News Feature
Xenophilia or Xenophobia?
The great fear of foreign finance flowing into Australia
November 2016
BY SAM MORTIMER
When Pauline Hanson rose to her feet in the Australian Senate for an unprecedented second maiden speech, she delivered a monologue which echoed values apparently embraced by a statistically significant number of Australians at the last election: that immigration and all foreign investments are no good. “Why are we allowing the Chinese government - an oppressive communist regime – to own our land and assets?” she asked, before broadening her scope to target “any foreigner”.
According to the Federal Government’s Foreign Ownership Land Register, 13.6% of Australia’s farmland is indeed foreign owned - but only 0.5% of that is owned by Chinese interests. Had a high-profile bid for the staggering 101,000km2 of farmland falling under S. Kidman & Co’s banner succeeded, China would have moved from fifth to second place under the USA on the foreign ownership leader board - in a single transaction.
So what’s our beef with the Chinese?
But to put those figures in perspective...
Agri-business deals made up just 3% of China’s $15 billion of direct investment in 2015, according to figures by research group KPMG. If you ask Treasury, Australia still owns a whopping 96% of our agricultural businesses – although they admit the scope of their data has some limits.
The Kidman deal was rejected on ‘contrary to the national interest’ grounds by Federal Treasurer Scott Morrison, who subsequently went on to block the sale of Ausgrid’s New South Wales power assets to a Chinese consortium for national security reasons. The reaction of the Chinese media was swift, with outlets like the Xinhua News Agency accusing us of “paranoia” and “China-phobia” in the wake of the latter decision.
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Industry matters not; our largest trading partner is seemingly having a hard time investing in existing assets, and an even harder time getting an explanation beyond “national security” from the Treasurer. Considering Australia is second only to the USA as a destination for Chinese overseas direct investment, any perceived bias could perceivably be a big deal for us.
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Professor James Laurenceson, a Deputy Director at the Australia-China Relations Institute (ACRI) says perceptions of the issue have lost all perspective: “The amount of noise that you hear around Chinese investment is out of all proportion to what the data actually says.”
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“Very few people clearly articulate the benefits (of foreign investment), and perhaps one of the reasons for that is not a lot of research has been done that allows politicians to give nice simple hard answers to questions like: if we have a billion-dollar investment from China, how many local jobs will it create?”
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​Indeed, one of the caveats buried in the Treasury white paper on foreign investment admits there is only limited data available measuring its actual contribution to the economy.
In its yearly snapshot of the public sentiment, Lowy asked Australian’s earlier this year: “Is the Australian government allowing too much investment from China” in real estate. 56% of Australian’s consistently answer ‘yes’ in one breath, but three-quarters say they think China is “more of an economic partner than a threat” and “the most important economy to Australia” in others.
It also suggests the average voter views the “foreign takeover”, as Pauline Hanson described it, with far less concern.
Professor Laurenceson, a fan of Lowy’s work, says contradictory polling is the result because they’re framing the question all wrong: “To what extent is there a specific fear against Chinese investment?”
He says nuanced ACRI research does indeed show a particular aversion to foreign investment – but it applies to all players, not just the Chinese. “Australians simply do not like the idea of a company being one-hundred percent foreign-owned, no matter where the capital comes from,” he says.
A renewed bid for the Kidman ranch by mining magnate Gina Rinehart and a Chinese real estate conglomerate appears to confirm the idea that foreign interests owning a smaller piece of the pie is easier to digest. The proposed arrangement would see a 60-40 split, with Rinehart controlling the majority, in an idea called “unambiguously good news” by Independent Senator Nick Xenophon - a man typically cautious of agriculture sales.
Professor Laurenceson says the Chinese simply want some certainly after Ausgrid – a tender they were invited to early, then rejected from at the very last second. “It’s not… that they think they should be able to buy everything – that’s a myth,” he says.
“(The fear is) because China’s big, it’s because it’s new and it’s because they’re different,” he says. “All the more reason for us to put resources into understanding that relationship.”
The rise and rise of the Alt-Right...
Image Source: International Business Times
With hard-line right-wing figures like Pauline Hanson publicly airing anti-foreign sentiments, Professor Laurenceson says the public’s current attitudes toward Chinese investment simply mirror aversions of the past.
The fear of American and British investment in the late 1960s was exemplified by Gough Whitlam’s 1972 election campaign, when he proudly declared “it’s time to start buying Australia back”. They were the new kids on the block, and both are still here - first and second respectively in the top 5 list of foreign investors.
The fact is, it’s not that easy for foreign investors to just walk in and start buying up. The Foreign Investment Review Board (FIRB) exists to police our foreign friends; those keen to help us fill the 4%-of-GDP gap that has existed between our dollars-in-savings and total national spend for almost 50 years. Foreign investors who roll up to the proverbial doorstep of the Australian dream with an overflowing treasure chest are assessed against a set of five ‘national interest test’ factors - designed to make sure the background of specific organisations and weight of each individual investment don’t topple over the Hills Hoist in the backyard.
The FIRB advises the Treasurer, who ultimately has the final call.
Deputy Head of the Department of Economics at Monash University, Dr Gennadi Kazakevitch, says it’s a very fine line between legislating potentially discriminatory selection conditions into the FIRB process, and maintaining the Government’s “open for business” mantra. However, the involvement of sovereign government interests in emerging post-communism economies like that of China - still very much a one-party nation - cannot be ignored.
“Chinese entrepreneurs are smart; they’re clever; they’re hard working,” he says. “(But) what I’m really concerned about is that big companies are implicitly or explicitly controlled by the government of China.”
In a submission to the Senate review of the foreign investment framework earlier this year, Dr Kazakevitch suggests two additional tests: a ‘foreign interest independence test’ and a security assessment based on country of origin.
“One of the Roman empires started to tax public toilets… in ancient Rome (and) said ‘money doesn’t smell’ - meaning (even) if the money is coming from public toilets, it doesn’t smell.," says Dr Kazakevitch.
"We want to smell money… look at where the money is coming from, from that perspective. Private interests, or the (direct or indirect) interests of a foreign sovereign government.”
Though however frustrating the Australian Government’s decisions may be to Chinese investors, he says China will continue to invest anywhere in the world they are permitted.
“China lives not by month, not by year, (and) not by a particular decision. China’s time horizon is 50 years, 100 years,” he says. “To go slow and persistent, and to wait to their particular hour, to their particular time when they can push through.”
In recent times, a tightening of investment thresholds means more and more international bids into all sectors of the economy have been referred to the FIRB, and with the latest changes lowering the agricultural land threshold from $252 million to $15 million, the only way is up. Dr Kazakevitch says thresholds are not the only answer to slowing the growing tide of investment, but the vetting process does need to be smarter to avoid destroying relationships as increasingly necessary screenings take place.
“We are not on an equal playfield with a country like China, not only in terms of size and the money they can invest, but in terms of what kind of economy they are,” he says. “Many people in Australia really don’t understand that.”
Proof of the benefits of foreign investment for everyday voters, it seems, must be in the pudding.
Or at home...
As the Gold Coast powers through preparations for the 2018 Commonwealth Games, the world’s largest property commercial developer, the Beijing-based Dalian Wanda Group, is throwing $1.1 billion dollars at the Jewel project in Surfers Paradise.
Image Source: Wanda Group
Jewel is a fully equity-lead project that will produce 512 luxury apartments spread across three separate towers. The project is expected to employ 1000 local workers, according to Jewel’s Sales and Marketing Director Lucas Wilson.
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“This is not an ‘invest and get out’, this is a long-term invest for the Wanda Group, and they’ve done that on the back of years and years of research,” he says. “Chairman Wang is on record saying ‘this (the Great South East) is the place in the world to invest’.” The Wanda Group are investing in the Gold Coast alongside their construction partners at the Ridong Group because they think it has the best potential for growth, given the surrounding investments in Commonwealth Games infrastructure.
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Mr Wilson says if the project failed or was foiled by the kind of changes Pauline Hanson is calling for, the Gold Coast would be “dead”.
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“We need to be cautious of where (the foreign investment) is coming from and how we’re approaching it, but if we don’t do it, then we will sink slowly. And we don’t want that,” he says. “The Chinese are choosing to say ‘Australia’s a great place to invest’ and we need to embrace that.”
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Foreign financiers fancy us to the tune of $735 billion per year and rising. Perhaps Grandmaster Flash put it best: maybe we should check ourselves before we wreck ourselves.