardson has publicly dismissed concerns about the lease of the port, saying it is “amateur hour” to suggest the Chinese might use the lease to spy on US naval vessels. He also says that Australian authorities have the power to take back control of the port in a time of crisis.

Again, Wood addressed the issue in parliament this week, on the same day that the shambolic NT government attempted an unsuccessful midnight push to oust its speaker.

“I have to go on what the chief minister said,” says Wood. “So I said this is not an issue for the NT. If people have concerns, they need to take it up with the Department of Defence because, if the NT government has been given the tick by the Department of Defence that it’s okay, they can’t blame the NT government.”

Treasurer Scott Morrison did not go so far as to blame the NT government, but he did stress this week that it – rather than the federal government – was responsible for the leasing of the Port of Darwin. He made this point while knocking back, on national interest grounds, the sale “in its current form” of a massive agricultural estate, S. Kidman & Co, to foreign interests, which included Chinese bidders.

The Kidman estate is Australia’s largest private landowner, with 10 cattle stations and 2.5 per cent of all agricultural land. Crucially, it also includes land in the Woomera Prohibited Area in South Australia, adjacent to a weapons testing range run by the military.

It is only the second time this government has refused a foreign investment proposal, after rejecting US giant Archer Daniels Midland’s bid for GrainCorp soon after winning government in 2013.

The vendor has been given the option of restructuring the sale and trying again.

1 . FIRB processes for review

Even though Turnbull brushed off security concerns about the Port deal and said there had been nothing furtive about the process, some in the government are less sanguine and are surprised by the Department of Defence’s stance.

In a sign the current approvals regime may be flawed, Morrison said he was talking to state and territory governments about overhauling review processes for the sale of strategic assets to foreign interests.

The Darwin port deal did not require approval from the Foreign Investment Review Board because of an exemption for agreements between Australian governments and private companies.

As federal Labor considers pushing for a senate inquiry, the government has agreed to a request from opposition leader Bill Shorten for a briefing next week on the review process that preceded the deal.

Old China hand and former intelligence analyst Peter Phillips says it’s time Australia adopted a “rather more refined and nuanced set of preconditions” for foreign investment, given the growing interest from China.

Phillips is now a China business consultant but previously served as a diplomat and a China analyst with the Office of National Assessments. He knows about Chinese state power and how it reaches into commercial ventures. He also knows there are potential benefits from Chinese investment, but argues Australia needs a new set of criteria for judging whether this is in the national interest.

He says there are “legitimate questions” to be asked about the Port of Darwin deal, though he adds that some of the concerns have been overstated. Those questions have been asked in recent weeks by a range of commentators, including former senior defence officials Allan Behm and Peter Jennings.

Behm described the deal, in a post on the Australian Strategic Policy Institute’s blog this week, as being “of enormous strategic significance”. He accused Defence of taking a “laissez-faire attitude to the matter” and said the Office of National Assessments should also have been consulted.

Behm wrote that the deal “plays into China’s aspirations for economic and strategic dominance of the major trade routes that connect China with the world and imposes another constraint on the US’s freedom of strategic manoeuvre and its ‘pivot’ to Asia – not to mention Australia’s freedom of strategic manoeuvre in our northern approaches”.

Another China expert and critic of the deal, Geoff Wade, who has highlighted the links between Landbridge and the PLA, argues that it is either “targeted disingenuousness or woeful ignorance” for the government to suggest it is a private company and that the port investment is purely commercial.

Phillips says it is entirely conceivable that the company could be required by Chinese authorities to employ a “sleeper” agent to carry out various cloak-and-dagger functions.

 “Or their brief,” he says, “could be to seek to improve the prospects of employment for local people of ethnic origin who then could possibly be told, ‘Your prospects of advancement in the company will be significantly enhanced if you do this for us.’ ”

Phillips says it is unlikely that Landbridge would have the capacity to refuse such a request from Chinese authorities. He adds that the dismay over the deal from the US might suggest that, from the Chinese perspective, it has already achieved a strategic objective.

2 . Chinese investment encouraged

Those raising concerns about the strategic ramifications also point to recent Chinese investment in ports through the region as part of its bid to assert its maritime power amid tensions in the South China Sea.

This includes investment in Gwadar Port in Pakistan, allowing China oversight of sea traffic into the Persian Gulf, and proposed investment in the Port of Hambantota in Sri Lanka, which would give it a greater presence in the Indian Ocean.

The other side of this story, of course, is the fact that successive Australian governments have been eagerly wooing Chinese investors.

Trade Minister Andrew Robb has been squiring them around the Northern Territory, along with Minister for Resources, Energy and Northern Australia Josh Frydenberg. Under the previous Labor government, then trade minister Craig Emerson championed a “Feeding the Future” report that looked into removing barriers to Chinese investment in Australian agriculture, particularly in the north.

That push is now coming to fruition, following the signing of the free trade deal. But it seems the government is only just beginning to grapple with some of the regulatory issues raised by the Chinese investment binge.

In dismissing security concerns about the Port of Darwin deal, Richardson has cited advice from Australian Defence Force chief Mark Binskin that spying could be done more easily by “sitting on a stool at the fish and chip shop on the wharf” than via signing a 99-year lease.

Given the strategic and commercial forces now at play in the Top End, there may soon be agents from both the US and China sitting at that chippy, reading the NT News.

This article was first published in the print edition of The Saturday Paper on November 21, 2015 as "Port in a storm".

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Sophie Morris is The Saturday Paper’s chief political correspondent.

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