Mai Chen: Close to having cake and eating it

Photo / Christine Cornege

The key question Asian investors ask me when they want to make acquisitions subject to our Overseas Investment Act is whether they will be discriminated against when they make an application.

And non-Asian foreign investors ask whether the anti-foreign investment sentiment over the Crafar farms sale also applies to them or is it specific to Asian investors?

My answer is the same to both groups. The Crafar farms controversy was an unfortunate combination of events.

Crafar farms are one of the biggest blocks of farmland ever sold to foreigners in New Zealand. The first applicant was found not to have satisfied the good character requirements; she was declared bankrupt for defaulting on loans, and was wanted by the equivalent of our Serious Fraud Office in Hong Kong. Not a good start.

There is an old Chinese saying to beware of walking in the dark, as one day you will meet a ghost!

You have to meet the good character requirements - and more. As the Court of Appeal confirmed last week by upholding the Government's decision permitting Shanghai Pengxin to purchase the Crafar farms, it is a privilege for overseas persons to invest in New Zealand land - no matter where they come from.

Such persons must satisfy the tests in the act, but if the Minister of Finance and Land Information are satisfied that those tests are met they must approve an application for consent.

There is, quite properly, no legal discretion for ministers to decline an application simply because they don't like the applicant's nationality.

An applicant for consent must satisfy the Overseas Investment Office that they are of good character, that they have demonstrated a financial commitment to the investment, that they have relevant business experience and acumen to the investment, and, perhaps most importantly, that, unless the people with control of the investment are New Zealand citizens, or will reside in New Zealand indefinitely, the investment will benefit New Zealand.

The court held that a wide range of experience could be relevant to an investment such as the Crafar farms, and it is not necessary for Chinese investment bankers to know how to milk cows.

The Court of Appeal has also not disturbed Justice Miller's earlier finding in the High Court that any benefits claimed as part of an application must be benefits that would not otherwise accrue.

That means most applicants have to promise to do more with their investment than a competing New Zealand bidder, such as promise public access, environmental commitments, or increased employment and production opportunities.

So the effect of the Overseas Investment Act is now to ensure that New Zealand benefits doubly from overseas investment - we gain the benefits of access to international capital, but simultaneously we ensure that applicants deliver extra benefits for New Zealand.

The Court of Appeal has thus provided more certainty for overseas investors on the tests they need to meet to successfully obtain consent.

Unless Maori appeal to the Supreme Court, Shanghai Pengxin will be able to pay for and take possession of the farms it agreed to buy over a year ago.

Could there be tougher overseas investment legislation ahead? The courts only interpret and apply what Parliament enacts and the history of overseas investment regulation shows New Zealanders are torn between their desire to have their cake and eat it too.

We want to attract foreign investment (knowledge and skills) and to do business with Asia in particular (its size and enormous growth potential means it will be the largest market for New Zealand exports), but we don't like them buying up prime farmland.

Tougher rules for foreign investment in purchasing productive land are proposed in member's bills from David Shearer and Russel Norman called the Overseas Investment (Restriction on Foreign Ownership of Land) Amendment Bill and the Overseas Investment (Owning our Own Rural Land) Amendment Bill.

Will the controversy over the Crafar farms result in tougher laws? Probably not, given the balance now struck in the current law.

Our recent history shows a trend to toughen or to complicate the tests, starting with the potential sale of Auckland International Airport shares to foreign investors which did not proceed.

The Labour Government amended the Overseas Investment Regulations 2005 to require the OIO to consider whether the overseas investment would help maintain New Zealand control of "strategically important infrastructure on sensitive land".

The National Government made more changes to the Overseas Investment Act and Regulations (coinciding with the sale of the Crafar farms ) so that there are now about 25 separate factors that have to be considered when determining whether there is a benefit to New Zealand.

Some of those have multiple sub-factors.

The OIO has to consider whether the investment would promote New Zealand's economic interests, and the extent to which the investment includes opportunities for participation by New Zealanders.

On the foreign investment front, New Zealand is probably as close as possible to having its cake and eating it too.