Net zero will ‘need China investment’

Changes to limit Chinese investment in Australia could undermine Labor’s green energy goals as the country struggles to maintain even half the pace of investment required to meet the 2030 target for 82 per cent renewables.

Yesterday, Treasurer Jim Chalmers announced a big overhaul of foreign investment rules, saying the changes were designed to help attract private capital and better manage national security risks.

Climate Energy Finance director Tim Buckley said Chinese investors had made important contributions to Australia’s renewable industry, and the more competitive investors able to bid, the better for the energy transition.

“We need to collaborate with them because they have got the world’s best technology in solar panels, polysilicon, batteries, wind turbines and electric vehicles,” Mr Buckley said. “Getting them to collaborate and invest in Australia in partnership with us will be critically important.”

Veteran miner and Minerals Council boss Andrew Michelmore said he did not expect problems for Chinese investment.

“It’s the people who try to play the system and manipulate it who face trouble,” he said, adding that the proposed changes struck a nuanced tone.

The Australian Financial Review understands that between 70 per cent and 80 per cent of overseas investors will receive accelerated assessments under the new rules, which will limit the national security burden on non-controversial investments.

Fast-track treatment will be given to so-called “frequent flyer” investors that are regularly before the Foreign Investment Review Board, as well as investments in non-sensitive areas such as professional services, mining of non-critical minerals, commercial real estate and new housing.

Investments in areas such as critical infrastructure, sensitive technology and data assets, and those close to military facilities will face a much greater level of scrutiny under the changes.

Asked whether there was a tension between using cheap technology from China to decarbonise the economy as quickly as possible if it gave China more leverage over the Australian economy, Dr Chalmers indicated that it was possible to balance objectives.

“We can recognise that we can be the beneficiaries of cheaper technology produced in other parts of the world. At the same time, we recognise we have a role to play in making those supply chains more robust.”

The treasurer also rejected suggestions that the new rules were aimed at curtailing Chinese investment, noting that closer scrutiny would also be applied to investments that raised competition concerns and those that were structured through no or low-tax jurisdictions.

This rejection of views that the changes were aimed at China was met with some scepticism, however.

Lawyers working on deals said things would not get any worse for Chinese investors, and they hoped the changes would provide more clarity on when there was no point trying.

They said more resources for controversial or complex proposals would also allow for closer engagement between the regulator and investors on how deals could be structured to mitigate problems.

Mr Buckley said Chinese companies wanted to invest in Australia and a “positive green light to do so”. But he said they had not felt welcome because they had received so much friction.

China-owned State Power Investment Corp paid $3 billion to buy Pacific Hydro from IFM Investors and AustralianSuper in 2016, and wind turbine manufacturer Goldwind has 1.5 gigawatts of renewable energy projects in operation. Goldwind has another 500 megawatts under development, which could cost about $1 billion to realise.

Pacific Hydro has 600MW of renewable energy across Australia, and aims to double its clean energy production.

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“The wait times have been causing frustration in a range of transactions.”

— Neil Pathak, Ashurst head of M&A

Ashurst head of M&A Neil Pathak said wait times and delays were a frustration that hurt Australia’s reputation.

“The wait times have been causing frustration in a range of transactions. In particular, proposed acquisitions perceived as straightforward including those by private companies and [private equity] firms/pension funds from Western countries aligned to Australia.”

On the issue of Chinese investment being under strict scrutiny since the Port of Darwin decision, he said it was a balancing act and needed to be carefully handled so that it didn’t “infect” the whole market.

King and Wood Mallesons partner Intan Eow said an approval stream dedicated to national security was a welcome change, and would hopefully reduce the time to vet such transactions through the system.

“There has been a lot of timing issues for applicants, especially in relation to the sensitive applications. We’ve seen timeframes blow out up to six to 12 months for some of these sensitive transactions,” said Ms Eow.

Source: The Australia Financial Review; Ronald Mizen, Elouise Fowler, Simon Evans and Ben Potter