Nationalism and foreign investment policy
In today's Fairfax press, Beijing correspondent John Garnaut provides some much-needed facts to hose-down the economic nationalism being whipped up by some investment advisors and politicians over the Rio asset sale to Chinalco. Garnaut's story about the relationships of Chinalco and Chinese steel giant BaoSteel and about the pressures on the government fund backing the loans to Chinalco confirm my doubts that Chinalco has any commercial or government-inspired reason to make a loss on its massive investment for strategic reasons.
"Australia will have one hell of a mess on its hands if it turns out that Kevin Rudd and Treasurer Wayne Swan can't tell the difference between the national interest and the self-interest of BHP.
Chinalco's two-tranche, $US34 billion ($A52 billion) investment in Rio is six times larger than any previous Chinese offshore investment. Blocking it would tear up Australia's successful policy of engaging with and profiting from China… Australian financial services companies into the Chinese market will be wasted. AMP and Macquarie Bank — angling for Chinese fund management licences — will be hung out to dry."Extract from John Garnaut in The Age
Garnaut argues, as I do, that there is a much more effective and less disruptive way to manage our foreign direct investment (FDI) policies which, in my view, would give Australia a more competitive profile in foreign investment markets.
"If they can't trust Australia's tax, customs and corporate regulators to prevent Chinalco from somehow sneaking illegal cut-price iron ore tankers off to its competitors in China, then Chinese companies will ramp up their investments in other countries." Extract from John Garnaut in The Age
The fact is that we can trust our competition and fiscal regulatory agencies to manage foreign-domiciled investors just as we trust them to manage Australian investors. That allows us to offer national-treatment to investors, pre-establishment and after establishment. It would be tantamount to saying "investors who can comply with Australian regulatory standards don't need to stand in the FIRB's queue for three or six months or more waiting for an obscure review of their intentions (as if the bureaucrats would know) and our 'national interest' (ditto for the Treasurer).
Such a policy would create a significant competitive edge for the Australian regulatory framework in the world of foreign-investment. It would be a far-from-unregulated regime for investors but it would be the same regime for both domestic and foreign firms. Here is an extract from some remarks I made at an Institute of Public Affairs conference on foreign investment policy last year.
"It’s good to do business in Australia because we have well-developed laws and efficient, reviewable, institutions that monitor fair commercial practice, directors' responsibilities, and transfer pricing and ensure that all Australians share in the economic benefits of growth.
They include a bunch of familiar acronyms ASIC, the ACCC, APRA and the ASX. Several others, less familiar, also support our comparatively transparent and well-ordered commercial landscape: The Australian Accounting Standards Board, the Financial Reporting Council, and the Australian Transaction Reports and Analysis Centre.
Why then do we have the Treasurer standing at the door to our investment market making decisions on individual commercial relationships and on who may, or may not, have a seat on an Australian company's board?
Could you imagine our biggest customers asking the Treasurer whether he will allow them to import from Australia?
Never. But this is precisely what is going on with the pre-establishment barriers we maintain to FDI."
Posted on 02/16 at 09:26 AM.
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