It puts Australia in a similar position to the UK, where the politicians must balance security concerns related to China's involvement in Hinkley against the importance of a good relationship with the world's second largest economy.
Australian Treasurer Scott Morrison said today that foreign investment proposals for a 50.4 per cent stake in Ausgrid for 99 years were "contrary to the national interest ... on the grounds of national security".
The bids of more than A$10bn (£5.94bn) were submitted by State Grid Corporation, which is a Chinese state-backed firm, and Hong Kong-based Cheung Kong Infrastructure, owned by billionaire li Ka-shing.
"During the review process national security issues were identified in critical power and communications services that Ausgrid provides to businesses and governments," Morrison said in a statement.
He continued: "I am, of course, open to consider what the bidders put to me, but at this stage no suitable mitigations have been identified that would, for the proposed transaction structure, appropriately address the identified risks."
An influx of Chinese investment into Australia has attracted the attention of regulators there. In April, Morrison blocked the sale of the S Kindman & Co agriculture empire to a Chinese consortium of investors.