With Huawei’s aspirations to provide infrastructure for Australia’s 5G network dashed, attention must now shift to another major foreign investment proposal: the planned acquisition of APA Group, an Australian-owned and -controlled company, by Hong Kong’s CK Infrastructure Holdings (CKI). APA Group is a vital part of Australia’s national energy infrastructure. It owns more than 15,000 kilometres of gas pipelines, including the crucial South West Queensland Pipeline that acts as a conduit for north–south gas transmission on Australia’s eastern seaboard.

With the principal exception of ASPI’s Executive Director Peter Jennings, most of the commentary surrounding the proposed acquisition has focused on its economic dimensions. The terms of CKI’s offer provide a very favourable deal for APA’s shareholders. The $13-billion all-cash bid, unanimously endorsed by APA’s board, represents a 30% premium over the company’s recent trading value.

Though attitudes towards foreign investment in Australia’s critical infrastructure are changing, it’s still the case that investment proposals are too often examined through the narrow lens of economic costs and benefits. In that view, the criteria for considering foreign investment proposals are economic, principally whether the terms offered are acceptable to shareholders. Any factors outside the economic merits of a proposal tend to receive scant attention.

The increasingly obvious problem with this economistic view of foreign investment is that it’s unable to perceive larger, more important dynamics beyond the narrow calculus of economic costs and benefits. It doesn’t appreciate the surrounding geopolitical context through which foreign investment proposals acquire significance. In recent years, this perspective has proven a liability for Australia’s security interests.

The context that should influence Australia’s response to CKI’s bid for APA Group is China’s aspirations for regional hegemony. As Jennifer Lind describes in a recent issue of Foreign Affairs, China is pursuing the strategies of previous regional hegemons: working to establish itself as the region’s dominant military power, interfering in the domestic politics of other nations (including Australia), and engaging in a ‘soft power’ offensive to shape popular opinion.

Of prime importance, however, is that aspiring hegemons seek to establish their economic centrality to the neighbours they strive to control. As Lind describes it, ‘economic dominance lets regional hegemons use economic coercion to advance their agendas’ of political domination.

Though the idea isn’t explicated by Lind, historical experience shows that hegemonic powers seek control over natural monopolies like transportation, communications and energy. Because of their unique qualities, often related to very high infrastructure costs or other barriers to entry, natural monopolies have no ready substitutes. They are therefore powerful pressure points that hegemons can manipulate to coerce subordinate states. The hegemon can use its control of an asset to deny or disrupt client states’ access when they’re not sufficiently compliant. In many cases, the mere threat of being able to do so is enough to deter a subordinate state from ‘misbehaving’.

The increasing importance of economic instruments in the relations between states has been analysed by Robert Blackwill and Jennifer Harris in their 2016 book War by other means. They detail the growing centrality of economic measures, pertaining to such areas as trade, investment and exchange rates, to 21st-century statecraft—a phenomenon they label ‘geoeconomics’.

Blackwill and Harris identify energy as a particularly vital geoeconomic asset that states ‘enlist’ to advance their geopolitical interests. As an illustration, they detail Russia’s acquisition of energy infrastructure in nations of its ‘near abroad’, such as Gazprom’s purchase of Kyrgyzstan’s gas network in 2013. That investment, according to the authors, wasn’t made in accordance with economic criteria, but strategic calculations relating to Russia’s regional preeminence.

Blackwill and Harris decribe China as the ‘world’s leading practitioner of geoeconomics’. The Chinese state directly controls tremendous economic resources, and can also influence private actors through the coercive power wielded by the Chinese Communist Party. China has a unique capacity to advance unified policies by bringing together private and state organisations. As a consequence, it has the ability, and willingness, to direct and oversee international economic transactions of strategic significance.

That applies no less to private organisations based in Hong Kong, such as CKI. CKI’s considerable operations on the Chinese mainland mean that it must maintain a cooperative relationship with the CCP. CKI’s capacity to refuse the directions of the CCP cannot be guaranteed, and Australia would be mistaken to presume the CCP’s benevolence.

Australian policymakers cannot afford to neglect these factors when considering Chinese proposals to acquire natural monopoly assets. APA Group is a textbook natural monopoly. Its assets provide the primary means of moving gas along the eastern seaboard.

Permitting CKI to acquire APA would mean giving a Chinese organisation control over a key component of Australia’s energy infrastructure. It would provide the Chinese state with a pressure point that could be exploited in a future crisis, giving leverage to compel Australian acquiescence.

That could take the form of cyberattacks that manipulate the software that regulates the pipeline system, interfering with the operation of control valves, pressure monitors or other vital components. Such an attack could cause explosions, spills or other physical damage, and could disrupt gas distribution along the entire eastern seaboard. These are not abstract concerns—in April a cyberattack on a shared data network in Texas demonstrated the vulnerability of gas pipelines, though no physical damage resulted.

If Australia is to resist China’s hegemonic aims, we can no longer afford to let the economic merits of foreign investment proposals obscure their national-security implications. There are encouraging recent signs of our ability to resist China’s advances—namely, the establishment of the Critical Infrastructure Centre, the updating of laws covering espionage and foreign interference, the introduction of the foreign influence transparency scheme and, most recently, the 5G decision. Just as importantly, an ideational shift is underway that is changing Australian attitudes towards deepening engagement with China.

Rejecting CKI’s bid to acquire APA Group is a vital next step for the government to affirm its willingness to resist China’s hegemonic aims.