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Thursday 17 Aug 2017 | 03:15 | SYDNEY
Thursday 17 Aug 2017 | 03:15 | SYDNEY

Five points on foreign investment (part 2)

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11 May 2009 17:41

Mark's first point is that Australia is inescapably dependent on foreign investment. 

2. The international environment within which Australia’s foreign investment policy regime has to operate has changed in significant ways. One element of change is that the growing economic and financial clout of emerging markets means that the flow of foreign investment now runs in two directions. Not only do developed countries invest in developing countries, but increasingly funds flow in the other direction as well. For now, developed economies remain by far the most important international investors, but the change is significant:

A second way the international environment has changed is that the financial crisis means that the world economy has become a much tougher place for capital-importing countries: risk aversion has increased while capital has become scarcer. This means the relative importance of non-traditional sources of foreign investment has risen.

For developed economies in general, the challenge raised by these changes is to stick with the approach to foreign investment they have previously applied. After having spent decades lecturing developing countries on the benefits from being open to rich world investment, it would be rank hypocrisy to get cold feet about the benefits of openness just when funds start flowing in the opposite direction.

For Australia, it means that China – already our largest trading partner – is likely to see its stock of investment here rise from what until very recently has been a negligible level. As several observers have recently pointed out, encouraging China to be a so-called ‘responsible stakeholder’ in the global economy requires allowing China to take some stakes in that economy – including here. 

We should expect to see a much larger stock of Chinese investment in Australia than is now the case. The policy debate about Chinese investment in Australia should be focused on how we manage that investment, rather than on whether we should allow it in the first place.

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