China continues to dominate Australian public discourse. Two conferences recently attracted national headlines with some of Australia’s leading public figures firing broadsides at those who hold that China is a threat to our economic sovereignty.

 

Yet to those of us involved in day-to-day cross-border transactions, does any of this actually matter? Specifically, what are the implications of this sometimes, divisive debate on Chinese Foreign Direct Investment, and how is Australia perceived by Beijing as an investment destination and a competitive place to do business?

 

New ACBC research by respected economists John Larum and Jingmin Qian demonstrates that while China’s stock of FDI in Australia has risen in dollar terms, the relative importance of Chinese FDI flows and approvals by the Foreign Investment Review Board has subsided somewhat over recent years, characterised by fewer ‘mega deals’, lower equity stakes, more JVs and greater exposure through indirect portfolio investments.

 

While much of this has been attributed to China’s inevitable diversification of its foreign investment portfolio and Beijing’s renewed emphasis on due diligence, the ACBC paper highlights perceptions of discrimination against Chinese investors as, at least, something of a contributing factor.

 

Although the paper confirms our view that navigating the FIRB approval process is seen as much easier, labour market access and infrastructure bottlenecks as well as the mining and carbon taxes are increasingly perceived as having increased sovereign risk levels in Australia.

 

Importantly, the paper makes a number of recommendations to government including better communication and the formalisation of one-and-a-half-track diplomacy measures such as the Australia China Economic and Trade Cooperation Forums, more market-oriented reforms for Chinese SOEs, a greater communications blueprint in China from FIRB, and streamlined corporate governance regulation through agencies such as the ATO, ACCC and ASIC.

 

The paper also encourages greater cooperation in infrastructure and agriculture as a direct way of demonstrating to the community the benefits of Chinese investment as well as an expeditious conclusion to the FTA negotiations – something ACBC has been advocating for many years.

 

Increased integration with China is the next obvious step for Australia’s evolution into the globalised economy in a post GFC world. Globalisation has been unambiguously good for Australia – something we would do well to remember as we contemplate
the effects of foreign investment in these opening decades of the Asian Century.

 

In the case of China, globalisation has unquestionably been an outstanding success as measured by growth in GDP per capita but has nevertheless caused Premier Wen Jibao to describe the Chinese economy as “unstable, unbalanced, uncoordinated and ultimately unsustainable”.

 

Since World Trade Organisation ascension in 2001, China’s export-led model supported by foreign direct investment (with its positive assimilation of management expertise, technology and market access) and its focus on fixed asset investment (as high as 50 percent of GDP) yielded stellar performance but was found wanting through its dependence on depressed US and European demand.

 

 

Since Deng opened up the economy in the 1970s, the CCP has delivered hundreds of millions of people from poverty and firmly nailed its legitimacy to strong growth, jobs and prosperity for all. The industrialisation process is far from complete and to date has bred inequality between east and west, urban and rural. It must therefore continue.

 

In his much celebrated ‘trip south’ in 1992, Deng Xiaoping famously proclaimed that “to get rich is glorious” and sagely foreshadowed that those who begot riches first would ultimately bring others along.

 

Whilst many speculate on the global rise of China there can be no doubt that the focus of the Chinese leadership is on domestic growth and harmony. Stagnating external demand has exposed China’s weaknesses, and what China does not want is another stimulus package to promote energy – and resource-intensive investment, which erodes banks’ balances sheets and adds to overcapacity.

 

The 12th five-year plan seeks to reinforce social safety nets (health care and social welfare) to encourage Chinese to save less and spend more, reducing external dependency.

 

As Xi Jinping and Li Keqiang assume power, it’s clear that the process of appointment at all levels is now a much more complicated process than in Deng’s era, when the unassailable power of revolutionaries was used to make appointments.

 

The 5th generation of leaders will not be short on challenges as they address institutional reform, social equality and media, the quality dimension of growth and external perceptions of China’s rise. ■

 

 

For more information on the Australia China Busines Council visit: www.acbc.com.au