A Chinese company headed by billlionaire Jiang Zhaobai is actively considering a judicial review of the decision to veto an $88 million application to buy Lochinver station.
Cabinet ministers Paula Bennett and Louise Upston declined the application by a Shanghai Pengxin subsidiary because they did not consider the benefits to New Zealand resulting from the investment to be "substantial and identifiable".
Lawyers Chapman Tripp are expected to issue a legal opinion to the Chinese firm tomorrow. If the High Court action goes ahead it is expected to test the argument applied in assessing Pengxin's application.
The ministers' decision has reverberated at high levels in China with Chinese vice-premier Wang Yang seeking an assurance that NZ has not changed its investment policies and Vice-Commerce Minister Wang Shouwen saying openly that China hopes it was "an isolated incident". The Chinese embassy in Wellington is also seeking clarification of just what constitutes "substantial and identifiable benefits" so the next prospective investors in sensitive land assets can tailor their applications.
Jiang is not commenting publicly " at this stage " out of respect for the bilateral relationship.
He is understood to have "lost face" over the ministers' rejection.
He is the single largest Chinese investor in New Zealand through his almost wholly owned flagship firm Shanghai Pengxin which holds investments in tourism, infrastructure, property and dairy farms. Jiang has also been a tireless advocate for Chinese investment in NZ and spearheaded a trip by top Shanghai entrepreneurs to Auckland during President Xi Jinping's official visit in late 2014 who were exhorted to invest in NZ by John Key at a breakfast hosted by Pengxin. But Pengxin chief investment officer Henry Hong staked out the company's position on the outskirts of the China New Zealand Partnership Forum in Beijing last week. He said Pengxin was confused and disappointed as the process wasn't transparent and the decision-making was quite subjective.
Economic Development Minister Steven Joyce had an unscheduled meeting with Hong, prior to the latter putting Pengxin's views to senior Chinese and New Zealand officials, academics and businesspeople.
"You wouldn't expect them to be particularly happy," says Joyce. "But it's the same thing I was making clear to the vice-premier. It isn't a policy change - it is a process that is fairly well laid out and if anything it probably got more exacting as a result of that previous court case.
"Ministers do have to operate with a great deal of care; they need to think very carefully about their decisions and the process is straightforward in the sense that everyone who goes in with a similar application should be treated the same."
In essence, Hong believes the 14 months' delay in getting a decision had impacts because in the investment world "time is everything".
He pointed to three major issues: If these delays became the norm overseas investors would retreat from the market with negative consequences. He noted that the counterfactual test applied by the Cabinet ministers in reaching their decision differed from that in the Overseas Investment Act and finally he observed the Overseas Investment Office (OIO) recommended the two ministers approve the Pengxin application but the ministers decided to bring in an economist to make another report on which they based their decision to decline the application.
Joyce counters by saying the overwhelming card is the additional economic benefit to New Zealand - "that one for whatever reason did not make the grade finally".
"From my perspective it's been about two things - reassuring people there is no policy change and then accepting there [are] some things we can do to speed up the process.
"I said to him I understand his concern about that and that we are currently looking at the process and ways that we can provide more resources to the OIO so they can process things more quickly as we are all very aware of the timeliness requirement."
Asked by the Herald if the foreign investment rules should be further clarified so prospective investors could understand what is now considered to constitute identifiable and substantial investment, Joyce replied - "I would encourage them to go back and look at some of the ones that have just come through. Because there has been a number go through that involve reasonably mature assets and land. Go have a look."