In this exclusive extract from David Uren’s new book Takeover, he looks at changing Australian attitudes towards Chinese investment.
In 2012, as Tony Abbott prepared for government, he went on a trip to China where he adopted a hard line towards Australia’s biggest trading partner, speaking about the country’s need for political liberalisation and promising a much tougher stance on foreign investment than had been implemented by the Labor government.
“It would rarely be in Australia’s interests to allow a foreign government or its agencies to control an Australian business,” he said, noting that Chinese investment was dominated by state-owned enterprises. “That’s because we don’t support the nationalisation of businesses by the Australian government, let alone a foreign one.”
Journalists had been briefed that under a Coalition government, Chinese state companies would be allowed to establish ‘greenfields’ operations in Australia but would be barred altogether from the purchase of existing operations.
On his first trip to China as Prime Minister two years later, in mid-2014, Abbott shifted both his own and Australia’s stance on China’s state-owned enterprises.
“Australia hopes for much more Chinese investment – on the same basis that we welcome investment from our other FTA (Free Trade Agreement) partners such as the United States,” he said, following a meeting with China’s premier Li Keqiang. “We now appreciate that most Chinese state-owned enterprises have a highly commercial culture. They’re not the nationalised industries that we used to have in Australia.”
Treasurer Joe Hockey said this marked a new position on foreign investment, and reversed Labor’s stance on state-owned enterprises (SOEs). In a December 2014 interview with this author, he said, “I’ve consulted with our security agencies about the risks and formed the view that some SOEs in general were no greater risk to Australia’s national interest than investment from private companies, some of which are more closely wedded to the interests of a foreign state than the state company might be.” Hockey said this new stance, which he said has been “generally unrecognised”, lay behind the government’s approval of the $6 billion purchase of electricity group, SP Ausnet and its related Jemena business which has electricity, gas and water assets. A condition was imposed that at least half the directors must be Australian citizens.
The change of heart was brought not just by the realities of government and the assessment of the intelligence agencies. Abbott had set an objective of concluding the ten-year-long negotiations with China on a Free Trade Agreement in his first year of government. Australia did not have much it could trade for greater access to China’s markets as its tariffs were already close to zero. Concessions on investment were what the Chinese were seeking. They wanted the same threshold for foreign investment that applied in Australia’s Free Trade Agreement with the United States – over $1 billion rather than the standard $230 million – and they wanted it applied to their state-owned enterprises.
Abbott’s trade and investment minister Andrew Robb – whom he had entrusted with the task of completing trade deals with China, Japan and Korea – made it clear Australia’s insistence on vetting all investments by state-owned enterprises needed to change. Abbott’s comments in China signalled that he was ready to move.
The Business Council of Australia commissioned a study that highlighted the growing competition to attract investment from China. Australia had slipped from being the largest destination to second spot behind the United States, while Canada had raised its thresholds before foreign investment scrutiny to $1 billion for private companies and $330 million for state companies. Britain, which has no foreign investment screening at all, simply requiring that foreign companies have at least one British resident on the board, was attracting a growing share of Chinese investment.
When the Free Trade Agreement with China was finally unveiled on the eve of the G20 summit in Brisbane in November 2014, it raised the threshold for Foreign Investment Review Board (FIRB) scrutiny of investments by private Chinese companies from $250 million to just under $1.1 billion, but the state-owned businesses that are responsible for about 90 per cent of China’s offshore investment were left having to seek FIRB approval for every single transaction. Announcing the free trade deal alongside China’s President Xi Jinping, Abbott indicated that the issue would be looked at again when the agreement is reviewed in three years. Australia would also want improved access to China’s rice, sugar, wheat and cotton markets.
Hockey said the need for FIRB approval of all state-owned investments is a second-order issue to the Government’s change in attitude towards them. He said the need to obtain approval is just about bringing a transaction to the Government’s attention. “What matters is the outcome,” he said, flagging that the Government is happy to approve major investments by state-owned companies. However the fact that the Government’s change of attitude towards state-owned enterprises is not written down in any formal way and that nobody seems to have noticed it highlights the vagueness surrounding the foreign investment regime.
Edited extract from Takeover: Foreign Investment and the Australian Psyche by David Uren, published by Black Inc. David Uren will be discussing his new book in conversation with Andrew Leigh MP at a free Policy Forum event on Thursday 17 September at The Australian National University. Details and registrations here.