The results of the survey.
When the Chinese Government made a surprise cash offer to buy Australia’s
biggest sugar business earlier this month, it not only sent the board of CSR
into a spin, it opened up an unsavoury but necessary debate about Australia’s
foreign investment policy with China.
Until now, China had targeted Australian property, mining and energy
businesses. But bidding for sugar in such an aggressive manner was an indication
that Beijing's "going out" policy in regard to investing in foreign companies
was about to be unleased.
Australia has always relied on foreign capital. Indeed various governments
have bent over backwards to offer tax incentives to attract overseas
What makes China different cannot be blamed on xenophobia. Where most foreign
investment is funded from private interests, whose main motive is profit,
Chinese investment is controlled by the government — a communist regime
intolerant of dissent.
Investor Pulse (a joint venture between marketing research group Colmar
Brunton and BusinessDay) asked a panel of 2000 investors their thoughts on China
buying Australian business, their attitude to the Foreign Investment Review
Board, and the impact of the Stern Hu affair, which has gone on for six months,
and involved the arrest of four senior Rio Tinto executives by Chinese
authorities, accusing them of corruption over iron ore dealings. The arrests
came just weeks after Rio reneged on a deal to hand control of the company to
Problem for policymakers
The results of Investor Pulse were both controversial and illuminating and
will scare the living daylights out of policymakers. The resounding conclusion
is that Australian investors have a problem with Chinese investment.
It found that 81 per cent of surveyed investors believed that "human rights
should play a role in Australia’s evolving economic relationship with
The Stern Hu affair and the more recent Google threat to pull out of China
are both salient events, shifting 25 per cent and 30 pe cent respectively of
investors’ attitudes towards China.
There are fundamental disagreements between Australian investors and their
Chinese counterparts. If the relationship remains purely economic, which seems
likely, expect to see regular and sharp convulsions that are a risk to mutual
An analogy is the security relationship with Indonesia, which can be measured
by the two countries’ mutual strategic interests. Yet a fundamental lack of ties
at the person-to-person level leaves it vulnerable to regular upheaval that
demands constant diplomatic all-of-government effort.
In the case of China, policymakers may take some comfort from a near 50-50
split among investors on whether a free-trade agreement makes sense. The biggest
benefit of such a formal document might be the stability provided by a legal
framework rather than anything strictly economic.
A large majority, nearly 40 per cent, see Chinese firms as typically "under
government influence" and therefore a potential threat to the "national
interest". Another 42 per cent think Chinese firms already own too much or we
shouldn’t sell assets to "pay for our debts". Only 19 per cent of investors
believe China "is just another trading partner" and "free markets enhance
prosperity", as well as helps "keep the peace between nations".
These results among Australia’s most investment-focused citizenry should
disturb Chinese firms and policymakers alike. Whether true or not, China is
perceived as an unfair player in the markets.
This alarmist sentiment is no doubt exacerbated by the fact that in the past
few weeks Chinese companies have won approval for a $3.5 billion takeover of
Felix Resources, a $US498 million ($550 million) acquisition of Indophil and six
approvals for mining companies in November.
In the past year China has spent a record $US25 billion on 17 acquisitions in
Australia and 21 strategic stakes. Since the Rudd Government came to office in
November 2007, it has approved more than 110 Chinese investment applications
(including in business and non-business sectors) worth more than $39 billion,
suggesting acquisition sizes are rising.
Investment process opaque
It appears that the Foreign Investment Review Board (FIRB) plays a big role
for this perception. When investors were asked if the current FIRB structure and
policy process was satisfactory, just 9 per cent agreed. A little over one-third
of investors believed that the FIRB’s behind closed-doors deliberations were
necessary to protect “decisions from a populist backlash” and an overwhelming
majority of 56 per cent felt FIRB should be a "more public process".
And when it comes to transparency, FIRB was found lacking. Five per cent of
investors felt FIRB rules for foreign investment were clear. Another 45 per cent
felt recent changes by Wayne Swan gave the rules greater clarity but were "still
unclear", while 50 per cent of investors saw foreign investment rules as
"unclear". It seems opaque Chinese firms coupled with an opaque investment
approval process is a recipe for disaster.
But most surprising, is the lack of support for Chinese investment at the
more personal level of residential housing. After all, high levels of Chinese
demand for property has been a key contributor to the property market remaining
In a report on China Daily in January, the headline read: "Australia is now a
hot real estate market for Chinese investors". The report said after the UK and
New Zealand, China is third in the line-up of countries that sends immigrants to
Australia. Last financial year, more than 70,000 Chinese arrived in Australia to
live permanently, including a steady stream of business migrants and a growing
number of students.
In March, Chinese businessman Jiang Mei bought one of the most expensive
houses ever sold in Sydney, an inner-city, Point Piper house for $32.4
When asked if they agreed with last year’s Federal Government decision to
liberalise investment for foreigners into Australian housing, only 27 per cent
agreed that the principle of free markets should apply to housing and that it
would "drive up prices". A stunning 45 per cent agreed that “property prices are
too high already”, as well as 28 per cent felt that "Australians should own
Currency peg questioned
The Chinese image problem extends to macroeconomics where the Chinese
currency peg is regarded as a justification for Australia to "protect its
industry", according to 31 per cent of investors. More worryingly still, 40 per
cent think we should already be protecting manufacturers.
Only 29 per cent agreed that regardless of the Chinese currency peg, a
continuation of the prosperity Australia experienced in the past 20 years was
dependent upon a commitment to free markets. Investors were almost evenly split
on whether the current round of increased trade tension between the US and China
Whenever Canberra has confronted a fork in the road with China it has taken
it. However, ad hoc policy is not cutting it with investors.
Australia needs a forward–looking economic engagement framework with China
that includes fundamental reform of the FIRB process, human rights dialogue and
positions on macroeconomic settings like currency pegs. Such will offer clear
rules for Chinese firms and a clear message to hold investor