Australia Introduces ‘Significant Change’ to Foreign Investment Laws Amid Concerns Over Chinese Ownership

The new laws close existing loopholes around sensitive industries
June 5, 2020 Updated: June 9, 2020

Prime Minister Scott Morrison and Treasurer Josh Frydenberg announced the most “significant change” to the foreign investment law since its introduction in 1975, giving the treasurer greater authority to scrutinise foreign bids, amidst growing concerns surrounding Chinese investment in Australian assets.

Morrison and Frydenberg made the formal announcement on the morning of June 5 saying the reforms are in response to “evolving” technology and a more complicated “geopolitical climate.”

“The world over, governments are seeing foreign investment being used for strategic objectives, and not purely commercial ones,” Frydenberg said.

Australia’s New ‘National Security Test’

The treasurer announced a new “national security test” that will apply to foreign companies investing in a “sensitive national security business.”

The definition of a “sensitive national security business” is not finalised, however Frydenberg did say it would cover businesses in telecommunications; defence; defence supply chains; data storage; as well as businesses falling under the Security of Critical Infrastructure Act 2018, which covers utilities such as energy, water, ports, and gas etc.

For foreign investment in businesses that don’t fall within the definition of “sensitive national security business,” the treasurer will have the discretion to “call-in” the investment if it’s deemed a national security risk. It will then come under review from the Foreign Investment Review Board (FIRB). The power can be invoked before, during, or after an investment has been approved.

A “last resort power” will be available to the treasurer to “vary or impose conditions” on a completed foreign investment. Only in “exceptional” circumstances can the treasurer force a company to divest its interest.

Frydenberg stated this power would only be used if there was a “material misstatement” at the time of an application, or where the activities of the acquired business “change substantially and create national security risks.”

Epoch Times Photo
Botany port in Sydney, Australia, April 16, 2020. (SAEED KHAN/AFP via Getty Images)

The FIRB will also receive additional resources to strengthen “compliance” and issue “penalties.” The approval process will be sped up with Frydenberg saying, “Australia has an enviable track record when it comes to welcoming foreign investment from around the world. These reforms will not change that.”

David Irvine, Chair of the FIRB, said the package “appropriately addresses increasing risks to the national interest, whilst ensuring Australia remains welcoming and open to foreign investment”.

According to the prime minister, the National Cabinet has endorsed the laws.

A draft will be completed in July, and the government is hoping to implement the laws by Jan. 1, 2021.

Closing Loopholes in Current Foreign Investment Scheme

The new laws will follow in the stead of temporary restrictions introduced by the government on March 29 at the height of concerns over Australian assets being bought by foreign entities during the pandemic.

Currently, private foreign investments under $275 million are not screened by the FIRB, while investments from countries with free trade agreements with Australia are subject to a higher threshold at $1.2 billion. Countries that fall into this category include China and Japan.

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Australian farmer Kevin Tongue herding sheep at his property near the rural city of Tamworth, 450 kilometres north-west of Sydney on May 4, 2020 . (Peter Parks/AFP via Getty Images)

The new national security test will have no threshold, covering a wider array of foreign investment bids, particularly small to medium-sized businesses in specialised industries such as rare earth mining.

Currently, mining firms are not subject to scrutiny from FIRB if a foreign entity acquires an interest less than 10 percent of the company’s value.

However, under the expanded definition of a “sensitive national security business,” such investments may need approval in the future.

On May 18, a Chinese rare earth mining firm was able to acquire an interest in a Perth-based miner by adjusting its proposed stake from 11.77 percent to 9 percent.

A few weeks earlier on April 24, the Chinese firm Yibin Tianyi, was advised by FIRB that its initial bid would be blocked because it was “contrary to the national interest” and contrary to the national interest of “growing Australia’s critical minerals sector.”

Australia has a national security-related interest in developing rare earth supply chains independent of Chinese ownership and has been working closely with the United States to do so.

Laws Are Not Beijing-Specific

Home Affairs Minister Peter Dutton has denied the move was targeting Beijing.

“It’s not country-specific. We’re looking at lots of examples at the moment,” he told the Nine Network on June 5.

Dutton said Australia “faces more foreign interference than we’ve seen in decades.”

“We want to make sure that we put our national interests ahead of anything else.”

He also said the changes would protect health and tax information stored on data servers.

“We need to make sure that we can monitor and exclude some people from ownership if we believe that data or information on our national security is going to be compromised,” he said.