SYDNEY (Reuters) - Australia’s coalition government will face its biggest test towards investment from mainland China since its May re-election with at least two corporate buyouts likely needing approval from a regulatory body increasingly vigilant of security risks.

Beijing-backed China Mengniu Dairy Co Ltd 2319.HK on Monday offered $13.25 per share to buy Bellamy's Australia Ltd BAL.AX, valuing the infant milk powder producer at A$1.5 billion (£825 million).

The deal has been recommended by Bellamy’s directors but still requires approval from the Foreign Investment Review Board (FIRB) overseen by Treasurer Josh Frydenberg.

Australia relies heavily on foreign investment. However, that from China fell 36% last year to $A8.2 billion and is set to fall further this year as capital controls remain tight and the Chinese economy slows, showed data from consultancy KPMG.

But the FIRB has taken a harder line to foreign investment, particularly with the United States raising security concerns over the involvement in telecommunications networks of Chinese base-station maker Huawei Technologies Co Ltd.

The Bellamy’s deal should have little issue receiving regulatory approval given the manufacturer is not classified as critical infrastructure, investment bankers told Reuters. One possible focus, they said, will likely concern Mengniu’s largest shareholder with 16.2%, state-owned agri-business COFCO Corp.

“More attention than previously will be paid to investment by Chinese state-owned enterprises (SOEs) in light of concerns stressed by the U.S. about Chinese government subsidies to SOEs tilting the international commercial playing field in their favour,” said foreign investment expert Tony Makin, a professor at Griffith University.

The second deal widely expected to require FIRB approval is conglomerate Lendlease Group's LLC.AX sale of an engineering services business plagued by cost over-runs and writedowns of as much as A$750 million.

Those troubles make the unit attractive to only deep-pocketed bidders, two people with direct knowledge of the matter told Reuters. They said more than one Chinese party are closely looking at the business and that second-round bids are due to be lodged within two weeks. A Chinese winner is likely to face heightened regulatory scrutiny, they said.

Lendlease’s main engineering competitor is John Holland. The firm is owned by China’s Communications Construction Company International (CCCI) which dealmakers said would hamper another mainland business participating in the Lendlease sale because concentrated ownership could reduce competition.

Lendlease declined to comment on the sale process.

Richard Hunt, executive chairman of corporate advice at financial services firm Evans Dixon, said while inbound investment has fallen, Australia is still on Chinese investors’ radar.

“We have seen Chinese investors deploy capital in businesses they can learn from and use the technology and knowledge from in their home market,” Hunt said. “That is going to continue, Australia is still an attractive market, there is transparency, a government system they understand and a market in which they can make long term investments.”