Successive Australian governments have worked hard to limit Chinese involvement in our critical minerals sector, reflecting a bipartisan understanding that such resources are central to economic security and future self-reliance. Against that backdrop, Friday’s revelation that a Chinese company had been allowed to invest in an Australian lithium producer was both surprising and politically fraught. It undermined the strategic coherence in critical minerals policy that has served us well.
The government’s decision touches a deeper question: how can Australia reconcile the desire to work with China on shared priorities, such as clean-energy transition, while guarding against the strategic risks that come with Chinese involvement in critical industries?
This is not an abstract policy dilemma. Over the past decade, Australia has moved decisively to keep China out of critical infrastructure, advanced technologies and key mineral projects. Each of these areas carries different risks—from security intrusions and surveillance to market dominance and supply-chain manipulation—but the underlying test has been the same: could this access be used to coerce or otherwise harm Australia in a crisis?
The challenge for Australia is consistency. How do we credibly argue that Chinese investment in certain critical minerals is unacceptable except when it isn’t; that Chinese ownership of our electricity grid is off-limits, yet China-linked companies can supply the batteries that power it; or that Chinese firms are blocked from telecommunications but can hold stakes in media assets relied upon for public information? Without a clear, coherent principle, these decisions risk appearing arbitrary—or, worse, politically expedient. For a Beijing that usually avoids overt confrontations or diplomatic embarrassment, Australia’s approach had served both Australia and China well.
The government’s approval of Chinese-backed investment in Liontown Resources, a major lithium producer, was framed as part of the government’s $50 million National Reconstruction Fund equity stake—as a move to strengthen Australia’s position in the global lithium value chain. The investment fits within the broader Future Made in Australia agenda, which seeks to position the country as a clean-energy superpower.
On the surface, it looks like an effort to harness private capital, including from China, to accelerate the energy transition. Yet the contrast with other recent decisions is stark. Only months earlier, Treasurer Jim Chalmers ordered five foreign investors with suspected Chinese links to divest from Northern Minerals, which is developing a heavy rare earths project in Western Australia. That unprecedented intervention, backed by legal action against one non-compliant investor, was justified on national-security grounds.
From the perspective of an ally—or even an Australian investor—the policy divergence is confusing. On one hand, Canberra is expelling Chinese investment from one critical minerals project; on the other, it is welcoming it into another.
Part of the explanation may lie in the government’s attempt to segment risk—allowing cooperation where it sees minimal national-security exposure while drawing firm boundaries around areas deemed more strategically sensitive. Lithium, central to the global push for electric vehicles and renewable energy storage, may be seen as a field where cooperation with China can advance climate goals without handing over critical levers of sovereignty.
But this neat compartmentalisation is harder in practice. Liontown’s lithium will still be processed offshore—in China—because Australia has yet to develop large-scale refining capacity. The company’s largest offtake partner, Canmax Technologies, is a Chinese firm with deep ties to the battery giant CATL, itself repeatedly criticised over labour-rights issues and near-monopolistic control of the battery market. Even if the extraction is Australian, the value-added processing—and thus the leverage—remains in Chinese hands.
This is why economic security needs to be grounded in a clear principle: suppliers of concern should not be embedded in the supply chains of Australia’s critical technologies, minerals or infrastructure. That doesn’t mean shutting out all foreign investment or disengaging from China entirely. It means ensuring that investment structures align with long-term sovereignty goals, especially in sectors that could be decisive in a crisis.
It also means greater transparency. If the view is that lithium projects carry less strategic risk than rare earths or energy grids, then this needs to be explained. Without such clarity, policy risks looking like a patchwork of ad-hoc decisions rather than a coherent strategy.
A balanced approach is possible. Australia can continue to pursue climate and clean-energy cooperation with China where mutual interests align—in research, emissions reduction, renewable deployment—while ring-fencing those elements of the supply chain that underpin national security. Such an approach would align with how other advanced economies, from Japan to the United States, are framing engagement: seek collaboration in low-risk domains but maintain control in high-risk ones.
The risk, as the Liontown case shows, is that by leaning too far towards cooperation in pursuit of climate and economic goals, Canberra undermines the credibility of its strategic-sovereignty agenda. That credibility matters—not just domestically, but to investors and allies who are counting on Australia as a reliable partner in securing critical supply chains. Resources Minister Madeleine King summed up the stakes this year: ‘We can’t pretend that we live in an ideal, global, open and free trade situation. I would like to, but that doesn’t exist right now, and I don’t know when it’s coming back.’
Until that ideal returns—if it ever does—Australia needs to be clear about where it engages and where it draws the line.
The government’s challenge is to make sure that its pursuit of clean-energy cooperation with China does not come at the expense of strategic coherence. If Australia can formulate and apply that balance—encouraging climate partnerships where possible, defending sovereignty where necessary—it will send a far stronger signal: that the country is both committed to the energy transition and serious about protecting its national interests.