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Australia to Loosen Rules on Chinese Investment

THE DEAL (New York) -- Chinese investors in Australia could soon find themselves on an equal footing with U.S. counterparts after Australian Prime Minister Tony Abbott told Chinese officials he would ease regulatory scrutiny in return for greater access to Chinese markets.

Speaking on Friday, April 11, at a lunch in Shanghai, Abbott said that he hoped to conclude a free trade agreement with China before November, when Chinese President Xi Jinping is due to visit Australia.

An agreement could ease restrictions on Australian exports of agricultural goods, energy and financial services to China in return for freeing private Chinese investors from regulatory scrutiny of acquisitions worth less than A$1.08 billion ($1.02 billion). Currently Chinese investments beyond a threshold of A$248 million have to be reviewed by the Foreign Investment Review Board and approved by the Australian Treasurer. Only U.S. and New Zealand investors currently enjoy the higher threshold.

"Australia hopes for much more Chinese investment - on the same basis that we welcome investment from our other FTA partners such as the United States," said Abbott.

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Australia is reliant on overseas investment to fund much of its mining and energy sectors. It also needs an estimated A$1 trillion of investment to develop agricultural industries to effectively meet growing Asian demand, which could deliver as much as A$710 billion in additional revenue by 2050, analysts at Australia and New Zealand Banking Group Ltd. noted last year.

Abbott has insisted that his centrerright government is more open to foreign investment than the left-leaning predecessor it replaced in September last year. His "Australia is open for business" rhetoric has not, however, always matched reality. In late 2013, Treasurer Joe Hockey blocked Archer Daniels Midland Co.'s A$3.4 billion bid for grain transporter GrainCorp Ltd., while Abbott promised during elections to consider lowering the threshold for scrutiny of agricultural property purchases to as little as A$15 million.

The offer of an increase to the review threshold for Chinese investors is not as generous as it might first seem. The increased threshold would relate only to non-state investors, which is also the case for the U.S. and New Zealand investment. That would exclude the majority of Chinese buyers, which are state-owned enterprises.

Abbott told reporters on April 8 that the questions of Chinese investment in Australia appeared to be the "sticking point" in negotiations and said that he would "be reassuring the Chinese that our Foreign Investment Review Board regime is one that they can well and truly live with."

Abbott revisited the subject in his speech in Shanghai, when he made specific mention of investment by Chinese state-owned enterprises, or SOEs.

"We now appreciate that most Chinese state-owned enterprises have a highly commercial culture," Abbott said in his speech. "That's why Australia has never rejected any investment application from a Chinese SOE."

Australia has been seeking a new trade agreement with China since 2005 and talks over a deal are now entering their 20th round. Pressure on China to conclude a deal has increased after Australia this week signed a trade agreement with South Korea and declared that it had finalized the terms of trade agreements with Japan, both of which will also benefit from the higher regulatory review threshold as part of wider deals that included two-way reductions to some import tariffs.

Trade between China and Australia is worth about A$125 billion a year and is growing. Australia exported a record A$27 billion of goods to China in the fourth quarter, up 45% year-on-year.

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