It's interesting how often the most tantalising insights are tucked away at the bottom of press releases.

Shanghai Pengxin's announcement yesterday that it was withdrawing its judicial review of the Government decision to decline its application to purchase Lochinver Station was a case in point.

Said Shanghai Pengxin chairman Jiang Zhaobai: "The judicial review was an unnecessary distraction at a time when New Zealand and China have reopened talks to upgrade the Free Trade Agreement ... good relationships and the FTA between our two countries are more important than private business."

Pengxin's decision had been widely telegraphed to key influencers within the bureaucratic systems in both New Zealand and China.


It is obvious that the judicial review would have been a distraction at a time when both Beijing and Wellington are poised to try for a breakthrough on some difficult issues that are disrupting their relationship - including China's imposition of safeguards within the FTA which result in a higher tariff being imposed on imported NZ milk powder, once a relatively low volume threshold is surpassed each year.

The FTA upgrade is expected to be a key topic of conversation when Key and President Xi Jinping meet in Beijing later in the month.

Neither side will have wanted preparations for the meeting to be sidetracked by suggestions that the Overseas Investment Office had applied a particular "counterfactual" in its assessment of the Pengxin bid for Lochinver station, which made it more difficult for the Chinese investor to get over the line.

Pengxin's Terry Lee emphasised yesterday that the review was intended to obtain clarity on the counterfactual used when assessing sales of non-urban land of more than 5ha to overseas investors.

"In the case of Lochinver station, the OIO used a counterfactual which compared our investment and development plans against those of a hypothetical alternative New Zealand purchaser. Yet this hypothetical purchaser was assumed to be unconstrained and, as the initial sale process showed, non-existent in fact.

Good relationships and the FTA between our two countries are more important than private business.


"There is a great deal of confusion in the market about this aspect of the OIO Act and we initially believed that a judicial review was the most effective path to provide ... clarity for sellers and potential purchasers of New Zealand farmland.

"We now believe ... this need has been recognised by the Government and the OIO and our preference is to take part in any discussions in the hope that changes take place to restore confidence to the market."

Lee was reluctant to go further than the press release comments.

But other sources suggest that at some future date the OIO might seek to provide more clarity for investors as to how the "New Zealand benefit" of investment into farms might be assessed, and that this might also have been discussed in the background preparation for the Prime Minister's meeting with the Chinese President. However, Lee did suggest that Pengxin will be taking a "conservative" approach to future agricultural land investments in New Zealand. The company pulled out of plans to buy more farms in the North Island after the Lochinver decision was announced.

A lack of clarity would have played a part in that decision - as would the lengthy slump in dairy commodity prices which has impacted on farm values.

Another factor is a Pengxin bid to buy Australia's largest cattle station, which is now down to the wire. Pengxin has a joint venture partner in that case, Australian Rural Capital.

Taking on the OIO over its decisions on their failed bid to buy Lochinver is not the right signal when so much is on the line.