As China’s “going global” strategy continues to deepen, Australia becomes a key destination for Chinese investors, prized for its stable political environment, abundant natural resources and open market system. However, the Australian government maintains a stringent screening regime for foreign investment, particularly on projects touching national interests, most notably through the Foreign Investment Review Board (FIRB). This article outlines the scope and key compliance aspects of the FIRB framework for Chinese enterprises considering investment in Australia.
Overview
Wang Jihong
Senior Counsel
Zhong Lun Law Firm
The FIRB operates primarily under Australia’s Foreign Acquisitions and Takeovers Act 1975, along with its associated regulations and policy guidance. Under current rules, investments involving sensitive sectors, critical infrastructure, land acquisitions or activities with potential national security implications are subject to mandatory FIRB review.
The FIRB serves as an independent advisory body within the Treasury of the Commonwealth of Australia. Its core function is to assess foreign investment proposals and provide recommendations to the treasurer, who retains ultimate decision-making authority. While the FIRB conducts reviews and offers guidance, it does not possess statutory power to approve or reject transactions.
Applicability
Under Australia’s national security review framework, foreign investments are categorised into the following types.
Significant actions. This category of investment typically meets specific monetary thresholds and results in a change of control, except for acquisitions of agribusinesses and instances where the investor already holds control. While notification of a significant action is not mandatory, the FIRB is empowered to make various kinds of orders. It also retains the call-in power and the last resort power if the investment is considered contrary to the national interest.
Notifiable actions. This category of investment must be notified to and approved by the FIRB prior to implementation. Failure to comply may result in civil and criminal penalties. Notifiable actions include: (1) direct acquisitions of interests in Australian agribusinesses or entities; (2) acquisitions of substantial interests in Australian entities; and (3) acquisitions of Australian land.
Chen Haobi
Associate
Zhong Lun Law Firm
These actions are subject to specified monetary thresholds but do not necessarily involve a change of control. Australia applies different monetary thresholds depending on the investor’s country of origin and the type of investment proposed.
All foreign investments involving “national security businesses” (related to critical infrastructure, military and defence technology, encrypted communications, nuclear materials or sensitive government data) or “national security land” (related to officially designated sites including defence facilities, key ports and airports, and government communications installations) are subject to mandatory notification, with no applicable monetary thresholds.
Investments by foreign government investors must be notified to and approved by the FIRB prior to implementation once they fall within the category of notifiable actions, regardless of the investment amount, the level of ownership acquired or the business type.
Notifiable national security actions. Effective from 1 January 2021, Australia expanded its foreign investment screening regime to include two new categories of investment subject to national security review, namely, notifiable national security actions and reviewable national security actions.
Foreign investors are required to notify the following actions regardless of transaction value: (1) starting a national security business; (2) acquiring a direct interest in a national security business; (3) acquiring a direct interest in an entity (whether listed or unlisted) that operates a national security business; (4) acquiring an interest in land that qualifies as national security land; and (5) acquiring an exploration right in relation to national security land.
Notifiable national security actions must be notified and approved prior to implementation. Failure to comply may result in penalties, forced divestment or even criminal prosecution.
Reviewable national security actions. A proposed investment may only be categorised under this category if it falls outside the scope of the above-mentioned three categories. The trigger for this category rests on whether the corresponding change in ownership, assets or the governance structure could pose a national security risk. While not subject to mandatory notification, these actions remain within the treasurer’s call-in powers and can be retrospectively reviewed within 10 years after the transaction completion.
Compliance
Initiate the FIRB process at the earliest opportunity. Whether a proposed transaction by a foreign investor triggers FIRB scrutiny depends on multiple factors, including the investment type, transaction value and proportion, the sector of the target asset, and the nature of the investor – particularly whether it is a foreign government investor. Companies should assess their potential notification obligations during the project establishment and due diligence phases, and ensure sufficient time is allocated to navigate the review procedure.
Enhance transparency and co-operation. The FIRB prioritises investor integrity and full disclosure. It is advisable for Chinese companies to proactively provide accurate information regarding their ownership structures, sources of funds and ultimate beneficiaries throughout the application process, while maintaining constructive dialogue.
Engage with informal feedback channels. The FIRB tends to provide guidance through non-binding preliminary assessments. Companies may seek early-stage consultations before formally submitting applications, allowing them to gauge feasibility and address potential concerns proactively.
Foster a robust reputational management strategy. Given that enterprises with Chinese state backing are often perceived by local authorities as carrying potential political risk, it is advisable to cultivate a positive corporate image through measures such as appointing local advisers, fulfilling social responsibilities, and strengthening compliance frameworks.
The FIRB screening framework is a cornerstone of Australia’s strategy to protect national interests while balancing foreign investment with domestic priorities. Its role has become increasingly prominent amid rising global geopolitical tensions. For Chinese enterprises, adeptly navigating the FIRB process is crucial – not only for securing approval of Australian ventures but also for maintaining a credible compliance record and sustainable expansion internationally. Prudent advance preparation remains essential for long-term success in this complex regulatory landscape.
Wang Jihong is senior counsel and Chen Haobi is an associate at Zhong Lun Law Firm
Zhong Lun Law Firm
22-31/F, South Tower of CP Center
20 Jin He East Avenue
Beijing 100020, China
Tel: +86 10 5957 2288
Fax:+86 10 6568 1022
E-mail: wangjihong@zhonglun.com
chenhaobi@zhonglun.com
www.zhonglun.com
