The strategy of foreign investment

Foreign Investment, national security, FIRB, Foreign investment review board. Photos by Rohan Thomson.

David Irvine, chair of the Foreign Investment Review Board, has the last word on what foreign investment deals in Australia fly or fail.

There has been no lack of foreign interest in big Australian assets of late; in fact, there’s rarely ever been a lack of offshore interest in Australian companies, infrastructure, resources, agriculture and property. 

US broadcasting giant CBS successfully bought Network Ten in November 2017; in December 2017, China Energy Reserve and Chemical Group upped its takeover bid for gas producer and developer AWE; US investment house Harbour Energy has been making overtures for gas giant Santos and, most prominently, Westfield accepted a A$32.7 billion bid from European group Unibail-Rodamco to take over its shopping mall empire. Should the Westfield sale gain approval from the Foreign Investment Review Board (FIRB), it will be the largest takeover by a foreign buyer in Australian history. 

At the same time as business is weighing up the offshore offers, the politicians are in a funk. As Australia headed toward Christmas, there was much debate about the extent of politicians’ ties to Chinese contacts and donors.  

Facts not hysteria

This focus on Chinese foreign interest in Australian assets is something FIRB chairman David Irvine has given thought to since he was appointed to the board in 2015 by Australian Treasurer Scott Morrison. (He was elevated to chairman in April last year.)

He says his role is to oversee and implement government policy and, for the purposes of this story, he won’t comment on the intricacies of any one bid. As for strategy, the overriding aim of the board is to show, and be seen to show, neither fear nor favour to any outside investor.

 The 69-year-old is the former director-general of the Australian Security Intelligence Organisation and Australian Secret Intelligence Service, and has a distinguished public service record. He’s been in and around government and diplomatic circles for nearly 50 years, and also knows about the private sector and its workings.

He is a former ambassador to China and, in his view, Chinese interest in Australian assets is no different to previous “waves of investment”.

“We saw it in the 1950s when American investors were buying up large slabs of Western Australia. There was plenty of concern then. They also made big investments in GMH and Ford and so on. We saw it again when the Japanese invested heavily in the last 1960s and early 1970s,” Irvine says.

The issue of Chinese influence on Australian politics and business is one Irvine would prefer to see go away. In his view, the media has magnified the issue of foreign financial infiltration to the point of xenophobia. 

Irvine, who can see exactly where the money is coming from – and where it is heading – is keen to hose down the notion that Chinese state control of Australian assets of any ilk is inordinately high. There is a sense of exasperation in his voice when he explains that China ranks fifth as a foreign investor in Australia; it has less invested here than in the Netherlands. “If you measure this by total cumulative sum investment, it shows that the top foreign investors are currently the US, Canada, the UK, Netherlands and China,” he says. 

He admits however, that Chinese foreign investment is the fastest growing. “Yes, applications have been greater than [investors from] the US, Canada and the UK, in the past two years,” he says.

It doesn’t help, of course, when there is a perceived lack of transparency from the government when a foreign sale does go through. The sale of a 99-year lease on the Port of Darwin to Chinese interests was one which many pundits still find mystifying. (Irvine was appointed to FIRB shortly after this deal.)

Defence raised no objections to the A$500 million sale to a company with alleged links to the Chinese army, despite worries from the US military and the port’s proximity to US forces based in Darwin. 

“The government is simply giving greater consideration to the security of essential services driving the economy.”

Then there is, of course, Australia’s property market. There’s a widespread belief that foreign purchasers, particularly the Chinese, are driving the market to unaffordable heights. Have the Chinese overreached in this area? 

“That’s another shibboleth that needs to be laid to rest,” Irvine says. “A recent Treasury study indicated that Chinese investment in housing was not the most significant factor in the most recent rise in housing prices.

“There were other factors, such as supply and demand, that had a far bigger impact on the price of houses than foreign direct investment.”

Foreigners bought between 35,000 and 60,000 residential dwellings in Australia in 2015-16, making up only between 7 per cent and 13 per cent of total housing turnover for the year, according to FIRB data. 

ANZ senior economist Daniel Gradwell, has echoed Irvine’s point, saying that while ANZ noted foreign property ownership was “significant” it was hardly dominant – between “2.5 per cent and 4 per cent of Australia’s housing stock”.

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When Irvine took the top job at FIRB there was talk among some political observers that he would be spearheading Treasury’s new strategy to bolster the national security side of foreign investment decisions. It made sense that a former spymaster would be the best man to deal with any possible foreign fraud, security breaches, and questionable funding from questionable offshore sources. 

In a keynote speech to the Committee for Economic Development of Australia in July 2017, Irvine said that both the impact of the cyber revolution and the recent series of privatisations of Australia’s critical infrastructure assets had led to a “greater focus on national security (including data security) when considering the national interest in the investment approval process”.

“Their increased weight in recent cases has related to particular security issues specific to the transacted assets,” he was quoted as saying.

Irvine is quick to scotch the notion that his appointment to the chairmanship had anything to do with the beefing up of national security on foreign takeover policy, or that it had some connection with the decision in 2016 to block the sale of New South Wales power provider Ausgrid to Chinese bidders; an investment which was vetoed by Morrison – on advice from FIRB – on national security grounds. Irvine says national security concerns feature in only a tiny fraction of foreign investment coming into Australia. 

The policy of strengthening data protection and cybersecurity has become a more acute issue, he says, because state governments have lately gone on a selling spree of their “ports, poles and wires”.

“This security focus has been happening regardless of what’s happening in foreign investment,” he says. “The government is simply giving greater consideration to the security of essential services driving the economy.”

Community interest first

David Irvine has been in government and diplomatic circles for 50 years.Irvine says it doesn’t matter who owns the critical infrastructure as long as security of supply is assured, personal customer data is sacrosanct and both national security and the national interest are covered. There is also what he calls the “community interest”, which he quickly adds has nothing to do with xenophobia and more to do with the benefits a deal has for regional jobs and prosperity. There is also a taxation interest that has to be satisfied.

“What the government is doing is trying to have as flexible an investment policy as possible, while protecting the national interest in the best way it can. If it finds it can’t protect the national interest it will reject the investment.”

He also wants to make it clear that foreign purchases of agricultural land is not enormous; it’s an outmoded perception that deserves clarification.

About 13 per cent of Australia’s agricultural land is in foreign hands, he says, and much of that is leasehold, not directly owned by the foreign investor. “That figure of 13 per cent hasn’t moved all that much in recent years, but the figure owned by Chinese interests has risen by a couple of percentage points in recent years. But it’s less than 4 per cent of acreage – hardly significant.”

The largest slabs of foreign-controlled land are in the Northern Territory, Northern Queensland and in western New South Wales, places where Irvine says “the value of the land is not great”. 

Instead of decrying foreign ownership of the great outdoors, we should be thanking foreigners for taking on and using land which Australians are largely ignoring, he says. “Will the national economy benefit by non-Australians investing in northern parts of Australia? The answer surely has to be yes.” 

Rejections and approvals

In 2016, 41,455 applications for foreign investment were approved, and only a tiny number of the total received were rejected by the Foreign Investment Review Board (FIRB). This is consistent with what has been happening in the past 15 years, FIRB chair David Irvine says, where only five major deals have been stopped.

The A$10 billion takeover offer by Royal Dutch Shell for Woodside Petroleum in 2001 was stopped not on national security grounds, but on the basis of national interest, he says. The Singapore Exchange’s A$8 billion bid for the Australian Securities Exchange was knocked back by Julia Gillard’s government in 2011, also on the basis of national interest. 

Questions of national security have come into focus on just two occasions. In 2015, Treasurer Scott Morrison blocked an initial all-Chinese offer by Shanghai Pengxin for the cattle and property interests of S Kidman & Co, on the grounds of the size and Defence sensitivity of the Kidman landholding. 

More recently, a combined Chinese and Hong Kong bid to take a controlling stake in power provider Ausgrid was also rejected. Irvine says the government had to veto this sale on national security grounds but adds the concerns “were last-minute ones”.

The controversial sale of a 99-year lease on Darwin’s port proceeded, he says, because it satisfied all major concerns, including both national interest and national security.   

Does the New Zealand government’s 2017 decision to ban all foreign property buyers carry any weight in Australian Government circles? 

Irvine says simply that the newly formed New Zealand Government “appeared to believe” that foreign interests were pumping up the property market. That is not the case in Australia, he adds, making it clear that Australia is very much open for business. 

Irvine’s five factors in determining approvals (in his words)

  1. “We welcome investment and we welcome it on a non-discriminatory basis.”
  2. “In recent times, because a lot of investment has involved critical infrastructure, the government has had to pay particular attention to whether the sale will result in continuity of service and protection of the national interest. This is perfectly normal and people would expect it of us.”
  3. “Yes, it is a fact that the Chinese are bigger investors in Australia now than 10 to 15 years ago, but that is to be welcomed. They’re a major economic power and the Chinese have the ability to invest in Australia in ways that encourage our economic development.”
  4. “The government has set up the Critical Infrastructure Centre which advises the Foreign Investment Review Board (FIRB) on infrastructure’s vulnerabilities. Its job is not just to advise FIRB but to advise government and industry on the best ways to protect their critical infrastructure.”
  5. “Very few investment proposals are knocked back on national security or other grounds. We remain an attractive destination for investment from all over the world.”

Read next: Should nations limit foreign investment?


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