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The Australian government risks severely discrediting its international reputation and disrupting economic and trade relations with China, if it decides to politicize ordinary business activities by cancelling the deal to allow China's dairy company — China Mengniu Dairy — to acquire Australian dairy brand Lion-Dairy & Drinks Pty (LDD), Chinese experts say.

The remarks come soon after media reports said the Australian side may disapprove of the purchase of LDD from Japan Kirin Holdings Co, news that analysts said could cast a shadow over the fragile relations between China and Australia.

The Australian Financial Review reported Thursday that the country's treasurer, Josh Frydenberg, secretly shunned the Foreign Investment Review Board (FIRB) and Treasury, which advised him to approve of China Mengniu Dairy Co's proposed A$600 million ($431million) acquisition of Lion Dairy & Drinks, but he has yet to publicly announce the rebuff. The Australian media outlet did not name the source.

While Australia's FIRB said it would approve the deal, the government has the power to force its cancellation following reforms to Australia's foreign investment laws in June, according to media reports.

In response to the report by the Australian Financial Review, an insider at China Mengniu Dairy told the Global Times on Thursday that the transaction approval was still ongoing when asked about the deal.

China Mengniu Dairy announced on November 25, 2019, that it would acquire 100 percent of LDD in cash considerations, said the company's public report.

However, experts believe the media report about the government's intention to cancel the deal may not be entirely correct, given the huge consequences that would come after.

Ruan Zongze, executive vice president of the China Institute of International Studies, said that it is unclear whether the Australian government will scrap the deal.

Mengniu's acquisition had been approved by the FIRB last year, with conditions such as retaining the local employment rate and ensuring that LDD's headquarters remains in Australia, and withdrawing the deal risks the country severely damaging its global reputation, experts said.

"If the government retracts the deal, its legal basis may also not be sufficient," Alan Wang, a partner at global law firm Freshfields Bruckhaus Deringer, told the Global Times. 

The foreign investment law reform in Australia in June was initiated due to concerns about foreign companies that might buy local entities with lower prices, against the backdrop of the reduced value of local assets under the impact of the pandemic on the local economy, experts said.

"Although reforms target all foreign companies, Chinese companies are likely to face stricter scrutiny," Wang said.

It is not the first time that the Chinese dairy company encountered a harsh response from Australian government officials.

Last December, Mengniu completed a $1.5 billion takeover of another Australian dairy company — Bellamy's — a move which has lifted the Australian company's value by more than 50 percent.

"The result was as we would have expected, which is this deal is clearly in the national interest," Bellamy's chief executive, Andrew Cohen, commented on the deal, the Sydney Morning Herald reported on December 5, 2019.

However, the deal caused political controversy as some Australian officials warned against a "Communist Chinese takeover" of Australian companies, the report said.

Meanwhile, foreign companies, such as those from Japan, saw vastly different outcomes.

According to a survey published by Australia Japan Business Cooperation Committee, 47 Japanese companies have made 54 acquisitions from 2017 to 2019 in some of Australia's largest export industries, including diary, coal, iron ore and liquefied natural gas.

"Japanese companies have bought a large number of Aussie agricultural and mining companies, and the Australian government has not been involved in those businesses," Li Xiaogang, director of the Foreign Investment Research Center at the Shanghai Academy of Social Sciences, told the Global Times, adding that the A$600 million deal by Mengniu is tiny compared to the entire dairy industry in Australia.

"Australia's foreign investment laws are aimed at targeting Chinese companies, in a bid to increase its diplomatic bargaining power with China," said Li. "For Australia, the political symbolism of preventing Chinese companies from buying Australian companies does not compensate for the economic losses." 

Given the rising tensions targeting Chinese companies, Wang suggested that Chinese buyers should make a net investigation of the risks of enterprise assets to fully understand whether financial and legal risks exist.

"They should not value too high over the deal to avoid paying too much," Wang said.

Australia is one of the largest trading partners with China in fields such as iron ore, energy and agricultural products, and China has remained Australia's largest export market, accounting for about 30 percent of Australia's total exports, according to public information.

The Australian government should reflect on the fact that its China policy has gone "terribly" wrong, and if they continue to go this way, it will not bring any benefits to Australians, said Ruan.


Newspaper headline: Chinese dairy giant’s purchase of LDD proceeding