"It's a difficult issue, because you want to encourage investment and have good trade relations with China, but you do run increased national security risks with them," he said in an interview in Washington on Friday.

"The issue is could they do something in a crisis or they could exploit that ownership of the electrical grid to gain intelligence."

"It's not a big risk, but it's a possible risk."

US intelligence agencies declined to comment on the potential transaction.

All four short-listed bidders for the prized $9 billion NSW transmission network owner TransGrid have been cleared by the Foreign Investment Review Board, despite the growing controversy over sales of strategic assets to foreign companies.

US President Barack Obama last week chided Prime Minister Malcolm Turnbull on the US not being consulted about allowing a Chinese company with alleged links to the People's Liberation Army to lease the Port of Darwin. The US has about 1200 naval marines stationed in Darwin.

"Let us know next time," he was quoted as saying.


A joint consortium of the government-owned State Grid Corporation of China and Macquarie Infrastructure and Real Assets is expected to be an aggressive bidder for the NSW's power polls and wires.

Mr Lewis, now a senior fellow for strategic technologies at the Center for Strategic and International Studies, said there were possible "mechanisms" to deal concerns about abuse by the Chinese, who have been accused by the US of running a vast cyber theft program infiltrating government and businesses.

British politicians raised concerns about Chinese telecommunications giant Huawei's decade-long involvement in the country's mobile and fixed-line infrastructure. The UK government and firm jointly set up a cyber security oversight board to monitor if equipment provided to British Telecom (BT) and others threatened national security.

As Communications Minister, it is understood Mr Turnbull invited a BT executive to Canberra to brief intelligence officials on how the UK had dealt with concerns about Huawei.

In a tense debate with intelligence agencies who were alarmed about Huawei's potential involvement in the National Broadband Network, Mr Turnbull argued the Chinese firm should not be blacklisted. He was ultimately overruled by then prime minister Tony Abbott and Huawei was banned from the NBN, just like it was in the US.

Besides the State Grid Corporation of China -Macquarie joint bid, AustralianSuper and its Canadian partners, as well as Hastings Funds Management and Spark Infrastructure, and IFM Investors and QIC Ltd, are other consortiums in the running for the NSW assets.

Jacqueline Deal, Long Term Strategy Group president who has worked with the US Defence Department on East Asia, said the Chinese Communist Party (CCP) runs China, including its military and intelligence organisations. Senior officials from State Grid were sanctioned for disciplinary violations by the CCP this year, "demonstrating the CCP's authority over them", she said.

"When the defence establishment of any country gains access to sensitive communications from a potential rival or the ally of a rival, it is professionally obligated to exploit that access," she said. "Why would Australian authorities not apply that standard to the PRC [People's Republic of China] in this case?"


Treasurer Scott Morrison last week cited national interest grounds to block Chinese bidders from buying the huge Kidman cattle property spread across four states, including near the Woomera weapons testing range in outback South Australia.

Over the past decade, Chinese state-owned enterprises have been hoovering up assets in the natural resources, energy, transport and infrastructure sectors across Latin America, Africa, Asia and Europe.

Reserve Bank of Australia governor Glenn Stevens flagged in July that capital markets should prepare for a cashed up China to invest as much as $400 billion a year offshore.

The commercial rationale is that the Chinese are seeking to acquire stable, long term assets, in the face of mounting opposition to their involvement in sensitive sectors of the economy.