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When Prime Minister Malcolm Turnbull had his first meeting with United States President Barack Obama in Manila late last year, the mood was kept light, even if the issues weren’t.
Afterwards, it emerged that the president had had a dig at the prime minister for not having directly consulted the US on the Northern Territory government’s plans to lease the Port of Darwin, where US Marines are stationed for half the year, to a Chinese company.
Obama was reported as saying the US administration had only found out about the 99-year lease to Landbridge, a company linked to China’s People’s Liberation Army, by reading about it in The New York Times.
“Let us know next time,” he was quoted as saying.
Turnbull reportedly quipped, somewhat boldly, that the Americans clearly needed to take out a subscription to the colourful local tabloid, the NT News, because it had been extensively canvassed there.
What wasn’t reported at the time is that later the president amended his remarks privately and modified his accusation. The Saturday Paper has been told that in a subsequent conversation with Turnbull, Obama acknowledged some information actually had been passed between the two countries’ officials and he may have been misinformed on that point. The Australian side viewed this as an apology of sorts.
But the clarification didn’t change the Americans’ view that they should have been consulted, not just informed, or that the lease poses a security risk.
Those concerns have led to amendments to Australia’s foreign investment review processes, the most recent of which took effect this month. Now, all investment proposals involving critical infrastructure must go before the federal Foreign Investment Review Board (FIRB), not just those clearly involving companies owned by foreign governments.
Last year, the government added extra layers of reassurance for its US allies, appointing to the FIRB’s executive former ASIO chief David Irvine and former Rio Tinto managing director David Peever, who led the government’s First Principles Review of Defence and chairs its oversight board.
But last week, a senate committee recommended more changes to the system. The senate economics references committee has raised continuing concerns that it remains difficult for participants and observers to understand exactly how the review system weighs up economic considerations against security and essential services supply to decide what’s in the national interest. It also points out that the free trade agreements being signed with other countries are introducing inconsistencies in the rules.
The national interest isn’t defined in legislation. Ultimately, it’s left up to the federal treasurer to determine, case by case, weighing security, competition, the impact on other government policies, and on the economy and wider community, and the investor’s character.
The senate committee doesn’t think that should change. But in addition to the alarm bells in Washington, the Coalition government’s own constituents, especially in rural Australia, have raised concerns about how much Australian property is being sold to foreign interests, particularly in China.
It’s a delicate area. Traversing it requires balancing Australia’s present and future diplomatic, security and economic interests against reputational considerations, such as the risk of being seen as xenophobic or a closed economy.
The FIRB’s annual report, also published late last week, shows it approved $194.6 billion of foreign investor proposals in 2014-15. It reports $46.6 billion of those involved Chinese investors. China was the largest single source. In dollar value, the US was second.
The FIRB did not reject any proposals last financial year, compared with three the year before. But it placed conditions on 40 per cent of approvals.
The largest slice of foreign investment was in residential real estate, in which approvals had tripled in the previous two years.
A report published on Monday by KPMG and Sydney University, titled Demystifying Chinese Investment in Australia, confirmed a sizeable boost in Chinese investment in 2015, after two slower years. The report says that in 2013, about 1 per cent of Australian land was Chinese-owned. Last year, there were 12 major deals in dairy, beef and cotton.
The biggest were Beingmate’s investment in Darnum/Fonterra in Victoria, Tianma Bearing Group’s acquisition of Wollogorang and Wentworth stations in the Northern Territory, and Dashang’s investment in Glenrock Station.
Other large stations among those in New South Wales, Queensland and the Northern Territory sold to Chinese interests include Hollymount Station, Elizabeth Downs and Undabri cotton farm.
The US administration’s discomfort over the Darwin port lease has been eased by what The Saturday Paper understands is an Australian Defence Force strategy to mitigate against the security concerns. Part of that strategy is a pre-existing plan to expand the navy’s Darwin basing facilities, so visiting military ships will be less dependent on the commercial port.
The recent change to the foreign acquisitions rules regarding critical infrastructure was another important element. While the move pleased the US, the Chinese are less impressed. In its submission to the senate inquiry, Landbridge described itself as “a privately owned and operated commercial investment company” that is registered in Australia.
“It is not a state-owned enterprise and does not engage in political activity, as has been misreported by some media outlets,” the submission says. It says it interacted with the Australian Defence Department during negotiations and “at no stage did Defence raise any concerns about Landbridge’s potential acquisition of the port”.
In a recent interview with The New York Times, Landbridge’s chairman and founder, Ye Cheng, dismissed security concerns as paranoid. “You Americans think too much,” he told the newspaper. “You can think what you want, but this is about port-to-port business.”
The senate inquiry, which Labor instigated with independent senator Nick Xenophon, involved five Labor senators and two from the Coalition, although the latter did not dissent. All had their eyes fixed firmly on home soil.
The report found that the current system of reviewing applications for foreign investment in Australia is still too opaque. It says a lack of transparency and clarity is undermining confidence, among both potential investors and the Australian public.
It recommends the assessment process be made clearer for investors and that the Foreign Investment Review Board and Treasury publish more detailed reasoning for decisions, whether positive or negative, on investment proposals. The government says it does that already.
The report also recommends that the new agricultural land register, set up to keep track of the foreign ownership of Australian land and agribusinesses, should be fully public.
“The usefulness of the agricultural land register to increasing public confidence in the foreign investment review process is dependent on as much information as possible being made available,” it says.
But the register, which is still being finalised, is not going to be public. Instead, only aggregated figures will be available. This has not pleased the National Farmers’ Federation.
“If it doesn’t help inform the debate around what is being bought, by who and where, we’ll be disappointed,” federation chief executive Tony Mahar says. “If it doesn’t do that, it will come up short.”
The NFF supports foreign investment but says transparency is important. Mahar is frustrated at the time it has taken to establish any kind of register, after then prime minister Julia Gillard announced it in 2012.
“I knew it was a slightly difficult task,” he says. “I didn’t think it would take four years. I thought they could nail it by then.”
A register of foreign-owned water entitlements is also due to be legislated by December.
A spokesman for the treasurer emphasised that the Rudd–Gillard–Rudd governments had plenty of time to make improvements. “Labor did next to nothing to strengthen Australia’s foreign investment framework in their six years in office,” he told The Saturday Paper.
He pointed to a range of changes since the Coalition government took office, including formally requiring investment applicants to ensure their multinational companies paid tax in Australia on what they earned, and setting new penalties for breaking the rules, resulting in the forced sale of 27 illegally purchased properties, worth more than $76 million.
The government has also lowered the compulsory screening threshold for proposed private foreign investments in agriculture. “The government is delivering on its commitment to strengthen the foreign investment system,” the treasurer’s spokesman said. “The Australian community can be confident that, under the Turnbull government, foreign investment proposals will not be contrary to the national interest.”
Deputy prime minister, agriculture minister and Nationals leader Barnaby Joyce suggested Labor senators were being somewhat hypocritical in demanding more action. “It took the Coalition government to actually establish the agricultural land register,” he said through a spokesman. The Australian Tax Office began collecting data in July, including a stocktake that closed on February 29. It remains unclear when data will be made publicly available.
Joyce’s spokesman rejects suggestions the information will be too limited to be useful to investors and the public. “The national register will provide a more complete and transparent picture of foreign investment levels in Australia’s agricultural land than ever before, with regular reports by the ATO to the government,” he says.
“…This is a major step forward in gaining an accurate picture of the trends in the level and main source countries on an ongoing regular basis.”
The senate report recommends Australia look to New Zealand’s system.
Rather than assessing applications for their potential pitfalls, the New Zealand system – administered by its Overseas Investment Office – first considers what good they may bring in terms of economic development and jobs. But the New Zealand office does not have an agricultural register and like their Australian counterparts, the Federated Farmers of New Zealand believes they should.
Drawing on the New Zealand system, the committee says Australia’s Treasury should publish reasons for accepting – as well as rejecting – individual proposals, to make the decision-making process easier to understand from outside and help boost confidence.
The Federated Farmers of New Zealand supports the OIO’s approach. “We need foreign investment but not at any cost,” says chief executive and Australian expatriate Graham Smith. “It has to be of some economic and social benefit. We want quality investment that meets both economic and social criteria.”
Late last year, New Zealand government ministers rejected one such application, by Chinese conglomerate Shanghai Pengxin, for the historic Lochinver farm near Taupo on the North Island, on the grounds that it did not pass the test of adding more value to the asset than a hypothetical local buyer. It wasn’t going to produce many jobs.
Shanghai Pengxin had already been on a buying spree in New Zealand, acquiring 29 properties across the country in the previous four years. It also happens to be the company applying to purchase Australia’s Kidman and Co portfolio of rural properties, spanning three states and covering a geographical area the size of Belgium.
In the wake of the Port of Darwin controversy, Treasurer Scott Morrison knocked back Shanghai Pengxin’s original application for the Kidman properties on national security grounds – an initial decision taken in the current financial year – because it included the world’s biggest cattle station, the 24,000 square kilometre Anna Creek, which is near the weapons testing range in South Australia’s Woomera Prohibited Area.
The company was allowed to resubmit its application, with Anna Creek excised from the sale. The land involved now covers about 1 per cent of Australia.
Morrison is still considering the application.
NT Chief Minister Adam Giles has welcomed the senate committee’s assessment that his government’s decision on the Port of Darwin followed an open and transparent process. “We like seeing that acknowledged,” he says.
He thinks the anxiety that followed his government’s port decision was “madness” and that “just because it wasn’t in front of some people in Canberra” meant some officials had begun “beating their chests”.
“What they should be doing is looking at food security and energy security – energy security around gas, food security around baby formula and beef.”
Giles has a firm view about the sale of the Kidman cattle interests: “I think Kidman should remain in Australian hands, because of food security.” He points to the rocketing price of baby formula because of Chinese demand and says he fears the same will happen to beef.
Senator Joyce’s spokesman notes that as recently as February, Kidman and Co was still inviting offers from Australian bidders. “I have strongly encouraged Australian investors to consider this opportunity to invest in one of Australia’s great agricultural assets.”
Across the Tasman, a decision is also pending on a proposed joint-venture investment in New Zealand meat-processing operation Silver Fern Farms, involving Chinese food industry giant Shanghai Maling – the first proposed for New Zealand’s meat industry.
Farmers and their representatives in Australia and New Zealand are awaiting these decisions with considerable interest, as are potential overseas investors, especially in China.
As Malcolm Turnbull arrived in China late this week, newspaper reports warned that his Chinese hosts intended to raise with him the changes to Australia’s foreign investment review system.
What has made the Americans happier has had the opposite effect in Beijing and Shanghai.
But the Australian government is most focused on how Australians react.
In a joint venture of economics and politics, in which you can only please some of the people some of the time, governments will always look to please their own first – especially in an election year.
This article was first published in the print edition of The Saturday Paper on April 16, 2016 as "The new rules for foreign investors".
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