Australia cites national security to block China buying local builder

Australia has blocked a A$300m takeover offer by a Chinese state-owned company for a local building contractor in a move that reflects the intense diplomatic and trade tensions between Beijing and Canberra.

The decision to block China State Construction Engineering Company from acquiring Probuild on “national security” grounds is the first negative assessment made by Canberra since tough new foreign investment (Firb) rules came into force on January 1.

The regulations hand Canberra greater powers to review proposed investments in sensitive sectors by foreign bidders, scrutinise compliance with approval conditions set by government, and order divestments.

Experts said the decision to block such a relatively small acquisition sent a clear signal to Chinese investors that approvals for mergers and acquisitions in Australia now faced significant hurdles.

“The Treasurer’s rejection of the takeover bid for the South African-owned Probuild by China State Construction Engineering Corporation is a sign of tougher scrutiny of Chinese investment under the new Firb regulations which now incorporate national security as a specific element in the screening process,” said Hans Hendrischke, a professor of Chinese business and management at University of Sydney Business School.

Prof Hendrischke said CSCEC may have been blocked by Canberra owing to Washington’s decision in August to put it on the list of “Communist Chinese military companies” and bar US investors from owning its shares. CSCEC is the world’s largest construction company in the world by revenue.

CSCEC did not respond to requests for comment.

Chinese investment into Australia has fallen dramatically since bilateral relations soured over Canberra’s decision to bar Huawei from providing 5G equipment, its introduction of foreign interference laws and calls for an inquiry into the Covid-19 outbreak in Wuhan.

A joint report by University of Sydney Business school and KPMG found Chinese companies invested A$3.4bn ($2.6bn) in 2019, down 58 per cent from A$8.2bn a year earlier.

Australia’s hard line on Chinese investment mirrors a far tougher approach taken by Washington towards Beijing. However, it contrasts with Europe’s more modest approach and decision to sign an EU-China investment deal last month.

Josh Frydenberg, Australia’s treasurer, refused to comment on Canberra’s decision.

Probuild’s parent Wilson Bayly Holmes-Ovcon disclosed to the South African stock exchange that a potential acquirer had withdrawn its offer for Probuild following advice from Canberra that it would reject its application on “national security” grounds. People with knowledge of the deal confirmed to the Financial Times that the bidder was CSCEC.

Simon Gray, Probuild’s executive chairman, blamed “politics” for Canberra’s decision to torpedo the deal, telling the Australian Financial Review that Probuild undertook less sensitive work than rival John Holland, which was acquired by China Communications Construction Company for A$1bn in 2015.

“It’s more politics than anything else . . . No one can give us a real reason why we’re a national security risk. It’s a joke,” Mr Gray said. 

Australian businesses are growing increasingly nervous about Canberra’s crackdown on Chinese investment, fearing it will prompt Beijing to impose more trade sanctions on Australian products. However, the government insists it will not trade away its sovereignty in its handling of relations with China.

In August, Mr Frydenberg blocked China Mengniu’s proposed A$600m takeover of Lion Dairy, which was owned by Japan’s Kirin Holdings

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