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Breakingviews

Breakingviews - China tensions reach skyscraper heights in Sydney

A runner exercises along the waterfront near the city centre as the state of New South Wales continues to report relatively low numbers for new daily cases of the coronavirus disease (COVID-19), in Sydney, Australia, September 7, 2020. REUTERS/Loren Elliott

MELBOURNE (Reuters Breakingviews) - With a sweeping overlook of Sydney’s Harbour Bridge and Opera House, Grosvenor Place was designed, according to its architect Harry Seidler, as a “camera on the view”. The office tower could soon provide a snapshot of the modern state of Australia’s fracturing relationship with China.

Beijing-based sovereign wealth fund China Investment Corp is keen to take control of the building located in the city’s Rocks neighbourhood. It already owns a 25% stake and has struck a provisional deal to buy another 50% from real estate investment trust Dexus and its Canadian pension fund partner at a roughly $1.4 billion valuation. An otherwise routine property transaction – originally reported by The Australian newspaper in an unsourced article and independently confirmed by Breakingviews – may be trickier in the current climate.

Following the Covid-19 outbreak, Canberra toughened an already-strict review process, requiring virtually all acquisitions and investments from overseas to be scrutinised. It was an implicit defence against China, which was ahead of the curve tackling the virus just as Australia started reeling economically.

In August, Japanese brewer Kirin abandoned an agreed $430 million sale of its Australian milk businesses to China Mengniu Dairy, saying it was unlikely to secure approval from the Foreign Investment Review Board. The buyer had unveiled the deal in November, days after receiving the board’s approval to buy infant formula maker Bellamy’s. That suggests it would be foolish to take any transaction involving a Chinese buyer for granted.

The diplomatic backdrop also has become more fraught. Tensions escalated once more when Australia called for an investigation into the pandemic’s origins earlier this year. Since then, Beijing has imposed tariffs on Australian barley, suspended some beef imports and initiated a probe into subsidies of the country’s wine exports, a development that has weighed on the $4.6 billion Treasury Wine Estates. More recently, Chinese telecom equipment maker Huawei yanked its sponsorship of the Canberra Raiders rugby team, citing a “negative business environment.”

A Grosvenor Place review, required for any such deal, would occur in that same environment. Secrecy surrounding the agreement with CIC signals apprehension about the outcome, which might offer a geopolitical view that extends far beyond Sydney Harbour.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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