Abstract
This article reviews Australia’s foreign investment review mechanism (FIRM) and its central element, the Foreign Investment Review Board (FIRB) process. It argues that four factors about the mechanism may remain as barriers to Chinese investment in Australia after the China – Australia Free Trade Agreement (ChAFTA) took effect in December 2015, namely the discretionary "national interest" test, the less favorable treatment to Chinese investors in some major areas of investment, the widespread concerns on investment by Chinese state-owned enterprises, and the strengthened enforcement framework under the FIRM. It recommends that Chinese investors endeavor to observe Australia’s foreign investment policy and practice, and actively engage with the FIRB to avoid adverse decisions, unnecessary delays in decision-making, or inadvertent non-compliance. Meanwhile, the Chinese government should seek to reduce or remove these investment barriers in the current review of the investment rules under the ChAFTA.

I. Introduction

After a decade of rapid growth of Chinese investment in Australia, Australia is now the second largest recipient of China’s outbound direct investment (ODI). While China is only the seventh largest investor in Australia and the value of Chinese investment remains marginal in comparison to investment from the United States (US) and the United Kingdom (UK), Chinese investment has shown great potential to grow at the fastest pace among all foreign investment in Australia. With the conclusion and implementation of the China – Australia Free Trade Agreement (ChAFTA) in December 2015, the governments, businesses, and other stakeholders of the two countries are becoming increasingly positive towards the bilateral economic relationship and its further development. Overall, the ChAFTA benefits Chinese investors in that it improves market access and the predictability of Australia’s regulatory environment. Thus, the ChAFTA serves as an important complement to China’s outbound investment policies, which aim to promote Chinese investment in countries including Australia for strategic assets, raw materials, high-quality food and services, advanced technologies and know-hows, and so forth. Three factors including the investment complementarity between China and Australia, the supporting domestic policies of both nations, and the ChAFTA will operate jointly to motivate more Chinese investors to conduct business activities in Australia.

Nonetheless, the challenges that Chinese investors may face in Australia should not be underestimated, among which Australia’s foreign investment review mechanism (FIRM) has raised considerable concerns amongst Chinese investors and the Chinese Government during the ChAFTA negotiations. The Chinese Government considered the Foreign Investment Review Board (FIRB) process – the central element of the FIRM in practice – as a major barrier to Chinese investment in Australia, and took great efforts to negotiate a deal with more favorable treatment to Chinese investors. However, the achievements of the negotiations were limited, and the FIRB process is likely to remain a formidable barrier to Chinese investors. Therefore, a good understanding of the FIRM in general and the FIRB review process in particular is essential for prospective Chinese investors.

The principal legislation under Australia’s FIRM is the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA 1975) and its implementing regulations, which were introduced in response to the increasing foreign investment and growing foreign ownership in the early 1970s. The legislation is complemented by the Foreign Investment Policy issued and amended by the Australian Treasurer from time to time and implemented by FIRB (FIRB Policy). Most of the existing studies on the FIRB process have focused on its historical development and political justifications. Others have discussed the uncertainties of the FIRB process, which is merely one of the many elements which may affect Chinese investors. Few scholarly works have explained the FIRM in detail by far. This article attempts to fill this gap in the literature by discussing four major factors about the FIRM which may remain as barriers to Chinese investment in Australia despite the existence of ChAFTA, and which the Chinese Government should try to address in the current review of the investment rules under the ChAFTA.

This article proceeds as follows. Section II offers an overview of the pattern of Chinese investment in Australia during the 15 years before the ChAFTA entered into force. It highlights the major trends and notable features of Chinese investment in Australia. It also shows that the investment complementarity between Australia and China and their domestic policies have been the major driving forces for the continued growth of Chinese investment in Australia. Section III introduces the FIRM and the FIRB review process, and then explains the major rules and modifications of the relevant regulations and policies introduced around the time when the ChAFTA came into effect. The section argues that these rules and modifications may pose significant challenges to Chinese investment in Australia. it further provides brief recommendations on how Chinese investors may overcome these challenges. Section IV concludes.