Saturday 21 Jul 2018 | 04:44 | SYDNEY
Saturday 21 Jul 2018 | 04:44 | SYDNEY

Fretting about Chinese investment


Mark Thirlwell

2 July 2008 15:28

I have a piece in the business section of today’s Australian looking at the current surge of Chinese investment into the Australian resources sector. I make three main points:

First, that until now Australia’s bilateral economic relationship with China has been very lopsided: lots of trade, and not very much investment. To some extent, then, what we are seeing now is a not-unexpected rebalancing.

Second, that the influx of Chinese money is a symptom of some profound changes going on in the global economy, including the growing financial power of emerging markets, the commodity boom, and the increasing international prominence of countries which give the state a bigger role in their economies than do our traditional investment partners.

Third, that the foreign investment framework that we currently have in Australia should be up to the job of dealing with this new inflow of money, and that no dramatic changes are required.

There are obviously a whole bunch of other issues that are important here. Below are three more that didn’t make it into the piece due to lack of space, but which are also worth thinking about.

First, while I argue in the piece that there is no need to fundamentally change our current policy framework to deal with the inflow of Chinese investment, this leaves open the question of whether we have enough resources in place to operate that framework effectively. Dealing with a sudden spike in state-directed investment may require an increase in the number of deals that are subject to review. That, in turn, might require recruiting more people in order to avoid unnecessary delays in reaching a judgment.

Second, there is an interesting issue about rules and transparency here. On the one hand, in order to make the foreign investment process as quick and easy as possible and so avoid discouraging the overseas investors that we need to fund our current account deficit, there is a case for having a set of clear, transparent rules. This allows prospective foreign investors to easily understand what the relevant guidelines are. In contrast, nebulous concepts like the national interest are wide open to interpretation. On the other hand (yes, I know I’m being a stereotypical economist here), I think a case-by-case approach is pretty much unavoidable when it comes to large, potentially strategic investments. This doesn’t necessarily mean the process has to be opaque, but it does make it more difficult to operate purely according to a set of formal rules.

Finally, there is a specific question related to investment in the resource sector. This is the issue raised in a previous post by Steve Grenville. Steve was asking about the potential benefits to Australia that could be achieved from securing higher terms of trade by allowing the further consolidation of the iron ore market, something that I also touched upon in this post