Politics

Military tech in sights with foreign investor plans

The Government has announced the next phase of its plans to tighten up New Zealand’s overseas investment rules, including a possible “national interest test” to block deals which raise security concerns or other issues.

Ministers may also get the ability to block investments related to “dual-use technology” with both civilian and military applications - an area where China has stolen a march on the rest of the world.

Associate Finance Minister David Parker has launched public consultation for the second phase of the Government’s Overseas Investment Act reforms, following on from the “foreign buyers ban” which became law in late 2018.

The consultation documents set out a range of options for tidying up the current laws, with Parker saying the Government’s aim was to cut back on “pernickety” requirements for foreign investors while also allowing politicians greater say over prospective transactions.

One of the key elements is the possible introduction of a national interest test which would allow the Government to consider a wider range of issues during the application process.

Parker said the current screening regime had only two main criteria: the financial capability of a prospective investor, and the good character test to ensure corrupt characters did not invest in New Zealand.

“Beyond that, there is no discretion to turn down a large investment - we think that we should consider whether we have a more general discretion.”

“Monopoly assets always earn a profit - sometimes they earn an excessive profit, that's what monopolies are reputed to do - [so] why would you want to export the monopoly profit overseas?"

Parker cited the last Labour government’s decision to decline an application from the Canadian pension fund to purchase Auckland Airport, saying it had to use the screening regime for land assets over five hectares - rather than businesses worth over $100 million - to block the sale.

“[It] was absurd really when you think about it - it was legitimate, but it was absurd.”

The Government needed the ability to intervene in the sale of infrastructure assets which were important to the functioning of the wider economy, he said.

Asked to provide an example of a previous sale which may not have been in the national interest, Parker mentioned the sale of the Wellington electricity network to a Chinese multinational in 2008.

“Monopoly assets always earn a profit - sometimes they earn an excessive profit, that's what monopolies are reputed to do - [so] why would you want to export the monopoly profit overseas?

“If a monopoly asset is owned by an overseas owner and that overseas owner gets into financial trouble, then they may be disinclined to invest in the New Zealand asset which can be to the detriment of the wider New Zealand economy.”

Parker said there were a number of ways to design a national interest test, including whether guidelines sat within or outside the overseas investment law. Australia’s laws gave the country “quite a broad discretion in law”, but there had been some guidance formed over the years to ensure the powers were not overused.

Dual-use technology under the microscope

Interestingly, the consultation documents also moot creating the ability to block investments related to the production of dual-use technology “where this presents risks to our national security and/or public order”.

China has taken the lead when it comes to working on projects with both civilian and military potential, with some raising concerns about the superpower’s collaboration with educational institutions and other foreign companies on research which could advance its military capability.

University of Canterbury professor Anne-Marie Brady’s “Magic Weapons” paper cited Chinese companies’ use of their New Zealand dairy farms for near-space launches - “an important new area of research for the [People’s Liberation Army] as it expands its long-range precision missiles”.

Alex Joske, a researcher at the Australian Strategic Policy Institute's International Cyber Policy Centre, told Newsroom more countries were beginning to recognise the need to guard against the transfer of dual-use technologies as competition with China grew.

The Chinese government's push for what it called "military-civil fusion" was a key driver behind the country's collaboration with other countries, Joske said.

"More and more companies are getting close to the Chinese military, and more and more of them are at the same time going overseas."

However, Parker said the proposal relating to dual-use technology was “not grounded in present concerns” but came up during research on the screening regimes of other countries.

“Sometimes we put investors through the hoops even though they’re long-term, reputable investors in New Zealand who pay tax here and have been really good contributors to the New Zealand economy, so we’re looking at whether we should be simplifying some of those arcane rules."

New Zealand’s free trade agreements had always protected the right of the Government to screen in the interests of national security, but that was not a component of the country’s overseas investment laws.

While the proposals tighten the law in some areas, there are areas where the criteria may be loosened, including the definition of a New Zealand-owned company - currently, companies are considered “foreign” if they are more than 25 percent overseas-owned - and the investor character test.

“Sometimes we put investors through the hoops even though they’re long-term, reputable investors in New Zealand who pay tax here and have been really good contributors to the New Zealand economy, so we’re looking at whether we should be simplifying some of those arcane rules,” Parker said.

He did not believe the proposed changes would make a significant impact, while it was also unlikely major investors were overly deterred by the existence of a screening regime.

“My father used to have a saying, there’s very little sentiment in a dollar - people invest here because they make a profit in New Zealand, these large $100 million-plus transactions make a lot of dollars, and I think they would probably be more concerned about the delays in the process than they would about us having a process.”

Submissions on the proposals close on May 24.