SYDNEY -- Australia is adopting an increasingly defensive posture toward Chinese investment after years of embracing massive and steady streams of capital from its largest trading partner.
The Australian government is now requiring that all proposed foreign investments are subject to scrutiny by the Foreign Investment Review Board, regardless of their deal value. The length of the reviews has been extended to a maximum of six months, from one month. Although Treasurer Josh Frydenberg denied the move was targeted at one particular country, it is clearly focused on China, which has been pouring money into Australia.
Prompting this move is the tumble that the Australian stock market took in late March. The benchmark All Ordinaries stock index plunged 37% in value from late February due to the coronavirus outbreak. As Australian shares became cheaper, policymakers became concerned about a possible buying spree by cash-rich Chinese investors.
In a statement at the end of March, Frydenberg said the new steps were "temporary changes to the foreign investment review framework that are designed to protect Australia's national interest", while also insisting that "this is not an investment freeze. Australia is open for business."
Andrew Hastie, a member of the ruling Liberal Party and chair of the Parliamentary Joint Committee on Intelligence and Security, told the Daily Mail that "now is the time to keep our guard up. We've taken some big economic hits and we need to protect ourselves from predatory behavior."
Previously, investments from countries with which Australia had free trade agreements, including China, were largely not subject to regulatory screening if the deal was worth less than 275 million Australian dollars ($174 million), even in security-sensitive sectors like defense, transportation and telecommunications.
China has been taking advantage of this policy, snapping up blue-chip companies. Australia's Foreign Investment Review Board approved approximately A$47 billion-worth of investment from China in the fiscal year ending June 2016.
But the flood of Chinese capital has been sparking alarm among Australian regulators and lawmakers.
One symbolic deal was struck in 2015. Chinese company Landbridge Group won a 99-year lease of Darwin port for about A$500 million. Darwin, a strategic northern port, hosts the U.S. Marines in the region. The deal provoked bitter controversy in Australia, where uneasiness about China's naval expansion in the South China Sea was mounting.
Australia decided in 2018 to block Huawei Technologies from participating in its 5G network rollout, becoming the first country to follow the U.S. in excluding the Chinese telecom equipment maker.
In the same year, the Australian government rejected an A$13 billion bid by a consortium led by a Hong Kong's CK Group to buy Australian gas pipeline company APA Group.
China Mengniu Dairy acquired Australian baby formula producer Bellamy's for some A$1.5 billion in 2019, sparking another controversy. While Australia's high-quality baby formulas have great appeal to Chinese consumers, the acquisition raised concerns among Australians about the food safety of Bellamy's products.
Clive Hamilton, a professor of Charles Stuart University told the Nikkei Asian Review that the airline, electricity, cybersecurity, telecommunications, rare earths and water sectors would be targets of foreign takeovers.
However, the new policy will need to be handled carefully by Canberra because China is the country's largest trading partner, absorbing 30% of its exports. China's appetite for Australian natural resources has been powering the nation's economy for years.
Some economists have expressed caution about imposing stronger restrictions on foreign investment. One expert told local media that foreign companies buying distressed assets were not necessarily "bad buyers."