David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Chinese-Australian tensions these days extend well beyond spats between Olympic swimmers.

The chances of State Grid, a Chinese government-owned utility, buying the infrastructure to supply power to 1.6 million homes around Sydney may be slipping away amid security concerns and a protectionist backlash, Bloomberg's Brett Foley and Angus Whitley reported Wednesday.

Bricks and Mortar
China is the biggest foreign investor in Australia, but the bulk of its spending is on real estate
Source: Australian Foreign Investment Review Board
Note: Shows Australian government investment approvals in 12 months through June 2015.

Australia's Treasurer Scott Morrison has said national security is the key consideration in evaluating overseas proposals -- a view that may give Li Ka-shing's Cheung Kong Infrastructure a lead over State Grid in the A$10 billion ($7.7 billion) bidding for distributor Ausgrid.

On one level, the spat is another dispiriting sign of Australia's myopia in relation to investment from China, its biggest trading partner. Morrison in April blocked the sale of the country's largest cattle station to a Shanghai-based investor group, saying the deal would be "contrary to the national interest." Gadfly has previously argued that the country's protectionist instincts around farmland are mistaken.

In principle, utilities should be little different. Privatization and international M&A have a long-standing presence in the state-dominated sector. There's been $1.3 trillion of cross-border utilities deals globally since 1992, according to data compiled by Bloomberg , and five of the 10 biggest acquirers retain significant government stakes.

State of Play
Governments have a significant stake in the most acquisitive cross-border utilities M&A players
Source: Bloomberg
Note: We've labelled all companies with government shareholdings above 15 percent as "public-private". Engie owns International Power and has a 33% stake in Suez, and is itself 33% owned by the French government. That gives the state a measure of indirect control in both International Power and Suez.

On a deeper level, though, the naysayers have a point. Look again at that list of cross-border M&A deals and you'll notice that CK Infrastructure is the only one of the top 10 players not based in the European Union's single market.

Exclude EU countries from the ranking and the value of transactions immediately drops to $501.8 billion, the data show. Further narrow the focus by including only distributors worth more than $1 billion like Ausgrid , and the total falls to $102.1 billion. The only outright takeover in that group by a Chinese company was a 2010 deal in which State Grid bought a group of distribution businesses around Rio de Janeiro, Sao Paulo and Brasilia.

It's worth noting that while southeastern Brazil has suffered its share of power cuts over the past few years, they've been blamed mainly on drought reducing water levels in hydroelectric dams, as well as problems in the largely state-owned transmission network. State Grid, far from holding the country's homes and businesses to ransom, has mainly got on with its core business while bidding for a few new projects.

Still, the dearth of deals activity suggests Australia isn't alone in having a heightened level of sensitivity about critical grid infrastructure.

Such concerns are understandable. A cyber-attack on the U.S. grid could leave parts of the country without power for weeks and cause $1 trillion of economic losses, according to a report last year by insurance market Lloyd's and Cambridge University. A malware attack on Ukraine's grid last December cut power to 225,000 homes for several hours.

China seems to understand these worries when it comes to its own backyard. Foreign takeovers of Chinese utilities excluding generators have totaled $195 million since 2001, according to data compiled by Bloomberg, with just $34 million of the total occurring since President Xi Jinping came to power in 2012.

If Beijing really wants to increase its investments in the highly desirable utilities sector, it would do well to recognize that it's not the only player in the room.

Follow the Money
The valuation of U.S. utilities companies has been running at record highs this year
Source: Bloomberg
Note: Shows blended forward 12-month EV/Ebitda for the S&P 500 Utilities Index.

Governments concerned about national security issues are perfectly able to pick independent players such as CK Infrastructure instead. Even opaque state-owned businesses can soothe fears about undue influence (and spread some of their own risk) by joining a consortium with other players -- as demonstrated last year in the A$10.3 billion winning bid for the Australian transmission network that supplies Ausgrid.

Deng Xiaoping, who vigorously promoted the removal of state controls on China's agriculture, nonetheless followed the old Leninist doctrine that the "commanding heights" of industries critical to the nation's functioning should remain in state control. His successors shouldn't be too surprised if other countries think the same way.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Utilities distributors may be considered more important for national security reasons, since they generally have a monopoly on delivering power and water to homes and businesses. A power station or gas producer, on the other hand, normally competes with other players in national energy markets. Limiting the selection to deals over $1 billion should exclude smaller transactions which are less likely to involve critical infrastructure.

  2. The search also shows up China Huaneng's S$4.2 billion 2008 takeover of Tuas Power, a generation station that provides about a fifth of Singapore's power supply, and the purchase by State Power Investment last year of Pacific Hydro, an Australian renewable energy company. Both of these businesses are primarily generators so don't have the monopoly characteristics of power distributors.

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David Fickling in Sydney at

To contact the editor responsible for this story:
Matthew Brooker at