Why the Court got it right on Crafar deal


The High Court ruling on overseas investment promises to be a precedent setter, and not before time.

For years, observers of New Zealand’s foreign investment policy have nursed an increasingly nagging suspicion that the Overseas Investment Office has essentially taken a rubber stamp approach to applications. Barring any criminal history, New Zealand has been a free-for-all for punters from four corners of the globe.

What is rarely spoken of – especially by newspaper columnists and talk radio hosts – is the reciprocity conundrum. At 9.6 million square kilometres in area, China is 36 times larger than New Zealand’s 270,000 km2. With 1.3 billion residents, however, China has 290 times the population of New Zealand. For every square kilometre, China has eight times as many people trying to live on it.

New Zealanders, for reasons that may now seem obvious, cannot purchase land or businesses in China. In fact, there are many countries New Zealanders cannot just whip out the chequebook and set up shop in. Yet talk hosts seem to think that ideological economic purity requires New Zealand to ritually disrobe for the world just to show we have the goods.

The problem with the ideological purity line, however, is that New Zealand’s finite land area would very quickly be snapped up by investors from the rest of the world if we followed the policy to its logical conclusion.

Some commentators try to argue that it’s just a matter of economic reality.

“If someone offered you a price for your house a million dollars above the market value, wouldn’t you take it?” questioned one Newstalk ZB host. It’s a close analogy to the $210 million price offered by the Chinese bidders for Crafar farms, against the $170 million bid by local NZ farmers. If that’s what the international market is offering, then that’s what we should take, goes the argument.

The problem with that line of reasoning is that it’s as shallow as the proverbial birdbath. The Crafar farms might well be worth more to Chinese bidders than NZ locals, because of the scarcity of productive land in China and a different economic dynamic. But if New Zealand simply imports the price structures of overseas economic powerhouses, our own economy risks being seriously damaged in the long term. Once NZ farmland becomes freely listed on the overseas markets, the prices may never come down far enough for locals to afford them. Over time, Prime Minister John Key’s warning about New Zealanders becoming tenants in their own country would inevitably come true.

Think about it. Suppose a Chinese conglomerate gets bored and wants to offload its farm purchases down the track. In a country with an open investment policy like New Zealand, those farms would be far more likely to be sold to further overseas interests, purely because of the much larger potential market. They might never return to New Zealand ownership.

The person who has no more assets to sell and no more skills to offer sells their body. Is that what New Zealand will ultimately become?

Justice Miller in the High Court put a spoke in the wheels of the Overseas Investment Office gravy train, by pointing out the Office has been misapplying the law.

What most media don’t appear to have realised at the time of writing is that the misapplication of the law is not unique to the Crafar deal – it appears to be systemic and probably taints every single OIO decision ever made. The Court has pointed out a fundamental error in the way the OIO approaches its analysis: the OIO “materially overstated” the supposed financial benefits of each overseas investment application because its staff did not properly understand the law.

New Zealand cannot throw open its productive sector and one of our only competitive advantages in the world economy, to the open market internationally – not without sacrificing our economic sovereignty, and any hope of genuine future economic growth. Once the rest of the world owns most of New Zealand, the bulk of the profits flow offshore and not into our domestic economy. Only one end awaits a country that shows such political and economic stupidity.

Third world status, within a generation.