Abbott reviews veto for China state firms

Govt considers significant change in approach to Chinese foreign investment.

The Abbott government is considering a significant change in its approach to Chinese foreign investment to ease restraints on trusted companies in the hope of accelerating a free trade deal worth billions of dollars.

Sending an “open for business” message to Chinese leaders, Tony Abbott is looking at how to adjust an inflexible veto power over state-owned enterprises that want to invest in Australia. The changes could lure more investment into resources, infrastructure and the agriculture sector by removing obstacles for Chinese enterprises that have proven commitments to Australia.

The Prime Minister landed in China late yesterday for a bilateral meeting with Premier Li Keqiang to canvass a trade deal that could give Australian food producers and services companies greater access to a huge ­export market.

China has made investment rules one of its top priorities in the trade talks after years of concern at rules imposed by Wayne Swan five years ago to screen all investments from state-owned enterprises, regardless of their size.

While the Abbott government is not thinking of removing the threshold, it is searching for ways to make the regime more flexible for companies with a history of work in Australia or a commercial outlook, even if they are owned by the government.

The approach would not change provisions for the Foreign Investment Review Board to screen any farm purchase worth $15 million or more and any agribusiness purchase worth $53m or more, a core policy for the Nationals. But it would favour foreign investors that support new “greenfields” projects on the grounds they are helping to build the Australian economy rather than buying existing “brownfields” projects.

The Prime Minister’s advisers look positively on Chinese foreign investors such as Citic ­Pacific, which has poured $8 billion into expanding the resources ­sector in the Pilbara, creating ­projects that would not exist without its help.

Existing FIRB rules give the federal regulator a veto over non-agriculture deals worth more than $248m but they single out state-owned enterprises by removing the threshold, subjecting every deal to a potential veto.

This week’s trade deals with Japan and South Korea raise the threshold to $1bn for companies in those countries, matching an agreement with the US and setting a benchmark for China to seek in the trade talks.

China last night urged Australia to work towards an “early breakthrough” on the two ­nations’ free trade agreement, which has been under negotiation for almost nine years.

In a statement to The Aus­tralian, China’s Foreign Ministry said it hoped both countries could be “flexible” in the next round of official talks.

The negotiations hit a standstill after China demanded Australia greatly increase the investment thresholds applied to Chinese deals. Australia refused until China offered significant reductions in agricultural tariffs.

Mr Abbott will make investment attraction a central message in an address to the government and business elite at the Boao Forum today in southern China.

Trade Minister Andrew Robb is seeking significant concessions from China on agriculture, ­finance and services to lift Australian exports after signing a free trade agreement with South Korea on Tuesday and another with Japan on Monday.

Milk exports are a key issue in the negotiations, given a 400 per cent or more increase in shipments of New Zealand dairy products after it signed a trade deal with China.

In a sign of that potential, dairy company Pactum Dairy Group, half-owned by listed company Freedom Foods, signed a contract yesterday with China’s Bright Dairy to export 25 million litres of ultra-high temperature milk each year.

The Victorian town of Shepparton, at the centre of the debate over the future of fruit company SPC Ardmona, is a winner from the contract as Pactum expands its dairy facility to meet demand.

Completing a trade deal with China would meet Mr Abbott’s vow last October to settle the agreements within 12 months.

The Australian has been told a compact with China is close and the Prime Minister’s visit could help make progress. Officials were “reasonably confident” a deal was months away.

Mr Abbott used a meeting with Mr Li to emphasise that he wanted to increase two-way trade and investment between the two countries. The Australian was told after the meeting that both leaders underlined their determination to conclude the trade negotiations “as soon as possible” and to ensure it was a high-quality deal.

In his speech today, Mr Abbott is expected to herald a free trade deal with China as “perhaps most significant of all” in Australia’s negotiations with the three major nations of north Asia. A draft of part of the speech includes a message to China’s business and government officials about the reliability of Australia as a trading partner: “Australia has the strength and stability to give the countries of our region the resource security, food ­security and energy security you all seek.”