Investment balancing act a headache for new minister Robb
Needless to say the business community is viewing this deal as a test case and is pushing the liberal stance on investment. It will be a particularly interesting insight into how the Liberal Party will balance its top-priority international trade and investment agenda with the need to retain peace with legislative partner the Nationals. The balancing act is looming as a headache for Trade Minister Andrew Robb.
While the GrainCorp bid will exercise the minds of the business community in the short term, the larger national issue is the all-important relationship between Australia and China.
A free trade agreement between the two countries has been in no man's land for eight years and getting something down as a starting point is Robb's objective. But he admits finding some comprehensive solution straight up is perhaps a bridge too far. It needs to be an evolving process.
The other side of the debate is finding parameters for direct investment by China in Australia, and marrying these two issues will be the challenge for the Coalition. Nationals MPs are objecting to lifting the investment threshold on Chinese investment to $1 billion as part of a free trade agreement, setting up a possible conflict within the Liberals.
The Chinese have asked for the same treatment as in Australia's FTA with the United States, for which the business investment threshold is $1 billion compared to the usual $248 million minimum on transactions that would attract Foreign Investment Review Board attention.
The Coalition plans to drop the investment threshold for scrutiny of Chinese investment in farmland by FIRB from $248 million to $15 million. It's a position that appears to fly in the face of advancing the trade and investment relationship between the two countries. On one hand China has made its desire to ramp up its overseas investment clear. Its overseas direct investment rose to $US87.8 billion last year, according to its National Bureau of Statistics, and the government has set goals to increase this to $US150 billion in 2015.
While Chinese direct investment into Australia increased 21 per cent in 2012 to $US11 billion, China still represents less than 3 per cent of total Australian stock of investment. Most of this is in resources housed in Western Australia.
According to the chief executive of Hong Kong-listed mining group MMG, Andrew Michelmore, Australia is the most important ultimate destination for Chinese outbound investment but it is still small. He believes China wants foreign direct investment and Australia needs it.
He argues that when China announced its "Going Out" policy in 2000 it relaxed previously restrictive controls and targeted developed countries with good infrastructure, stable economies and established rule of law.
But the follow-through has not met the potential. Michelmore contends the Australian community remains cautious about welcoming further Chinese investment, particularly in agriculture. "In a 2013 Lowy Institute poll, 57 per cent of Australian respondents agreed with the statement that the 'Australian government is allowing too much investment from China'."
So the wider Australian community has a level of distrust when it comes to Chinese investment, one that is reminiscent of Japanese investment 30 years ago. Thus foreign investment by China is a politicised issue and one that is therefore difficult for any government to manage.
The other side of the coin, according to Michelmore, is that the Chinese perceive our foreign review process as unclear. There is ambiguity around what constitutes Australia's national interest.
In a globalised economy Australia, with its small population, has traditionally needed to rely on foreign inflows of capital.
So far not much Chinese investment has been targeted at the agricultural sector. But over time as the middle class in Asia grows there will be increasing interest from China and other international investors in Australia's potential as a food bowl. Billions of dollars in venture capital from the US, for example, is looking to invest in Australian agricultural technologies.
Frequently Asked Questions about this Article…
Archer Daniels Midland (ADM) has lodged a reported $3 billion takeover bid for Australian agribusiness GrainCorp. The decision — which drew attention from Treasurer Joe Hockey — matters because it’s being treated as a test case for how the new government will handle major foreign investment proposals and could signal changes to Australia’s stance on overseas buyers.
The GrainCorp bid is seen by the business community as a test of the Coalition’s foreign investment approach. A approval could show a more liberal stance on trade and investment, while rejection or tougher conditions could signal a more cautious approach, especially as the government seeks to balance pro-investment goals with political pressure from the Nationals.
China has asked for the same investor treatment Australia gives the US under its FTA, where the business investment threshold is $1 billion rather than the usual $248 million that triggers Foreign Investment Review Board (FIRB) scrutiny. At the same time, the Coalition has proposed lowering the FIRB scrutiny threshold for Chinese farmland investment from $248 million to $15 million. These proposals create a complex negotiation over which deals would face review.
Chinese direct investment into Australia rose 21% in 2012 to about US$11 billion, but that still represents less than 3% of Australia’s total stock of foreign investment. Most of that investment has been in resources, particularly in Western Australia.
Andrew Michelmore, CEO of Hong Kong-listed miner MMG, says Australia is an important destination for Chinese outbound investment but current flows are still relatively small. He believes China wants to increase foreign direct investment and Australia needs it, but notes public caution in Australia—especially around agricultural deals—and some perceived ambiguity in how Australia defines its ‘national interest’ during FIRB reviews.
A China-Australia FTA could change investment rules and market access over time. Trade Minister Andrew Robb has said a comprehensive deal may be difficult immediately and should be an evolving process. For investors, that means potential new opportunities from relaxed investment terms for certain Chinese investors, but also policy uncertainty while thresholds and protections are negotiated.
Chinese investment in agriculture touches on national sentiment and politics. A 2013 Lowy Institute poll cited in the article found 57% of Australians thought the government was allowing too much investment from China. Comparisons to past worries about Japanese investment mean agricultural deals are closely scrutinized and can become highly politicised.
Investors should monitor key signals: Treasurer decisions on high‑profile bids (like ADM’s GrainCorp offer), any FIRB threshold changes for Chinese investors (including farmland limits), progress on a China FTA, and commentary from industry leaders. These developments can affect sectoral deal flow, especially in resources and agriculture, and influence investment sentiment.
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