Australia eases foreign investment barriers
September 04, 2009 | BY
clpstaff &clp articles &Australia is set to introduce significant changes to its foreign investment rules in order to remove the perception that its regime is too onerous. Although…
Australia is set to introduce significant changes to its foreign investment rules in order to remove the perception that its regime is too onerous. Although the changes are not specifically geared towards China, commentators have described them as “helpful” in light of the recent controversy over Chinalco's failed investment in Rio Tinto.
The changes include increasing the notification threshold for private foreign investors and removing the New Business notification requirement. This means that many proposals will no longer be subject to a formal review process by the Foreign Investment Review Board (FIRB) and even those that are will likely receive a more timely response.
The proposed amendments, which were announced by Australia's Treasurer last week, will be introduced into Federal Parliament in September and, if passed, will take effect immediately. “The Treasury says it will reduce the workload at the FIRB by 20%, which is remarkable,” said Mallesons Stephen Jaques' Beijing-based partner David Olsson.
The move by the Australian government follows the issuance earlier this year of a series of circulars by China's Ministry of Commerce streamlining the approval of foreign investments in China by delegating powers to lower level authorities. Mofcom's circulars enabled many businesses to avoid the Beijing approval process, and in a similar fashion Australia's amendments are designed to avoid unnecessary government involvement in uncontroversial transactions.
“The issues between Australia and China at a political level are obviously a bit tense at the moment,” said Olsson. “This amendment, though not huge, does say Australia is still open for business. So it's a positive sign.”
One of the most important changes is the replacement of the thresholds for private business investment with a single threshold of 15% in a business worth A$219 million (US$185 million). Private business investment in Australian businesses below that amount can proceed without FIRB review but investments made by foreign government entities and sovereign wealth funds will continue to be reviewed.
Other amendments include indexing the new unified threshold on January 1 each year in line with inflation and removing the existing policy requirement that private investors notify the government when establishing a new business in the country with a value above A$10 million.
Although Chinalco's investment in Rio Tinto ultimately failed for commercial reasons, the Australian government's handling of the deal was severely criticised with some claiming it demonstrated a protectionist attitude towards Chinese investments.
And the Chinalco episode followed China Minmetals' bid to take over OZ Minerals, which was rejected by the FIRB on “national security” grounds (OZ Minerals' Prominent Hill mines are in a military zone). Backed by the Chinese government, Minmetals ultimately won approval for a smaller purchase that excluded Prominent Hill and was no longer structured as a takeover.
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