Papers show there was some pressure from China on the Government to approve Shanghai Pengxin's bid for the Crafar Farms and that the risk of damage to that relationship was a factor in the decision, despite ministers consistently saying there was no such lobbying and dismissing it as "a conspiracy".
Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman yesterday approved the sale of the 16 Crafar Farms to Milk New Zealand, a subsidiary of the Chinese-based Shanghai Pengxin company.
Milk New Zealand spokesman Cedric Allan said it was delighted by the outcome and hoped to be on the farms within a month after finalising the sale from farm receivers. It would also set up a joint venture with Landcorp which will manage the farms.
Before approving the bid, Williamson sought advice from Foreign Minister Murray McCully because the Overseas Investment Office was unable to say whether rejecting the deal would affect New Zealand's image overseas or its trade relations.
In reply, Mr McCully said the Government had been able to explain the situation to China's "decision makers" so far, but "there is little doubt that a reversal of ministers' earlier approval would be difficult to explain satisfactorily".
It would also affect other international investors.
"This would, in my view, have a significant adverse impact on New Zealand's trade and economic interests."
He said if the ministers declined the bid momentum under the free trade agreement would be adversely affected, at least in the short term and it would create uncertainty for other international investors.
Mr McCully also provided Mr Williamson with a NZ Trade and Enterprise paper from March which advised the Government China was watching the case with "great interest" and it was affecting Chinese perceptions of the attractiveness of investing in New Zealand.
It said the Chinese Minister of Commerce had raised that point with Trade Minister Tim Groser on a visit to China.
It urged ministers to use high-level engagements with the Chinese to emphasise that New Zealand was open to investment.
Last week during a visit by a leading Chinese official Jia Qinglin, Finance Minister Bill English said talk about lobbying was "a conspiracy theory" and there was no suggestion Chinese investors were deterred by uncertainty surrounding the Crafar bid.
However, Mr McCully's letter to Mr Williamson in the same week said there was "significant confusion in the minds of potential investors" and Mr Williamson's decision on Crafar would "either compound that confusion or alleviate it."
Asked if concerns about relations with China had affected the decision, Prime Minister John Key said China was an important trading partner but if it had not met all the other criteria the approval would not have been granted. He said the Government could not require China to meet higher standards than other investors.
Yesterday, Mr Williamson said the bid met all the criteria of the Overseas Investment Act and ministers had to approve it.
The decision is largely the same as that made in January before it was challenged by a rival consortium led by Sir Michael Fay and the High Court ordered the Overseas Investment Office to reconsider it using extra criteria.
Sir Michael said yesterday that he was still digesting the report to see whether he would mount a further legal challenge. He said it was clear the decision was made for political rather than economic reasons.By Claire Trevett @CTrevettNZH Email Claire