Australia to toughen foreign investment laws citing national security

SYDNEY (BLOOMBERG) - Australia will implement a tough new screening regime on foreign investors seeking to buy sensitive assets, in a bid to bolster national security.

Telecommunications, energy, technology and defence-manufacturing companies will be included in the zero-dollar threshold for screening.

The changes, intended to be legislated this year and enforced from Jan 1, will give the treasurer last-resort powers to force asset sales.

The intended changes could have implications on Australia's relationship with its largest trading partner China, which have soured this year after Prime Minister Scott Morrison led calls for an independent probe on the origins of the coronavirus in Wuhan.

Beijing responded with verbal attacks on the conservative government, saying it was doing the bidding of key ally the US, while new tariffs on Australian barley and a ban on beef from four meatworks have raised fear in Canberra that the Chinese government is using "economic coercion" in retaliation.

"The reforms will ensure that our foreign investment regime is able to respond to emerging risks and global developments," Treasurer Josh Frydenberg said.

The government will spend an additional A$54 million (S$52.37 million) to bolster compliance and monitoring, he said.

Australia isn't alone in ramping up its foreign investment screening - in recent years, economies including the US, Japan and the European Union have toughened their own laws to protect national security.

The new announcement comes a day after Mr Morrison signed a crucial defence agreement with Indian Prime Minister Narendra Modi and upgraded ties to a Comprehensive Strategic Partnership, as both nations navigate fraught relations with China.

Under Australia's current rules, state-owned enterprises already have zero-dollar screening threshold while most private investments under A$275 million, often for large land holdings, are waved through.

The monetary thresholds have meant some investments that have raised national-security concerns have escaped screening.

Chinese purchases of agricultural land, including iconic properties such as the Cubbie Station in Queensland and the Van Diemen's Land dairy in Tasmania, have proved particularly contentious in Australia.

After the changes, the treasurer will have power to to "call in" an investment before, during or after an acquisition for review should it raise national security risks and has not captured by the "sensitive national security businesses" definition.

While the treasurer will have the power order disposal of approved foreign investments where national security risks emerge post-approval, the last-resort power will not be retrospective.

As treasurer in 2016, Mr Morrison ordered the Foreign Investment Review Board to step up scrutiny of foreign investment in state-owned infrastructure after a strategic port in Darwin used by the US military was leased to a Chinese company.

The US remains Australia's largest source of approved investment from overseas, comprising A$58.2 billion - or 25 per cent of the total - in the year ending June 2019. China comprised 5.7 per cent of the total, valued at A$13.1 billion.

Before Australia's calls for a probe into the origins of the coronavirus, its diplomatic ties with Beijing were already under stress.

The government cited Beijing's "meddling" into national affairs as a catalyst for its anti-foreign interference laws passed in 2018, the same year it banned Huawei Technologies Ltd from helping build its 5G network.

FIRB chairman David Irvine welcomed the new screening package, saying it "appropriately addresses increasing risks to the national interest whilst ensuring Australia remains welcoming and open to foreign investment."