Foreign investment is critical to the Australia-China relationship writes ACBC Chairman Frank Tudor.

The global financial crisis has swept from Wall Street to Main Street and affected everyone in the process. Its devastating impact on employment markets is still to be fully felt as the G20 was warned that job losses in the global economy could top 50 million. Access Economics forecasts 77,000 Australian jobs will be lost in the year from June, and that mining will be the hardest hit with 26,000 predicted job losses.

All Governments are rightly concerned and fundamental issues are being debated through the efficacy of policy measures, the resolution of global imbalances and the future of capitalism. The G20 faces an enormous task in simultaneously coordinating its collective response through fiscal and monetary stimulus packages, avoiding national protectionist measures and addressing the global imbalances.

At Davos China’s Premier Wen Jiabao recently took issue with Western capitalism and its “blind pursuit of profit and lack of discipline.” He is not alone in his views. Joseph Schumpter, the brilliant Austrian economist, warned of the inherent volatility of the unfettered free-market and Adam Smith explained the workings of the invisible hand of the market but also opined that “humanity, justice, generosity and public spirit, are the qualities most useful to others.”

The emergence of a more sustainable capitalism rising from the ashes of the GFC based on appropriate regulation and humane values is widely anticipated. To this end we hope the combined strengths of US dynamism and innovation, European social solidarity and the Asian focus on relationships, moderation and education can be fused from the G20 process.

Clearly, our collective faith in capitalism and globalisation has been shaken. To put things in perspective, however, one must consider the performance of the world economy following China’s opening to the West in the 1980s. World GDP grew by an average of 3.4 percent through to 2007 and globalisation helped hundreds of millions to escape absolute poverty in the region’s emerging economies. Foreign investment is an important part of globalisation, and Chinese investment in corporate Australia has received much press in recent times.

The public debate has become politicised, and international friendships that should be seen as a source of pride are unnecessarily fuelling anxiety. It is important to acknowledge that investment from many countries has played an important part in the development of Australia’s resources sector. The US, UK and Japan are the biggest investors with a lion’s share totalling some 55 percent. On the other hand, Chinese investment accounts for less than 1 percent – a relatively small stake compared to our other major trading partners. The collapse in commodity prices and contraction in capital availability has, however, led many debt-ridden miners to engage China as a crucial fallback. Thus there are a number of applications before the Government’s foreign investment advisory panel – set up in 1975 as a response to the surge in Japanese investment. Foreign investment is critical to Australia’s success and should be welcomed, if it is structured along the following win-win principles.

Strategic dialogue – Any investments should be accompanied by frank talk based on a sound relationship which takes place over time at all levels including Government, industry bodies and private interests.

Mirrored transparency – visibility over time of both the host-country’s investment frameworks and the investing-country’s governance arrangements and objectives – is also essential. Transparency provides clarity to help Australian and Chinese companies in making long-term investments decisions.

Longitudinal reciprocity – It is desirable that investment opportunities in each country are open to both sides and most importantly reviewed over time for level and effectiveness. The take up of investment opportunities and their success over the long-term are equally important.

Ideally, the above would feature in a Free Trade Agreement with China. This would go some way in addressing criticism that has labelled Australia as having one of the most restrictive foreign investment regimes among developed nations. Any assessment based on these principles should focus on the commercial use of the assets and not exclusively on ownership. To ensure investments are commercially sound Australia can apply strong domestic laws and regulations such as corporations law to manage any conflicts of interest (eg separation of pricing decisions from other Board decisions to address conflicts of interest). Investments compliant with the above in common user infrastructure or in green-field projects are most likely to represent win-win propositions. The win for Australia and China, is without doubt, jobs.

The Council held its Canberra Networking Day in March, fully subscribed and organised with the Department of Foreign Affairs and Trade. Council members heard from Ministers Simon Crean, Martin Ferguson and Stephen Smith, Shadow Minister Warren Truss and other government officials from DFAT, Treasury, the Department of Education and Austrade. It was followed by a dinner hosted by the Ambassador Zhang Junsai at the Embassy of the People’s Republic of China.

In April the Council led a small delegation to the Bo’ao Forum and will launch two researchreports in Perth and Melbourne in May. The reports will examine the impact on households of bilateral trade and provide updated modelling of an Australia-China Free Trade Agreement.

For more information visit: www.acbc.com.au