Is Your Morning OJ a Matter of National Security?

If you wanted to examine whether heightened international scrutiny of outbound Chinese investments is about knee-jerk xenophobia as much as legitimate national security concerns, you could do worse than look at events in Australia. 

China Mengniu Dairy Co. and Kirin Holdings Co. will terminate the planned sale of Kirin’s Australian beverages business Lion Dairy & Drinks Pty., the companies said Tuesday. Eight months after the $A600 million ($430.4 million) sale was announced, foreign investment approval has still not been granted “and is unlikely to be forthcoming,” Kirin said in a statement.

It’s hard to comprehend a sensible rationale behind blocking this deal.

Lion has been foreign-owned since Japan’s Kirin took it over more than a decade ago. Mengniu isn’t a state-owned enterprise, and even if it was, pinpointing what genuine issues could crop up around Lion’s core business of producing milk, juice and beer stretches the imagination. Just 10 days before the Lion bid was announced last November, Australian Treasurer Josh Frydenberg signed off on Mengniu’s A$1.28 billion takeover of Bellamy’s Australia Ltd., a maker of organic infant formula.

Is Your Morning OJ a Matter of National Security?

For its part, Beijing hasn’t always been wide open to foreign beverage takeovers, blocking Coca-Cola Co.’s 2009 bid for a local juice company on antitrust grounds. China antagonized Australia’s drinks industry with a patently absurd anti-dumping investigation of the country’s winemakers just last week.

Even so, China’s beverages industry is hardly closed off to external investment. Its breweries have long been fought over by foreign companies including SABMiller Plc, Asahi Group Holdings Ltd. and Heineken NV. Mengniu itself counts France's Danone SA and Denmark's Arla Foods Amba as major shareholders.

More to the point, trade and investment diplomacy isn’t meant to be playground tit-for-tat, where Canberra punishes Kirin and Mengniu because Beijing was mean to Australia’s wine industry. If a Chinese company buying Lion from a Japanese company is a threat to the national interest (the vaguely defined core of Australia’s foreign-investment approvals regime), the government should articulate its reasons. 

That’s not happening. Though Frydenberg has the final say in foreign investment approvals, he hasn’t followed the usual practice of announcing and explaining his decision. Instead he’s just drawn things out long enough that the parties themselves have walked away. (In an email to Bloomberg News after Tuesday’s announcement, he said he’d previously told Mengniu the deal “would be contrary to the national interest” but didn’t elaborate further.)

Given the dismal history of China’s outbound takeovers, the country’s executives might consider this more restrictive atmosphere a blessing in disguise. Fosun International Ltd. may see its investment in Cirque de Soleil wiped out, and investments in U.K. restaurant chain PizzaExpress and baggage handler Swissport International AG have similarly turned sour, Manuel Baigorri of Bloomberg News reported this week.

Still, this is no way for Australia to attract foreign investors — something the country should be taking more seriously, given it has recently started running capital account deficits for the first time since the 1970s. Kirin is now stuck with a business it doesn’t want and its future will be “re-examined,” the Japanese company said Tuesday. If Mengniu, one of the world’s biggest dairy businesses, thinks it can make a better play of things but gets blocked due to politics, employees only have Frydenberg to thank if they find their jobs restructured out of existence.

Is Your Morning OJ a Matter of National Security?

The unspoken backdrop to all this is the likelihood that a similar deal would have been waved through if the buyer weren’t Chinese. Diplomatic relations between Canberra and Beijing are already strained, and Asian Australians have reported hundreds of cases of racial abuse in recent months. Prime Minister Scott Morrison has been at pains to stress that whatever justified issues Australia may have with the Chinese government, it will support Chinese people and Chinese Australians. 

At such a time, it’s doubly important that politicians draw a bright line between foreign investment bars based on solid national security grounds, and a broad-brush objection to all money coming out of China. If that hasn’t been done, even more legitimate restrictions will end up carrying the taint of prejudice.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

©2020 Bloomberg L.P.

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