Beyongo Dynamic is a political economist focused on a range of Sino-African trade and investment issues. He is a PhD candidate at the Australian Centre on China in the World, ANU. Beyongo did his undergraduate and postgraduate studies at the University of Yaounde II-Soa, Cameroon, and the Cherkassy State Technological University, Ukraine. He is undertaking research on the home-based determinates of Chinese overseas foreign direct investments in Australia and Zambia.—The Editors
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Tony Abbott at the Australia Week in China gala lunch at the Shanghai Expo Centre in April 2014. Image source:
The Australian
The unprecedented growth of mainland China’s outbound foreign direct investment (OFDI) into Australia in recent years has generated much public debate. The Australian government is faced with the challenge of attracting more Chinese OFDI while managing local community concerns about (perceived or actual) China-specific investments risks.
As a capital-hungry economy, Australia relies on foreign capital in virtually all sectors of its economy. In April 2014, Tony Abbott, in his first visit to China as Prime Minister, conveyed to Chinese Premier Li Keqiang that Australia needs Chinese capital to help build roads, bridges and other important infrastructure. He also stressed that Australia was ‘open for [Chinese] business’.[1]
The official government line in Australia is that foreign investment – including that from China – is welcome. However, the Australian public isn’t so sure. According to the 2014 Lowy Institute Poll, the majority of Australians (fifty-six percent) think that the Australian Government allows too much investment from China, a percentage that has remained fairly stable for years. Only four percent of respondents think that the government is not allowing enough investment from China.[2]
Some Australians perceive that Chinese investment poses a threat to national security, while others are uncomfortable with the idea of ‘selling the farm’ and the nation’s natural resources to foreigners. The Australian media often plays to these insecurities, with talk of ‘the Communist Party’ or ‘China Inc.’ buying Australia, particularly when investments are made by China’s state-owned enterprises (SOEs).
Local community resentment at Chinese investments can be channelled into votes. Voters are less likely to be won over by sound economic policy.
Australian attitudes to Chinese investment. Source: 2014 Lowy poll.
The political challenge of attracting and retaining more Chinese capital while managing local community concerns about China-specific investments risks was explicitly acknowledge by the Australian Treasurer Joe Hockey, and also by the Shadow Minister of Trade and Investment, Senator Penny Wong, at a forum organised by The Australian National University (ANU) and the Business Council of Australia (BCA) on Chinese SOEs and Global Investment in Sydney on 29 August 2014. Their addresses at the Forum both acknowledged that Australia runs the risk of losing its edge as a competitive destination for Chinese OFDI. However, there was also bi-partisan agreement that reforming Australia’s foreign investment regime to ensure this doesn’t happen will be a huge political challenge.
Since its creation in 1976, Australia’s Foreign Investment Review Board (FIRB) has played a key role in both promoting the country’s competiveness in attracting FDI and sustaining community support for it. FIRB provides advice to the Treasurer on Australia’s Foreign Investment Policy and its administration, but it is the Treasurer who has the final say in whether an investment will be approved or not. This decision is centred around whether the investment is in Australia’s ‘national interest’, a vaguely defined term that is subject to the Treasurer’s discretion.
Some Chinese investors believe that FIRB’s rules have been put in place to discriminate against them deliberately. Meanwhile, some in the Australian business community are urging for reforms that will make the FIRB more independent from the government, and also make the Treasurer’s decision-making process more transparent.
At the Forum in Sydney, the Business Council of Australia released a new report, proposing six possible reform options for Australia’s foreign investment regime. These were:
(i) removing the FIRB screening regime altogether and subjecting foreign investors to the same rules and regulations as domestic firms;
(ii) providing Chinese SOE investors the same treatment accorded to foreign private investors under free trade agreements;
(iii) providing SOE investors with the same treatment given to other foreign private investors;
(iv) increasing the current investment threshold for SOEs to fifty eight million dollars;
(v) creating a scheme parallel to FIRB through which SOEs will be accredited for preferential treatment in any further investment based on their performance; and,
(vi) maintaining the existing regime.[3]
Given the strength of Australia’s domestic regulatory institutions, and if attracting foreign investment was the country’s sole motive, option (i) would be optimal. However, this is likely to be an impossible sell to the Australian public. Option (ii) would cause diplomatic problems with countries that have already signed FTAs with Australia, as the preferential treatment accorded to them would no longer be preferential. And option (iv) seems like a waste of resources with little gain.
Option (iii) certainly has some merit. As Tony Abbott has recently observed, Chinese SOEs now have a ‘highly commercialised culture’, while West Australian Premier Colin Barnett believes that SOEs are ‘very responsible corporate citizens within Western Australia’. Indeed, there is little if any evidence that Chinese SOEs operating in Australia behave any differently from private investors. Furthermore, Australia has a robust ‘behind the borders’ regulatory regime to adequately regulate SOE investors just as it regulates the activities of all other firms.[4]
However, the Australian community might not find this option acceptable since SOE investments are often large and have predominantly taken place in the mining sector – where a certain amount of ‘resource nationalism’ clearly exists. Between 2007 and 2013, Chinese SOEs invested more than US$52 billion in Australia’s mining, gas and power sectors.[5]
This leaves the option of maintaining the existing regime as the most likely outcome in the foreseeable future, despite the problems that it seems to be causing in the eyes of both the Chinese and Australian business communities.
At the World Economic Forum in September 2013, Premier Li Keqiang announced that China plans to increase its OFDI by more than US$500 billion around the world in the next five years.[6] Global competition for this capital will be fierce. If public sentiment continues to impact on sensible policy formation, Australia could miss out on the opportunity to attract that capital into its domestic economy. The first step for the country’s politicians is to do a better job of selling the benefits of Chinese investment to an unsure public, and of stressing the costs that a decline in this investment will inevitably bring.
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Notes:
[1] Phillip Coorey, ‘Abbott asks for more Chinese investment’, Financial Review, 9 April 2014, online at: http://www.afr.com/p/national/abbott_asks_for_more_chinese_investment_3HU5TilYJ46QXZHRR0jtEK
[2] Alex Oliver ‘The Lowy Institute Poll 2014’ Lowy Institute for International Policy, 2014, online at: http://www.lowyinstitute.org/lowyinstitutepollinteractive/2014-Lowy-Poll-web.pdf
[3] Business Council of Australia, ‘Discussion Paper on Foreign Investment and State-owned Enterprises: Managing the Risks to Maximise the Benefits’, August 2014, online at: http://demystifyingchina.com.au/reports/BCA_Disc_Paper_on_Foreign_Investment_2014.pdf
[4] Nick Perry, ‘PM change of heart on China investment’, The Australian, 11 April 2014, online at: http://www.theaustralian.com.au/news/latest-news/pm-change-of-heart-on-china-investment/story-fn3dxix6-1226881265609
[5] KPMG ‘Demystifying SOE Investment in Australia’, August 2014, online at: http://sydney.edu.au/business/__data/assets/pdf_file/0020/210458/N12035MKT-Demystifying-SOE-Investment.pdf
[6] See Li Keqiang’s Speech at the Summer Davos Opening Ceremony, 12 September 2013, online at: http://www3.weforum.org/docs/AMNC13/WEF_AMNC13_TranscriptLiKeqiang.pdf
