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) lodged a reported $3 billion bid for GrainCorp that is being watched as a high-profile test case of Australia’s foreign investment rules. Everyday investors should care because the Treasurer’s decision on the deal could signal how receptive the government will be to future foreign acquisitions, which can affect sector valuations, deal flow and confidence in agricultural and resources stocks.
The Treasurer’s ruling on the GrainCorp-ADM approach is widely seen as a test of the new Coalition government’s stance on foreign investment. A permissive decision could signal a liberal approach to overseas buyers, while a stricter outcome would indicate tighter scrutiny — both outcomes affect investor expectations about future foreign capital entering Australian markets.
The usual Foreign Investment Review Board (FIRB) scrutiny threshold mentioned in the article is $248 million. China has sought parity with the US approach, where the business investment threshold is $1 billion. The Coalition has indicated it may lift some thresholds but simultaneously plans to lower the FIRB farmland scrutiny threshold for Chinese investment from $248 million to $15 million — a change that tightens oversight of farm purchases while broader thresholds remain under debate.
Dropping the FIRB farmland threshold to $15 million would increase scrutiny of smaller agricultural transactions by foreign buyers, particularly from China. For investors this means potential delays or additional regulatory review for farmland deals, and it could dampen some foreign demand for Australian agricultural assets even as policymakers aim to balance community concerns with trade goals.
According to the article, a China–Australia FTA has been in limbo for about eight years. Trade Minister Andrew Robb’s objective is to get a starting point for a deal, acknowledging it may need to be an evolving process. For investors an FTA can lower trade barriers, clarify investment rules and encourage cross‑border capital flows — so progress (or lack of it) affects trade-dependent sectors and foreign investment sentiment.
The article cites China’s overseas direct investment rising to US$87.8 billion in the referenced year, with a government goal of US$150 billion by 2015. Chinese direct investment into Australia rose 21% in 2012 to about US$11 billion, but still represents less than 3% of Australia’s total stock of foreign investment, with most of that concentrated in resources in Western Australia.
The article notes community wariness — a 2013 Lowy Institute poll found 57% of Australians felt the government was allowing too much Chinese investment. That caution makes Chinese investment a politicised issue, which can lead to stricter review rules, public debate and regulatory uncertainty — all factors that can weigh on investor confidence and the attractiveness of certain sectors to foreign capital.
To date most Chinese direct investment in Australia has targeted the resources sector, particularly in Western Australia. The article suggests agriculture has seen less direct Chinese investment so far, but as Asia’s middle class grows there is likely to be rising interest in Australia’s agricultural capacity and ag‑tech — areas that could attract more international capital over time.
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