The China Australia Free Trade Agreement (CHAFTA) which was agreed to in November 2014 was signed on 17 June 2015 by Trade Minister Andrew Rob and the Chinese Commerce Minister Gao Hucheng.

This historic trade agreement with Australia’s number one trading partner, with two-way trade equalling over $160 billion annually, has been ten years in the making.  The CHAFTA is intended to reduce tariffs and trade barriers between Australia and China and make direct investment in both countries more accessible.

Foreign Investment in Australia

Similar to the Japanese and Korean trade agreements which commenced last year, the Foreign Investment Review Board (FIRB) thresholds will be increased under the CHAFTA for certain types of investment.

The CHAFTA will allow Chinese private investors to invest in Australian businesses that operate in non-sensitive sectors valued up to $1,094 million without needing to seek FIRB approval.  Further, private Chinese investors will not need FIRB approval for acquisitions of developed non residential commercial real estate up to $1,094 million.  There are no changes to the mandatory reporting requirements placed on all direct investment made by foreign government investors.

As is the case with the other increased thresholds for US, Japanese, Korean, Chilean and New Zealand investors, the increased investment threshold only applies to direct investment, with the usual thresholds of $252 million for an interest in an Australian business and $55 million for developed non-residential commercial real estate still applying if an Australian subsidiary is used as the purchasing entity.

Although the CHAFTA is being signed today it likely won’t commence until later this year.

Recent changes to the foreign investment policy will still apply to Chinese investors after the agreement commences.  These policy changes require FIRB approval for the acquisition of rural land where the investor owns $15 million worth of rural land or more in aggregate (including the target acquisition).

Despite the restricted benefits applicable to FIRB and the recent FIRB policy announcements which have had a mixed reception, the CHAFTA is a positive sign that Australia is still welcoming Chinese investment.