John Armstrong: Crafar saga catches Govt without strategy

Allan Crafar. Photo / Herald on Sunday

You be the judge. Imagine for a few moments that you are an official in the Overseas Investment Office with the power to say yes or no to applications from foreign interests wanting to buy parcels of New Zealand land.

You receive such an application from a Chinese-owned company which has negotiated the purchase of 8ha of prime Marlborough wine country for a price of $1.2 million.

If your first inclination is to immediately reject the application on the basis that it alienates "iconic" New Zealand land, you had better think again.

The Chinese company already owns a major Marlborough winery. It intends doubling its production over the next five years to more than a million cases. A portion of that extra production will come from grapevines planted on the 8ha block.

What would you do now? Say no and drastically stunt the growth of one of the region's major exporters? Or say yes and add another $1.2 million to the $1.9 billion-plus value of Kiwi assets now in Chinese hands?

This is no fictional example. Apart from one difference - Wither Hills is largely Japanese-owned, not Chinese - that was the application the wine producer made to the Overseas Investment Office this year. No surprises, then, that the office ruled that the application satisfied criteria in the Overseas Investment Act, being of "substantial and identifiable benefit to New Zealand".

Amidst the hullaballoo generated by the bid by Hong Kong-based Natural Dairy for the 13 dairy and three drystock properties otherwise known as the Crafar farms. the Wither Hills example tells you two things about trying to regulate direct foreign investment.

First, laws and regulations covering overseas investment are colour-blind; they do not differentiate on the basis of ethnicity. Neither can they be written to do so - unless you are going to be blatantly xenophobic or racist about it.

Second, applications covering "sensitive" land can be more complex than they initially look. Applying tougher approval criteria across-the-board could easily prove to be economically counter-productive.

The Wither Hills case illustrates just how simplistic was the "not one acre more" call made this week by the Maori Party MP Hone Harawira, who is considering drafting a private member's bill to ban the sale of land to foreigners.

Incensed by the Chinese bid for the Crafar farms, the Te Tai Tokerau MP also rounded on Overseas Investment Office approval of the sale of a 27ha farm in the Marlborough Sounds to a US futures trader for $7.8 million.

The new owner sought to silence critics by going online on the Marlborough Express's website to say he intended becoming a NZ resident.

But it is not American money that is sparking the renewed debate about foreign investment. The real driver was exhibited by one anonymous contributor to the website debate: "I don't care as long as it [the farm] is not sold to the Chinese."

That no-longer latent discomfort with Chinese foreign investment could brew into something far more menacing for the Government while the receivers for the Crafar farms determine whether to rubber-stamp Natural Dairy's offer.

This is despite China barely registering on the league table of foreign investment in New Zealand. It is difficult to pin down exact figures, but China's share (Hong Kong excluded) is around $1.9 billion, which is less than 2 per cent of the total. Australia dominates with 46 per cent, while the United States comes in second on $11.5 billion.

The facts, however, have an awful struggle competing against scaremongering over China's longer-term intentions regarding New Zealand's dairy industry.

Whipping up such fears is easy politics because it is impossible to prove that China is not hell-bent on controlling the supply, production, distribution and marketing of dairy products once it has got a toe-hold here.

Nevertheless, public suspicion of China's motives has turned the Natural Dairy's bid for the Crafar farms into political poison.

The wrangling has seen the predictable re-emergence of Winston Peters, who has waded into the arguments about the suitability of the Chinese consortium as prospective purchaser - but with little impact so far.

That leaves a political vacuum on the centre-right - something the Prime Minister has tried to fill with his remarks about not wanting to see "very large tracts of land" going into foreign ownership.

John Key has been undertaking a difficult balancing act which acknowledges public misgivings about ownership of the farms going offshore while still welcoming Chinese investment in New Zealand in almost his next breath.

Just to complicate things, Key was just about to head off on a long-scheduled trip to Shanghai and Beijing when the argy-bargy over the farms' future ownership really started to flare.

Key has since tried to draw some of the emotion out of the debate by trying to make it less about the acceptability of the farms falling into Chinese hands and more on the desirability of sales of large chunks of land being hived off to foreigners generally. He has talked of the possibility on foreign interests leasing land rather than owning it - an idea also promoted by Harawira.

Whether such ideas will get any traction seems doubtful. They are more about saying enough to keep the lid on things until the fate of the farms is determined. If worst comes to worst, the relevant Cabinet ministers can reject the application.

It is what happens between now and then that matters in political terms - whether public sentiment against the bid turns instead on the Government because it is not being seen to be doing anything to block it. The Government seems some way short of a strategy to cope with this.

The counter-bid by the state-owned enterprise Landcorp was treated as risible by the receivers. The Government now seems to be pinning its hopes on the farms being sold off individually to a multitude of separate buyers - at which point the problem simply goes away.

Failing that, National may well take heed of Labour's similar discomfort over the potential sale of Auckland Airport to Canada's pension fund. Labour eventually blocked the sale by waving some hastily drawn-up regulations strengthening the definition of land deemed to be a "strategic asset".

Finance Minister Bill English has since rubbished that device. He said it was never actually used and Labour ministers vetoed the bid for failing to meet criteria already contained in the Overseas Investment Act.

As fate would have it, that act has been subject to an English-ordered review since March last year. That review has yet to be completed. However, English last year flagged the possibility of replacing Labour's strategic-asset test with a new "national interest" test as a reserve power to be used on rare occasions.

He gave no detail of how that might work. More's the pity for Key, who would have been assisted considerably by having such an instrument up his sleeve.

The pressure will now be on National to include such a provision in any rewriting of the law. English's original intention in reviewing the act was not to tighten it up, however, rather to attract more foreign investment by making it easier for foreigners to do business here.

The prevailing anti-Chinese sentiment - and Key's acknowledgment of it - will make that a much harder selling-job, even if English can manage to persuade his colleagues that further liberalisation is warranted.