Skip to Content »

Don’t tell them why they can’t buy

  • July 29th, 2009

There should be one change to the policy announced  by the Hon Bill English last week for overseas investment approval tests ( to replace Dr Cullen’s  undefined ‘strategic asset’ test).

Mr English proposes to be transparent in future. Sometimes there are good reasons for a veil.

His speech highlighted the uselessness of Labour’s changes:
"Our own stock take show that unique assets, when overseas ownership might pose a risk to New Zealand consumers, are in public ownership or protected by other restrictions.
I’d like to see that stock take. I hope we do have some vital privately held assets. Fonterrra must be critical to a national negotiating position, affecting whether we are price setters or price takers in a vital market?
Our neighbour Australia has just faced that dilemma, when China’s giant Chinalco looked like the only rescuer of an overstretched Rio Tinto. A Chinalco window through Rio Tinto into Australia’s position in the annual iron ore price negotiations could have been worth billions to China, at Australia’s cost.
Rio Tinto is now in the arms of BHP instead. The Rudd government has managed to avoid being fingered for driving Rio Tinto’s reneging on its initial encouragement of Chinalco, though it is almost inconceivable that they would not have made known their deep concern about giving China control of Rio.
So how would our new policy deal with such a risk.? What if Fonterra was forced by creditors to sell off major processing plant?
Bill English has thought of that.
"As a final reserve power, we will consider a new national interest test – similar to those in other countries. This would balance providing certainty for investors with safeguarding the interests of New Zealand.
"Many other countries have these tests, but they are rarely used. They allow governments, on the basis of credible evidence, to decline an investment application where this is necessary to protect vital economic interests and where these concerns cannot be addressed under existing laws. That’s a pretty high hurdle.
But  then comes the over-reach. Mr English goes on to say:
"In the rare times this test is used, the Government would be required to lay out to the public and Parliament its reasons for declining an investment. This will be clear and transparent."
New Zealand would be naive to follow through with such transparency. 
If the real reason for rejecting a sale is that we do not trust the buyer, then better not to say it. The characteristics of an owner are often more important than the fact of transfer of control. Whether you trust the buyer is always material if you’re a seller retaining some share in ownership or you’ll remain a supplier or customer or creditor.
New Zealanders of course retain a live interest in the success of New Zealand domiciled businesses whose control passes overseas. 
If the buyer comes from a country where political corruption is endemic, or where tax cheating is normal, or where commercial morality is a mystery, we could be determined not to allow something like NZ Guardian Trust into their hands. We might feel similarly about a bank. Would we be sanguine about major news organisations ending up in the hands of a company subject to a government that regards free speech as a Western folly, or punishes  blasphemy by death. We may still have businesses where our strategic interest could lie in not giving the main competitors a window, or releasing our intellectual property, or where defence considerations are influential.
A ‘help yourself’ attitude to foreign investment assumes that the rational self interest of owners in maximising the value of their investment will protect against transactions designed to harm us. We may accept the possibility that some assets might be bought to close down, as pawns in an international anti-competitive strategy beyond the reach of competition regulators. But we’ve comforted ourselves that such damaging acquisitions will be rare.
Last week’s arrest of senior Rio Tinto executives in China sends a warning. China and its apologists spent months reassuring Australians that Chinalco was not the Chinese military in commercial drag, or the Communist Party (i.e. the state). They insisted that Chinalco’s attitude to Rio would be like any other commercial owner, out to maximise its profits and therefore the value of their investment.
But as soon as their plan was frustrated the real nature of their military/industrial/political complex was displayed. The Rio executives were charged, not with the industrial espionage that is par for the course in China, but with ‘treason’ against the state.
So we should retain a capacity to reject discreetly foreign buyers whose plans may owe more to state interests in control and influence than to the profit objective. If we are going to irritate powerful countries by rejecting their offers, then best we minimise the damage by not trumpeting our true reasons. 
They’ve been funding our foolish decades of spending more than we’ve earned. When we tell them they can’t necessarily redeem our IOUs for strategic assets, we should not have law that obliges us to add "because though we like your money we don’t really like or trust  you".
Better still, we should re-learn to live within our means so we can stop borrowing from them. Then we will not be forced sellers, and we’ll be better placed to withstand the blackmail powers that grow with every dollar we spend more than we earn.

Bill English’s other big speech last week was all about that, as he sadly acknowledged that borrowing an extra $40bn to prop up living standards in the meantime was at best stepping backward to launch forward.

[This is a slightly cut down version of a comment published in the DomPost on Monday 27 July. I’ve since had only comment supportive of the need to reserve power to reject without transparency, at least where the applicant has sovereign characteristics]

Leave your comments:

* Required fields. Your e-mail address will not be published on this site

You can use the following HTML tags:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>