Australia Beefs Up Investment Scrutiny After Lease to China

  • New rules to affect A$20 billion pipeline of asset sales
  • Tighter scrutiny follows backlash over Port of Darwin lease

Australia will step up scrutiny of foreign investment in state-owned infrastructure after a strategic port used by the U.S. military was leased to a Chinese company, Treasurer Scott Morrison said.

The Foreign Investment Review Board will study all critical infrastructure asset sales by state and territory governments including airports, ports, telecommunications and utilities, Morrison told reporters in Canberra on Friday. The new rules, coming into force March 31, will apply to a more than A$20 billion ($15 billion) sales pipeline of state and territory assets.

Since coming to power in 2013, the Liberal-National coalition government has toughened foreign-investment rules, amid a backlash over the sale of agricultural land to foreigners and concerns that Asian demand for residential real estate in Melbourne and Sydney has helped make homes unaffordable for local residents. Australia relies on foreign investment to meet its infrastructure needs and risks sending out mixed messages on how open its door is to overseas buyers, according to Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd.

“An overseas investor would interpret it as increasing the hurdles needed to buy Australian assets,” Oliver said. “The government doesn’t want to be seen to be soft on foreign investment. This would appeal to some people’s populist, anti-foreigner tendencies.”

‘Continual Strengthening’

The review process was criticized last year after the Northern Territory government sold a long-term lease to the Port of Darwin to Chinese firm Landbridge Group. The deal didn’t need approval from FIRB as under current rules, sales by state and territory governments only attract scrutiny if the buyer is a foreign state-owned enterprise.

“The changes add, I think, to the continual strengthening of our foreign-investment framework,” Morrison said. “Our arrangements on foreign investment are open, they’re transparent, but overall they’re sovereign.”

The new rules will apply to the pending sales of state-owned assets including electricity provider Ausgrid, with an expected value of more than A$10 billion, iron-ore terminal Utah Point (A$1 billion), Port of Melbourne (more than A$6 billion), Port of Fremantle (A$1.1 billion) and Endeavor Electricity (more than A$4 billion), according to Morrison. They won’t be applied retrospectively to Port of Darwin.

Asked if the measures could discourage investment, Morrison said: “It’s important that you run a process which is professional, which is competent, which is reasonable, which is consistent, and that’s what we do.”

The new regulations are the latest bid by the coalition to tighten oversight of foreign investment. It has introduced a register of who owns the nation’s farms, reduced the screening threshold of agricultural land sales to A$15 million and cracked down on illegal sales of residential property to foreigners. A former director general of the nation’s spy agency now sits on the FIRB board to advise on national security issues.

Australia faces a delicate balancing act in maintaining close relations with its main ally the U.S. while encouraging investment from China, its biggest trading partner. Australia has previously cited national concerns in blocking the sale of assets to Chinese entities.

Landbridge, which operates a port in Shandong province, is paying A$506 million for the 99-year lease to operate Darwin, with the Northern Territory government planning to use the proceeds to invest in new infrastructure.

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