A pedestrian walks through Martin Place in Sydney, Australia. | Photographer: Brendon Thorne | Bloomberg
A pedestrian walks through Martin Place in Sydney, Australia. | Photographer: Brendon Thorne | Bloomberg
Text Size:

Canberra: Australia will implement a tough new screening regime on foreign investors seeking to buy sensitive assets, as it bids to bolster national security amid a diplomatic row with China.

Telecommunications, energy, technology and defense-manufacturing companies will be included in the zero-dollar threshold for screening. The changes, intended to be legislated this year and enforced from Jan. 1, will include a new national security test and give the treasurer last-resort powers to force asset sales.

The changes could have implications on Australia’s relationship with its largest trading partner China, which have soured this year after Prime Minister Scott Morrison led calls for an independent probe on the origins of the coronavirus in Wuhan.

Beijing responded with verbal attacks on the conservative government, saying it was doing the bidding of key ally the U.S., while new tariffs on Australian barley and a ban on beef from four meatworks have raised fears in Canberra that the Chinese government is using “economic coercion” in retaliation.

Asked by a reporter in Canberra on Friday whether the changes will create new tensions with China, Morrison said: “I don’t believe why it should. Countries make decisions on their own interests for their own rules and we respect the rules and interests of other countries.”

Wider Concerns

Australia isn’t alone in ramping up its foreign investment screening — in recent years, economies including the U.S., Japan and the European Union have toughened their own laws to protect national security. The new announcement comes a day after Morrison signed a crucial defense agreement with Indian Prime Minister Narendra Modi and upgraded ties to a Comprehensive Strategic Partnership, as both nations navigate fraught relations with China.

“We have to be on our guard against China purchasing critical infrastructure and investing in our vital industries, so it makes sense for the government to extend and deepen its oversight of foreign investment,” said Malcolm Davis, a senior analyst at the Australian Strategic Policy Institute in Canberra. “China will probably take umbrage but it needs to understand that Australia makes these decisions in its own interests.”

The U.S. remains Australia’s largest source of approved investment from overseas, comprising A$58.2 billion ($40.4 billion) — or 25% of the total — in the year ending June 2019. China comprised 5.7% of the total, valued at A$13.1 billion.

Under Australia’s current rules, state-owned enterprises already have zero-dollar screening threshold while most private investments under A$275 million, often for large land holdings, are waved through. The monetary thresholds have meant some investments that have raised national-security concerns have escaped screening.

Chinese purchases of agricultural land, including iconic properties such as the Cubbie Station in Queensland and the Van Diemen’s Land dairy in Tasmania, have proved particularly contentious in Australia.

Call in Powers

“The reforms will ensure that our foreign investment regime is able to respond to emerging risks and global developments,” Treasurer Josh Frydenberg said, labeling the changes the most significant in the area since 1975. The government will spend an additional A$54 million to bolster compliance and monitoring, he said.

After the changes, the treasurer will have power to “call in” an investment before, during or after an acquisition for review if it raises national security risks and has not captured by the “sensitive national security businesses” definition.

“Technology has been evolving and our geopolitical climate has become more complex,” Frydenberg told reporters on Friday. “In fact, the world over, governments are seeing foreign investment being used for strategic objectives, not purely commercial ones.”

While the treasurer will have the power order disposal of approved foreign investments where national security risks emerge post-approval, the last-resort power will not be retrospective.

As treasurer in 2016, Morrison ordered the Foreign Investment Review Board to step up scrutiny of foreign investment in state-owned infrastructure after a strategic port in Darwin used by the U.S. military was leased to a Chinese company. The prime minister on Friday ruled out the possibility of that sale, which at the time escaped the regulator’s scrutiny as it was managed by the Northern Territory government, being revoked.

Protecting Assets

Sandy Mak, partner and head of corporate at Corrs Chambers Westgarth, said she looked forward to seeing whether details in the draft legislation due for release next month would make a fundamental difference to existing rules, and which sectors would be classified.

“The government’s objective here is protect sensitive assets and you’d hope when the legislation comes out it will achieves that without stymieing investment in the types of sectors and businesses that need it most,” Mak said. “Anything oil and gas related for energy independence, anything telecommunications related, and anything defense related is definitely going to be top of their list,” she said, while data-related investments may also be targeted.

Before Australia’s calls for a probe into the origins of the coronavirus, its diplomatic ties with Beijing were already under stress. The government cited Beijing’s “meddling” into national affairs as a catalyst for its anti-foreign interference laws passed in 2018, the same year it banned Huawei Technologies Ltd. from helping build its 5G network.

FIRB Chairman David Irvine welcomed the new screening package, saying it “appropriately addresses increasing risks to the national interest whilst ensuring Australia remains welcoming and open to foreign investment.” – Bloomberg


Also read: A belligerent China can be just the catalyst India-Australia ties need


 

ThePrint is now on Telegram. For the best reports & opinion on politics, governance and more, subscribe to ThePrint on Telegram.

Subscribe to our YouTube channel.

Share Your Views

LEAVE A REPLY

Please enter your comment!
Please enter your name here