The concept of foreign investment in agriculture may be fairly new, but it’s been common practice in the Australian mining industry for more than a century.

It’s not without its critics, especially with China taking on such a dominant role in recent mining boom.

In the late 1880s, investment funds poured from the boardrooms of London and New York into the newly discovered gold fields like Bendigo in Victoria and Coolgardie in Western Australia.

Then came the second wave of investors, this time from Asia, attracted by the mining boom in the 1960s.

They were after the newly discovered iron ore riches in the Western Australia Pilbara, and the metallurgical coal deposits in the Gladstone and Bowen Basin regions of Queensland.

These two minerals industries were developed in concert to supply the rapidly growing steel market in Japan.

Jeffrey Wilson, a fellow from the Asia Research Centre at Murdoch University, says that by taking a direct stake in the companies in the 1960s, Japanese steel mills were able to ensure security of supply of raw materials by signing long-term contracts to buy.

“This could tie up the output of these iron ore and coal mines by up to 10, 15 years or even more.

‘That regularised and stabilised the market and gave surety for the Australian companies who built the mines and gave the Japanese steel makers long-term planning options.”

The imperative to source raw material from Australia for local use also became a more recent one for China which needs to employ and house a rising middle class.

It started investing heavily in global mining assets and has been very active in Australia since early 2008.

However, this wave of investment came with a very different corporate structure to what Australia was used to dealing with, the ‘state-owned enterprise’.

“The Chinese steel companies are predominantly state-owned, that is, they’re backed by the government,” said Professor Wilson.

“That’s a result of how the Chinese economy itself, sometimes referred to as market-socialism, is run.

“This does worry some people in certain sections of the community who feel that Chinese companies, and the Chinese Government, are somewhat untrustworthy.

‘There are some concerns about China’s human rights record and the fact that China is an authoritarian rather than a democratic government.”

The Australian Government balances the competing requirements between the two countries with a lengthy review process.

“The Foreign Investment Review Board (FIRB) has to review investment applications from state-owned enterprises and make a decision as to whether they’re in the national interest or not.

“So it may approve the investment itself, but apply conditions such as requiring the company to market its output at an arm’s length basis.

“That means when a Chinese-invested iron ore company sells ore to China that the price is based on the international market price, rather than, say, transfer pricing.

“It also asks that Chinese companies maintain independent operational management in Australia, including a certain number of board members.

“They’re also required to display transparent corporate governance practices, because corporate governance in terms of finance reporting and decision making are far more regulated and legally controlled in Australia.

“So these companies are expected to meet the same regulatory standards as Australian companies.”

Professor Wilson says it’s very unlikely the Australian mining industry could have grown as it has, especially during the last boom, without foreign investment.

“The mining industry is a large scale, capital intensive one. And it’s an industry that needs a lot of the financing to be done up front.

“So you have to pay to build the mine today, but it might take 10, even 15 years, to earn the money back against that investment.

“Australian capital markets are fairly shallow, and companies here, in many cases, just can’t raise enough cash locally to engage in those scenarios.”

But despite strong regulation and necessity, there’s still some disquiet over the concept of foreign ownership of Australian goods and assets

Professor Wilson says it’s a widespread phenomenon that’s driven mainly by different ideological stances that are not above a bit of politicking.

“Progressive studies by the Lowy Institute find that between 50 to 60 per cent of Australians are not comfortable with Chinese investment in Australia and they don’t want to see any more.

“One of the other drivers of community attitude to foreign investment is this concept of ‘selling the farm’, particularly in agriculture and mining.

“It’s often hard for someone who looks at these things from the outside and evaluates whether an industry would have developed without foreign investment.

“It must be noted there are also certain groups in Australia who use opposition to foreign investment as a political organising device and it’s not limited to any particular party.

“For some politicians, it’s populist and electorally successful to send a messages that foreign investment is bad.”