Chinese firms facing opposition to overseas deals
Chinese agricultural companies are eyeing overseas land purchases to boost their global development, but experts said Thursday that they need to be prepared for political opposition in host countries.
The possible purchase of farmland in Australia covering a size similar to that of Ireland by a consortium involving China's Hunan Dakang Pasture Farming Co and Shanghai CRED Real Estate Stock Co caused some controversy recently.
On Wednesday, Australian Treasurer Scott Morrison criticized the purchase, saying it was contrary to national interests, according to Reuters.
"It is a very big transaction and it is important we do the right thing by the national interest and that's what I intend to do," Morrison told a press conference held in Canberra.
According to a filing posted by Shenzhen-listed Dakang on Tuesday, its unit in Australia plans to buy an 80 percent stake in S. Kidman and Co, one of Australian's biggest beef producers, for A$300 million ($234 million). Australian Rural Capital Ltd will buy the remaining 20 percent.
Dakang hopes the deal can facilitate its beef import business in China, but the purchase is awaiting approval by authorities in both countries, the filing said.
Experts said it is understandable that the deal has encountered political opposition.
"The sale of farmland of such a large size would arouse strict scrutiny from authorities in any country," said He Weiwen, an executive council member at the China Society for WTO Studies.
It is not the first time that Chinese companies' efforts to buy land abroad have worried local authorities.
The recent acquisition by Hong Kong-based Chinese fund management firm Hongyang of 1,700 hectares of farmland in central France caused unease among local farmers and authorities, who were concerned that the introduction of foreign capital could affect the independence of local agricultural production and exports, French newspaper Le Figaro reported on April 13.
In October 2015, Dakang pulled out of a deal to buy seven dairy and three support farms with a total size of 3,300 hectares in New Zealand due to "uncertainty from the local government's Overseas Investment Office," according to a Dakang filing with the Shenzhen Stock Exchange.
Australia and New Zealand are perceived as the main destinations for Chinese investment in terms of agriculture.
But this does not mean it will be easy for Chinese firms to get approval from other countries for their land purchases, experts said.
Meanwhile, China National Chemical Corporation's planned $43 billion takeover bid for Switzerland-based seed giant Syngenta AG has also been criticized by US lawmakers.
Sensitive issue
"These barriers are not specifically put up against Chinese companies. Farmland is critical for the development of any country, making ownership of the land and foreign investment in agriculture a sensitive issue across the world," He told the Global Times Thursday.
Also, Chinese outbound investment often lacks clear details about the capital sources, which causes concern among overseas authorities that the transactions could be funded via leveraged loans that carry high risks of default, He noted.
Despite these difficulties, experts believe China will continue to see agriculture-related companies furthering their overseas expansion.
The trend is being driven by lower agricultural production costs in foreign countries and regions than in China and an insufficient amount of land domestically for farming, Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant, told the Global Times Thursday.
China's agricultural production is inefficient, as farmland in the country is divided into small patches that are not suited to the application of modern agricultural facilities, said Ma. "This is part of the reason for higher prices of agricultural products in the Chinese market than in the world market."
Taking pork prices for example. The after-tax price of imported pork was 16,423 yuan ($2,535) per ton in February, in comparison with a domestic price of 23,583 yuan per ton, a report from the Beijing-based market consultancy showed.
According to a stock market filing by Dakang on Tuesday, the company is also eyeing a deal in Brazil, which is a major exporter of soybeans and corn.
Ma warned that Brazil may not be a good choice, as the local economy is not sufficiently market-oriented.
