Realpolitik dictates that neither John Key nor Bill English will be quite so blunt - or stupid - as to admit straight up that the decision to order a second-round review of the foreign investment regime is due to New Zealanders' growing fear that it is the Chinese - as opposed to other overseas interests - who are mounting a major land grab in this country.

Such a xenophobic admission would result in a major loss of face for political leaders who have boasted of their ability to forge "win-win" outcomes with China.

It would seriously test New Zealand's free-market credentials and put pressure on the bilateral trade agreement.

But it is also clear that the Government has very suddenly woken up to the concern that the upside from the dairy industry - which is considered economically vital to New Zealand's future - might be lost to other players if this country does not hurry up and get its act together.

The dairy industry is responsible for around 25 per cent of exports and has the potential to be a strong long-term economic growth driver for New Zealand as global demand gradually grows on the back of a snowballing world population.

But New Zealand's agricultural industry is already proving a nifty investment target for investors who take the long view - a factor that has been brought into sharp relief by a number of recent moves, particularly from China and Singapore investors, which have evoked strong feelings among Kiwis.

The Overseas Investment Office's decision on whether to allow the Hong Kong-backed Natural Dairy bid for the Crafar farm portfolio is expected any day now.

When Natural Dairy announced it planned to buy the Crafar dairy farms, it said it wanted to spend up to $1.5 billion buying more farms and also set up its own New Zealand processing plant as part of a vertically integrated supply chain.

Although the bid has since been refashioned to stress more upside for New Zealand, it is still not expected to get over the line because it is fronted by May Wang, a controversial businesswoman who has little commercial credibility.

Chinese-owned Bright Dairy is seeking OIO approval for its planned 51 per cent stake in Synlait Milk which it acquired last week for $82 million. It has confined its interests to processing rather than farms.

Public opinion is clearly against the Crafar farms sale on the basis that NZ is "selling the farm". But selling a controlling stake in a processing plant is seen as another issue altogether.

There is a strong argument for conditionality either way.

Across the Tasman, the Australian Government has blocked two proposed resource sector investments by Chinese state-owned entities on the basis of national interest.

But the Australian Foreign Investment Review Board did approve a significant Chinese acquisition - the Yanzhou Coal Mining Co's A$3.5 billion takeover bid for Felix Resources - on condition that it operate its Australian mines through an Australian company with headquarters in Australia and had a predominantly Australian management and sales team.

The company also has to be relisted on the ASX by 2012. Yanzhou has to sell down its stake to less than 70 per cent by the end of 2012 and reduce its overall economic interest in the Australian assets to less than 50 per cent.

The upshot is the Australian investing public will be able to continue to buy shares in such prime Australian resources.

It also ensures that Chinese SOEs are subject to the same corporate governance standards that Australian listed companies have to meet.

In Australia, the ABC is now probing moves by Chinese and Middle Eastern interests to buy agricultural land.

The issues are not dissimilar to those New Zealand faces. Hard-up dairy farmers - particularly from Tasmania - are lining up to sell their farms to interests associated with a Chinese dairy company. The farmers complain they have been pushed to the wall by being forced to take low prices for their milk from Fonterra and National Foods.

The Key Government now has a narrow window of time to consider these strategic issues:

Whether New Zealand is squandering its long-term strategic advantage by selling prime pastoral land to overseas interests.

Whether New Zealand needs a clear national interest policy to guide decisions on foreign investment, and/or whether Governments of the day should consider such issues on a case-by-case basis.

Whether open investment should be welcomed but with strong conditions applied to secure more upside for New Zealand.

When English ordered a review of the Overseas Investment Act in March 2009, he was reacting to concerns that the former Labour Government had capriciously blocked the Canada Pension Plan Investment Board's partial bid for a 40 per cent stake in Auckland International Airport by creating a new category for "strategically important infrastructure on sensitive land".

The Treasury advised National to revoke the "strategically important infrastructure" factor and signal a comprehensive review of the Overseas Investment Act 2005. It wanted to promote and encourage the flow of foreign investment, simplify the investment screening process and reduce the number of investments caught by the act.

It believed that foreign owners of New Zealand assets were likely to have interests closely aligned to New Zealand's national interests. "As a result we do not think screening of strategic assets is required," the Treasury advised. "However, if some form of screening is desired it should be added as a separate category, rather than only in relation to assets that are located on sensitive land."

The Treasury was not concerned about which were foreign sovereign wealth funds or foreign SOEs, saying there was no evidence to suggest that government-controlled investors have non-commercial motivations.

Its main focus was clearly to improve investor certainty - a factor that would have been of major concern during the international credit crunch - and confidence.

"A screening regime is less likely to distort or discourage investment decisions if investors can understand how their investment will be screened, and if there is a high degree of certainty that the rules of the game will not change suddenly."

The Treasury went on to opine that the current regime could create uncertainty due to the ability of Cabinet to add to the factors that must be considered when assessing the benefit of a sensitive land application, and treat what are mainly business assets as sensitive land applications if they happen to include sensitive land.

It wanted to remove or limit ministers' ability to make substantive policy changes via regulation.

In Australia, the focus is clearly more political. Investments are rejected if the Treasurer considers the matter is "contrary to the national interest". But what is clear is that Australia has been far more protective of its national interest than New Zealand.