In the past, the government has equivocated.

It has allowed the likes of China's State Grid to be minority shareholders in critical infrastructure assets, but with strict conditions attached.

Understood model but not indicative of trust

This was the model bidders were understood to be pursuing for the $9 billion sale of TransGrid, NSW's main electricity transmission network.

That would have seen only Australian nationals allowed in management positions, a majority of local directors and security clearances for all those sitting around the board table.

"It said to the Chinese we want your money, but we don't trust you," said source involved in the process.

Now it appears the government is under mounting pressure to veto any Chinese ownership of TransGrid, and if that happens it is going to cause Turnbull some problems in Beijing.

While China's state media has been unusually silent on Thursday's rejection of the S.Kidman & Co sale on national security grounds, this is unlikely to last if mainland interests are also excluded from buying TransGrid.


One knockback can be seen as an isolated decision, two starts to look like a trend.

State-backed academics are already sharpening their lines.

Even before an official announcement on TransGrid, Wang Zhenyu, an associate research fellow at the China Institute of International Studies, which sits under the Foreign Ministry, said Australia is discriminating against Chinese investors.

"National security is just an excuse," he said via phone from Beijing. "There are other places that will welcome Chinese investment."

This is the problem for Australia. It needs Chinese capital to build infrastructure, upgrade food production and keep housing construction near record levels.

But Fraser Howie, the co-author of three books on China's financial system, said foreign governments had to be prepared to say no to China.

It's about transparency, not xenophobia

"It's not xenophobic. It's about transparency," he said via phone from Singapore. "You need to treat Chinese buyers with a higher degree of caution, particularly when it comes to strategic assets."


Fraser, who is best known for his book Red Capitalism, said most Chinese buyers had strong connections to Beijing and so should be scrutinised more thoroughly.

"You can't rule out Chinese investment because it is part of the global framework, but it must be held to a high standard," he said.

"There is also an increasingly held view that after 30 years of investment, where is the reciprocity? We don't get anywhere near the access China expects of us."

"It's difficult because a Chinese buyer might show up with lots of money and that's attractive in the short term. That's hard to say no to. But can you say no to them later? Can you hold them to account?"

These are the questions Turnbull will need to answer.