UPDATE: Australia's Abbott: Chinese Foreign Investment Must Be In National Interest

Australia's Opposition leader Tony Abbott Tuesday indicated he would not move to change the rules on foreign investment in the country if he wins this weekend's federal election, though in a reference to China he said he would not favor state-controlled companies taking majority stakes in local businesses.

Abbott's remarks are his strongest yet on the subject of Chinese investment in Australia and will soothe concerns a centre-right government would take a harder line than the current Labor government on foreign entities buying into local companies.

Investment in Australia by Chinese companies has been a thorny domestic political issue, with relations between the two governments hitting a low in the past year during the detention and trial of four Rio Tinto (RIO.AU) executives, including Australian national Stern Hu. Hu was convicted on charges of bribery and stealing commercial secrets.

Relations have since thawed somewhat and, despite ongoing concerns about China's move to secure future resource supply by investing directly in companies and mining projects in Australia and elsewhere, China's purchases of Australian businesses have continued to win government approval, including the takeover last year of coal miner Felix Resources Ltd. by Yanzhou Coal Mining Co., the largest Chinese takeover of an Australian company.

But some investors remain cautious on the view a change of government in Australia could result in a tightening of the national interest criteria applied on offshore buyers by the Treasury Department's Foreign Investment Review Board.

Abbott, leader of the main opposition Liberal and National party coalition, said if he is elected prime minister on Aug. 21 he doesn't envisage making any changes to the existing rules set by FIRB--though he added any foreign investment in Australia must be in the national interest.

"I would not normally be in favor of Australia government entities taking a majority position in Australian businesses," Abbott told reporters after delivering a key note speech in Canberra.

"Similarly, I would be very careful about majority ownership of Australian assets by government-controlled entities. I am not singling out China," he said.

"We need foreign investment, we welcome Chinese foreign investment, but it does have to go through the ordinary Foreign Investment Review Board rules," Abbott said.

The Review Board has the final say on allowing investments to go ahead, and last year outlined a preference for foreign government-backed entities to keep investments in Australian miners to less than 50%. Investments in new projects should be capped at less than 50%.

Last year, Treasurer Wayne Swan knocked back a planned takeover of OZ Minerals Ltd. (OZL.AU) by China Minmetals Nonferrous Metals Co. on the ground one of its mines, Prominent Hill, was in a military weapons training range. The deal was subsequently altered before winning approval.

The opposition leader's comments on foreign investment come just days before Australia's election, with opinion polls showing a tight race between the conservative opposition and the ruling Labor government under Prime Minister Julia Gillard.

Abbott said a Liberal partyy-led government would seek to apply market principles to any investment and China businesses tend to operate differently to Australian companies.

"A Chinese business is much more an arm of the Chinese government than an Australian business would be an arm of the Australian government," he said.

-By Enda Curran, Dow Jones Newswires; 61-2-8272-4687; enda.curran@dowjones.com

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