Australia Reviews China Port Lease Near U.S. Military Outpost

A Chinese deal to manage an Australian port near where thousands of U.S. and local troops train has become the latest fault line in a worsening diplomatic and trade relationship between Canberra and Beijing.

Australian defense officials are reviewing whether a 99-year lease granted to Shandong Landbridge Group in 2015 to operate Darwin Port—in exchange for 506 million Australian dollars, or about $392 million—is a potential national security threat.

The deal blindsided the U.S. government at the time, as it wasn’t told in advance about the lease of the port by the Northern Territory government to Landbridge.

The port handles ammunition, equipment and fuel used by U.S. marines and the Australian troops who train with them for up to six months of the year, defense experts say. It is also the most suitable site in northern Australia for a major naval base and provides the country’s closest route to disputed South China Sea waters.

Darwin Port routinely supports exercises of the Australian defense forces and hosts visits by Australian and foreign navies, according to the port’s annual reports.

“There’s a growing recognition by Australia and by our U.S. ally of the value of our strategic geography in the north, centered on Darwin,” said Michael Shoebridge, a national-security expert at the Australian Strategic Policy Institute, a government-backed think tank. “U.S. and Australian strategy means we need to make much better use of Darwin as a strategic asset for Naval and Air Forces, in particular.”

On Wednesday, representatives of closely held Landbridge said the company would act to safeguard its interests should Australia terminate the lease, potentially by taking legal action and seeking compensation for its losses.

The investment was a commercial decision that “doesn’t involve any security issues,” said Vincent Lai, chief executive of Landbridge Infrastructure Holdings Ltd., a Hong Kong-based subsidiary that oversees the Darwin port assets. He said Landbridge was willing to cooperate with the Australian government review.

The Chinese lease illustrates the awkward diplomatic feat that Australia has faced when trying to balance deeper strategic ties with Washington with an increasing reliance on China for its economic well-being.

Landbridge was selected by the Northern Territory government following interest from dozens of companies globally. Territory lawmakers saw it as an opportunity to accelerate development of northern Australia, and help to increase exports to Asia, including livestock and mineral commodities.

Mr. Lai, reading a statement on behalf of the Landbridge chairman Ye Cheng, said the company has invested 20 million Australian dollars to upgrade the port since becoming its operator, and it can now handle a broader range of cargo, including liquefied natural gas. He said recent security concerns over the port are hurting its business and dealings with customers.

Landbridge, which owns logistics, petrochemicals, real estate and other assets in China, secured the deal at a time when trade and economic ties between the two countries were deepening. Just months earlier, Canberra and Beijing signed a free-trade agreement that had been in the works for nearly a decade.

The port deal didn’t need approval by Australia’s federal government at the time and then-leader of the Northern Territory, Adam Giles, said it didn’t pose any security risk. The federal defense secretary also didn’t object.

However, Australian officials have grown increasingly concerned about Chinese influence in the country’s affairs and President Xi Jinping’s more-aggressive approach to diplomacy and trade. Australia has passed new laws that boost its powers to scrutinize agreements that could affect national security, and plans to strengthen them further.

Relations between the two countries worsened last year after Australian Prime Minister Scott Morrison called for an international investigation into the origins of the coronavirus. Since then, China placed restrictions or tariffs on certain Australian imports like coal, barley and wine.

China has complained that Australia is imposing increasingly discriminatory restrictions on investments by Chinese enterprises, and limiting activity by its tech companies. Australia was one of the first countries to block Huawei Technologies Co. components from its wireless 5G networks.

Last month, Australia’s federal government canceled a preliminary agreement between China and Victoria, one of Australia’s most populous states, that was part of Beijing’s Belt and Road initiative, a foreign-policy program in which China is investing billions of dollars in infrastructure projects world-wide.

“If there is advice from the defense department or our security agencies that change their view about the national security implications of any piece of critical infrastructure…then you could expect me, as prime minister, to take that advice very seriously and act accordingly,” Mr. Morrison recently said when questioned about the Darwin Port lease.

On Wednesday, China’s Ministry of Foreign Affairs said Australia should stop “disrupting normal exchange and cooperation with China.” Companies investing overseas were encouraged to comply with local laws, it said in response to questions from The Wall Street Journal.

Some Australian defense experts consider the port deal to be a policy error. Darwin is the only place in northern Australia suitable for developing a major naval hub, said Neil James, executive director of the Australian Defence Association, a security think tank.

The port will likely handle supplies needed for a 747 million Australian dollar upgrade to the training ranges announced by Mr. Morrison last month, said Mr. Shoebridge, the national-security expert.

The Northern Territory chief minister, Michael Gunner, said he supported a federal-government review of the Darwin port lease. His party had opposed a deal while in opposition in 2015, he added.

Landbridge, based in the coastal city of Rizhao in northern China’s Shandong province, isn’t alone among Chinese investors in owning Australian port infrastructure. China Merchants Port Holdings Co. Ltd. is a 50% shareholder in the Port of Newcastle, on Australia’s eastern coast and a key hub for exporting coal. China Investment Corp. is part of a consortium that bought the Port of Melbourne in 2016.

Some federal lawmakers want those investments also to be reversed. Sen. Matt Canavan—a member of the National Party, part of Mr. Morrison’s governing coalition—last month said Australia faces threats from what he labeled aggressive conduct by the Chinese Communist Party.

Source: https://www.wsj.com/articles/australia-reviews-china-port-lease-near-u-s-military-outpost-11622032073