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Tuesday 22 Aug 2017 | 12:00 | SYDNEY
Tuesday 22 Aug 2017 | 12:00 | SYDNEY

Five points on foreign investment (part 3)

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12 May 2009 10:41

Mark's first point is that Australia is inescapably dependent on foreign investment. His second is that foreign investment from emerging economies will grow.

3. Foreign investment by government-controlled entities such as state owned enterprises (SOEs), sovereign wealth funds (SWFs), and state owned banks (SOBs) is different than private sector investment and it’s reasonable for policy to treat it as such. Governments are quite likely to have different motives and objectives than private investors. Indeed, their motives will be political by definition. 

Since the vast majority of China’s foreign investment is channelled through government-controlled entities, it should not therefore be a surprise that Australia’s foreign investment policy regime will tend to subject Chinese investment to a greater degree of scrutiny than would otherwise be the case. It also means that some of that investment may be subject to greater degree of conditionality

Some participants in this debate argue that Chinese SOEs are not so different from private sector players and that they are anyway evolving in that direction. There is certainly some truth to this, but nevertheless it seems clear that there are still close links between Party, State and the SOEs.

A more important point is that while ownership matters in determining the motives governing the behaviour of foreign investors, the key issue for Australian policy is the behaviour itself. There are a range of policy tools available to set the rules for this – taxation policy, competition policy, Treasurer-imposed conditionality and so forth – which mean our government does not need to rely solely on blocking investments made by foreign-government-controlled entities.

Photo by Flickr user mattyp, used under a Creative Commons license.

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