The security and sovereignty of Australia’s telecommunications networks and data centres are central to overhauled foreign-investment policies that empower the Treasurer to review, limit, or prohibit foreign investments in “sensitive national security businesses”.

To be implemented as changes to the Foreign Acquisitions and Takeovers Act 1975 (FATA), the new policies update the government’s March decision to force reviews of all foreign investment in Australia.

That move came as COVID-19 hit share markets and uncertain revenue forecasts left many Australian businesses at risk of what treasurer Josh Frydenberg called “predatory” takeovers by opportunistic foreign governments.

The latest policy change introduces five new powers that, Frydenberg has explained, will be applied to all foreign investment and govern the activities of the Foreign Investment Review Board (FIRB) from 1 January 2021.

As outlined in a white paper that will pave the way for exposure draft legislation next month, the changes include a new national-security test that vets potential foreign individuals and companies investing in a ‘sensitive national security business’, and a ‘call-in’ power that lets the Treasurer review non-sensitive transactions that nonetheless raise national-security concerns.

It also introduces a ‘last resort’ power by which the Treasurer can impose conditions or forcibly stop foreign investments; stronger enforcement options; and measures to streamline investments in ‘non-sensitive’ businesses.

Tension with China

The new measures have been widely taken as a warning shot across the bow of China – which has been ramping up a global PR campaign, in Europe and elsewhere, with donations of protective personal equipment and financial investments in countries whose economies have been devastated by the COVID-19 pandemic.

Yet while Chinese publications speak of increasing “economic cooperation” between China and Europe – which are scheduled to sign a comprehensive trade agreement in September –others warned that China may see Europe’s businesses as a fire-sale opportunity, with Beijing’s propaganda machine running in full gear but negotiations leading to a “breakdown in trust as both sides resort to nationalistic postures”.

Australia hasn’t singled out China as the reason for the FATA changes, but the increasing war of words between the countries suggests that the new investment controls have hit a nerve – and that Australia’s telecommunications and data-centre industries are key battlefields.

The Department of Defence and other government agencies have been racing to move their data out of Global Switch data centres – including two high-security Sydney facilities owned by the global concern – after a 2017 deal in which a Chinese investment consortium netted 49 per cent of the company.

The deal led the Australian Taxation Office to shift its business to Australian-owned facilities in a $73m deal with domestic operator Canberra Data Centres (CDC), while Defence is said to have already spent $200m to move its data out of Global Switch ahead of a September deadline said to be causing problems for many agencies.

Redefining “sensitive”

The government is now reconsidering the definition of a “sensitive national security business” in the context of a situation where, Frydenberg said in a doorstop interview about the changes, “governments are seeing foreign investment being used for strategic objectives, not purely commercial ones”.

“It is expected that the government will cast a wide net,” law firm McCullough Robertson noted in its analysis, spanning technology, data, energy, water, telecommunications and ports – with the inclusion of data “of particular importance”.

Telecommunications networks have long been recognised as being of national importance – as evidenced by the ongoing stoush over Huawei’s role in evolving 5G networks – but the added focus on data-centre facilities reflects an expansion of this reality.

Prime Minister Scott Morrison flagged concerns about sensitive Australian data ending up in foreign-controlled facilities, noting that “the interests that needed to be assessed for Australia [are] not just those that related to commercial issues but broader strategic issues and national security issues.”

This meant tighter scrutiny of “investments in critical infrastructure and sensitive businesses and data centres, and things of that nature”.

Arguing that there was no specific investment that triggered the changes to the FATA system, Morrison said the policy change was intended to ensure the foreign investment system has flexibility “when the conditions change, when business activities change, when markets change, when technology changes.”

Business groups have responded positively to the changes, with Business Council of Australia CEO Jennifer Westcott saying in a statement that the changes “will sensibly target the assets most critical to Australia’s national security, including key supply chains and infrastructure.”

“Attracting the investment we need and protecting our security and sovereignty are not mutually exclusive,” she said.