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For many decades, under successive governments, Australia has adopted a relatively open and generally transparent attitude to overseas investment. From time to time (Woodside, GrainCorp, Kidman), the government of the day has exercised its right to block investment on the basis of the national interest or national security.
What’s particularly concerning about last week’s Ausgrid decision is its timing, its public explanation, and the message it sends around the world about Australia as a stable and secure place to invest.
Overseas investors know that every country in the world—including China—makes their own decisions about how to handle foreign investment. They ask for just three things: clarity and certainty around the terms and conditions under which they are bidding; even-handedness in the assessment of their bids; and transparency in relation to the final decision.
Australia sometimes ticks all these boxes: the Transgrid sale, for example, was seen as a good and fair process. But the government’s decision to block State Grid Corp and Cheung Kong Infrastructure from the long term lease of half of Ausgrid has changed the rules midstream—and in the process, has put a big question mark over our attitude to foreign investment. Two big issues jump out.
First, when the rules are changed and a strong and winning bid is rejected nine months into the process, future potential bidders cannot be blamed if they choose not to expend the time and money it takes to engage with tender processes in Australia. Potential investors simply won’t bother with the costs and risks of bidding.
The Ausgrid decision comes at a time when there are a number of changes and challenges for foreign investors in this country. These include higher FIRB application fees, higher stamp duties and land taxes on foreign investors, lending restrictions by Australian banks on offshore buyers, and ATO requirements on withholding tax for foreign sellers. This is not even to mention the general policy uncertainty around Foreign Direct Investment given a newly elected parliament with a wide variety of views on foreign engagement, ranging from the warmly welcoming to hostile opposition.
Second, we need to acknowledge that economic security is an integral element of our overall national security. A robust economy with healthy investment levels and strong jobs growth provides the foundation for a secure and optimistic nation. Compromising our trade and investment relationship with the world’s biggest economy could be seen as a threat to Australia’s economic wellbeing.
We are a large country with a relatively small population. As such, we have always depended upon foreign investment to grow our economy and raise our standard of living. Historically, we turned to the great centres of capital: the UK, Europe, the US and Japan. The vast bulk of our aggregate FDI has come from these places. China’s investment is comparatively modest, though growing strongly. But as Nobel Prize-winning economist Joseph Stiglitz observed last year, 2014 was the last year in which the US could claim to be the world’s largest economy. In purchasing parity terms, China has taken that position, and is likely to hold it for a long time to come. China is now the place where much of the capital we need for jobs and investment is to be found.
The sale of the Ausgrid lease was expected to raise up to $14 billion for the NSW Government to spend on infrastructure. This infrastructure is badly needed. Our cities are clogged and congested; industry will inevitably suffer as goods and services can’t get where they need to go. At the same time, we find ourselves in a situation where state budget surpluses are wafer thin, and the federal government’s projected pathway back to surplus is a long, long road indeed. Discouraging FDI at a time like this will push the surplus goal even further back.
Throughout its 43 year history, the Australia China Business Council has always championed more open trade and investment between China and Australia. We support this because we are a business organisation, but also because we see on a daily, yearly, and generational basis the real and genuine friendship that exists between Australia and China.
It would be most unfortunate for Australia if this week’s decision undermined the great trust, confidence and friendship that has grown up between our two countries. And in a purely economic sense, we need to understand that while the continuing growth of China offers immense opportunities and benefits for Australia, these benefits will not come automatically. In a sluggish world economy, coupled with increased global competition for FDI, tourists and students, we need to be mindful that policy uncertainty, regulatory barriers and increased taxes and charges will inevitably mean less investment, fewer projects and lower levels of tourists and students than would otherwise be the case. This is a potential pathway for Australia—but if we take it, it’s because we’ve chosen to. Better choices can and should be made.