Potential buyer of large Northland investment frustrated by wait for Overseas Investment Office response.

A Chinese company's decision to pull out of a $42 million farm purchase in Northland because of bureaucratic hurdles is a "slap in the face" for a region badly in need of investment, a local councillor says.

"We need this disincentive in investment like a bloody hole in the head," Northland regional councillor and former Maori Affairs Minister Dover Samuels said after Dakang New Zealand Farm Group cancelled an agreement to buy the 3300-hectare Pinny Farms.

"We put a lot of time and energy into marketing Northland as the place to invest," Mr Samuels said.

"This is a region that really needs investment. And can I say we are very, very disappointed if in fact a bureaucracy has been responsible for the Chinese bailing out of this opportunity."

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The Government has placed significant emphasis on regional development in Northland and launched a new economic strategy in February. In July, it announced a new national strategy to attract more international investment to the regions.

Mr Samuels said those strategies were undermined by the way the Pinny Farms application was handled by the Overseas Investment Office (OIO)

"I think that Government is paying lip service to its economic vision for Northland. It's a slap in the face when we see real opportunities for substantive investment fail."

The former Labour MP said that in future, companies applying for OIO consent should approach the local council, which could make its own economic development assessment.

"That would certainly give weight to any application for that kind of investment," he said.

Mr Samuels has just returned from a visit to China, where he said prospective investors had expressed concerns about the barriers to investing in New Zealand.

"They did say to me that New Zealand in many ways was too hard and they were looking at Canada."

Earlier, the Act Party says the decision to back out is proof of the chilling effect the Lochinver Station decision has had.

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David Seymour said Dakang's decision to scrap a Northland farm application showed the ongoing, negative effect of the logic behind the rejection of the Lochinver deal.

"People will always say, 'well, most deals get through the OIO, therefore it must be ok'. But this is a perfect example of how people are discouraged from applying or completing the application process in the first place," Mr Seymour said.

"As I understand it, these guys [Dakang] are basically a Chinese investor. And you'd have to wonder if they haven't made a decision that while the rules that are out in public are very clear, they are concerned that because they are Chinese they are likely to face a political backlash."

Dakang New Zealand Farm Group and Pinny Farms said the sale and purchase agreement for seven dairy and three support farms in Northland had been cancelled.

The deal would have covered 3300ha of land in the Bay of Islands' Mangakahia Valley and 3900 cows.

Dakang is controlled by Shanghai Pengxin, which owns around $500 million in New Zealand assets and made the controversial $200 million purchase of the former Crafar Farms - the largest foreign acquisition of New Zealand land by value.

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Chief executive Gary Romano said the company signed the sale and purchase agreement in January and sought approval from the Overseas Investment Office in April.

"We lodged an application ... believing five months would be sufficient time to enable a rigorous and objective review of our plans for the farms, compared to the 70 working day guideline the OIO has for turning around applications," he said.

"However, to date we have not received any advice that the OIO has considered the sale and/or made a recommendation to the ministers."

Mr Romano said the decision to cancel was partly based on the Lochinver Station purchase, which the Government vetoed last month.

Pure 100 Farm Ltd, a subsidiary of Shanghai Pengxin, had its $88 million investment in the 13,800ha station near Taupo rejected by ministers, despite a recommendation from the OIO that it should be approved.

Associate Finance Minister Paula Bennett said at the time the application did not meet the criteria of "substantial benefit" because it did not create enough long-term jobs.

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Mr Romano said the sale and purchase agreement for Lochinver had to be extended 11 times, "each extension causing frustration and pain to the vendors and uncertainty for everyone involved".

"We simply are not confident enough of a favourable outcome to warrant putting the Northland vendors through a similar experience," he said.

"The purchase of the farms and significant further investment would have had a positive impact on both the local and wider New Zealand communities and we are very disappointed that this will not happen."

The Pinny Farms website said 50 people were employed on the farms.

All foreign investments in farmland larger than 5ha are screened by the OIO, which decides whether the investment is of benefit to New Zealand before making a recommendation to ministers.

The OIO's website says it aims to complete the most complex consents, known as Category 3 applications, within 70 days. This could be extended if it needed third party advice, and the timeline did not include days where the OIO was waiting for applicants to provide information.

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Ms Bennett, who is responsible for the OIO, said she would be asking why the Pinny Farms application was taking longer than others.

"The Government welcomes foreign investment that supports economic growth," she said.