Shanghai Maling quizzed about historic melamine scandal, luncheon meat recall, papers show

Thursday 20th October 2016

Shanghai Maling Aquarius officials were quizzed about China's historic melamine scandal and a luncheon meat recall before being approved by the Overseas Investment Office, papers show.

The OIO used "open source background checks" on the 19 or so individuals behind Shanghai Maling and controlling shareholder Bright Foods before recommending its proposal to buy 50 percent of Silver Fern Farms.

Some details were redacted from papers released under the Official Information Act but the OIO said it identified several matters "that required comment from the applicant." These "related to certain food safety matters, alleged contraventions of the law and hits on the ICIJ (Investigative Consortium of Investigative Journalists) offshore leaks," the OIO report says. It also ran names against registries of foreign trusts.

The officials didn't deduct any points for the melamine contamination which hurt most big Chinese dairy companies, including Bright, which was among companies already operating safety within New Zealand.

They did quiz the officials over a recall of luncheon meat in 2007 that was contaminated with a drug used to inhibit bacteria, but noted such product recalls are not unusual among food manufacturers.

The OIO has previously been criticised by NZ First leader Winston Peters for its handling of foreign investment approvals after it failed to pass on to minister details of offending by Argentinian brothers cleared to buy a farm in Taranaki.

In this case, Shanghai Maling managed to convince the OIO that along with Bright Dairy it met the test of being "a key person in a key industry" of a country where New Zealand was likely to benefit from improved relations. The alternative was given a poor prognosis: if the application was declined it would "adversely affect New Zealand's image overseas".

Given the importance of the deal - 50 percent of New Zealand's largest meat company by a key person in a key industry in China - there was potential blowback on New Zealand if the deal was declined.

"The transaction is being followed closely in China" and the OIO considers that "refusal of the application would likely adversely affect New Zealand's image and its trade relations with China", even though New Zealand wouldn't have breached any international obligations by doing so.

Shanghai Maling argued in its application that China's overhaul of food safety standards and the new, stricter rules, ensuring such a contamination couldn't occur now. The luncheon meat recall was traced to a supplier who has since been replaced. The OIO found no evidence of impropriety, illegality or tax evasion.

In the case of the principals of Shanghai Maling and Bright Dairy, they were found to have "extensive experience in the food industry" and "business experience and acumen relevant to the investment". The OIO didn't give a large weighting to Bright Dairy's existing investment in Synlait Milk, deeming the industries too dissimilar. However, it did note that Bright and Synlait have subsequently found success with their Pure Canterbury partnership.

The application was approved by Land Information Minister Louise Upston and Associate Finance Minister Paula Bennett on Sept. 20. The OIO highlighted the economic benefits of the deal in its report - both for putting a large meat company back on a strong footing and the broader benefits for the New Zealand economy.

BusinessDesk.co.nz

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