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China understands investment rights: PM

AAP logoAAP 4/09/2016 Rashida Yosufzai

Malcolm Turnbull may be spruiking open trade borders in China but the prime minister insists Beijing understands Australia's right to reject some investment proposals.

Mr Turnbull met with Chinese President Xi Jinping on Sunday at the sidelines of the G20 meeting in Hangzhou where he's been urging leaders to promote the benefits of trade liberalisation.

The duo discussed Australia's foreign investment rules but no specific mention was made of the controversial decision to knock back Chinese buyers from the sale of the NSW electricity grid Ausgrid.

Mr Turnbull insists China understands Australia's sovereign right to determine who invests and the terms in which they invest.

"We mostly say yes ... but from time to time we say no and we make no bones about that - and China respects it," he told reporters in Hangzhou on Sunday.

Mr Turnbull said it was a lot easier for a Chinese company to invest in Australia than vice versa.

The issue was related but "quite different" to his call on G20 leaders to do more on reassuring the public and spruiking the benefits of open investment.

"China is not exactly being knocked back or turned away."

Still, Mr Turnbull believes the China-Australia relationship is getting "stronger and stronger", with benefits from the China free trade agreement, massive growth in exports as well as 1.15 million Chinese tourists in Australia last year.

On the South China Sea dispute, the prime minister said China understood Australia's position on the importance of complying with international law and settling disputes peacefully.

"Australia's position is respected," he said.

During their meeting, President XI conveyed China's hope that Australia would continue to uphold an objective position on the South China Sea.

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