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Thursday 17 Aug 2017 | 10:02 | SYDNEY
Thursday 17 Aug 2017 | 10:02 | SYDNEY

Regulating Chinese investment



8 September 2008 15:43

Graeme Dobell’s post drew my attention to a new paper by Peter Drysdale and Christopher Findlay on Chinese foreign direct investment into the Australian resource sector. The authors seem to come to pretty much the same conclusion I reached in a piece I wrote for the Australian in July. I argued that dealing with Chinese investment required no major change to Australia’s existing foreign investment framework. Drysdale and Findlay conclude that:

There is no persuasive case for any change in direction over control of foreign direct capital inflows in response [to] the recent surge of interest of Chinese foreign direct investors in the Australian resources sector.

They will get no argument from me: I agree that we can manage any challenges posed by the rise in Chinese investment using existing arrangements. That said, I would make two additional comments.

First, one of their proposals is the initiation of government-to-government links between Australia and China for routine consultation on competition, corporate governance and financial transparency as a way of assuaging concerns about Chinese investment. I’m not quite sure what the intention is here. To some extent, the ongoing FTA negotiations and any dispute and consultation mechanisms those negotiations may eventually establish will presumably fill part of that role. And to some extent, this kind of consultation process regarding policy regimes and consistency of treatment is what governments do already. So if what is intended is more of the same, extended to China, then this seems straightforward enough. 

But if the idea is to develop new mechanisms that are unique to the Australia-China relationship, then doesn’t this cut against the proposition that Chinese investment should generally be treated in the same way as investment from other countries? If there is no reason to worry specifically about Chinese investment, why the need for a special initiative along these lines that would not also apply to other major investors in Australia? 

Second, I am not quite as sanguine about the general idea of state-controlled foreign investment as the two authors appear to be in their paper. This might just reflect a difference in focus; while Drysdale and Findlay are writing specifically about Chinese investment in the Australian resource sector, my concerns are more general. For example, I think that any foreign government seeking to control major media interests in Australia would raise some obvious concerns, particularly if that government did not allow freedom of the press back home. Similarly, a potential investor that had in the recent past been wielded as a tool of foreign policy by its government would be problematic. 

As I noted in my July piece, in practice I think the number of cases where foreign government ownership will represent a challenge to Australia’s national interest will turn out to be very small.  But ‘very small’ is not the same as zero.

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