Most China-Dependent Economy Isn't So Keen on Chinese Money

Chinese Cash Scrutinized Down Under
  • Chinese investors face more scrutiny in Australia than others
  • Slice of more than $1 trillion of global investment at stake

Australia, the developed world’s most China-reliant economy, offers a natural destination for billions of dollars of investment from its largest trading partner. There’s just one hurdle -- the Australians themselves.

When Australia’s largest dairy farm was sold to Chinese buyers last month, its biggest tabloid paper howled that the government was ‘Milking Us Dry!’ by approving the deal. That chimes with a survey showing most Australians think too much Chinese property buying is allowed Down Under. The reality is China accounted for just over 4 percent of foreign investment at the end of 2014 -- slightly less than the Netherlands. 

With federal elections looming as soon as July, neither the ruling coalition nor the opposition has yet sought to engage on the issue of Chinese money. Failure to adapt risks forgoing much of a slice of the more than $1 trillion in outbound investment funding that China has targeted for the decade to 2024, at a time when Australia is searching for growth drivers to replace mining.

“Australia needs to start having the grown up conversation that it has so far evaded,” said Hugh White, a professor of strategic studies at the Australian National University in Canberra. “China, even at lower growth rates, is going to remain the most important source of economic opportunities for Australia.”

China currently accounts for about a third of Australia’s trade, earning the mineral-rich country the equivalent of 5 percent of its gross domestic product. That puts it in prime position to benefit from President Xi Jinping’s pledge in November 2014 that, as well as importing over $10 trillion of goods globally in the coming five years, the nation planned outward investment of $1.25 trillion over the following decade.

It’s making a slow start Down Under. Excluding residential property, investment from China weakened in 2014 to $8.4 billion because of a shift away from resources, according to a KPMG report. Much of the focus from China now is in commercial property, infrastructure and services industries such as tourism and entertainment, where Australia could offer opportunities.

Stricter rules could be delaying such deals, with Australia vetting Chinese purchases far more closely than most others. The government last year tightened scrutiny for selling farmland to Chinese buyers, meaning that purchases of A$15 million and over must be screened for approval, along with the Japanese and Koreans. Americans don’t need permission for similar deals under A$1.1 billion.

China also has the highest proportion of referrals to Australia’s Foreign Investment Review Board of any nation. That’s partly due to surging demand for Australian real estate -- which is further fueling resentment Down Under as prices soar.

“Every time there’s a new wave of investment, as there was in the 1980s with the Japanese, there’s the same sort of slogans, opposition and fears,” said Andrew Robb, former trade minister and architect of the Australian side of the China-Australia free trade accord that came into force last year. “We need foreign investment in this country and I’m confident that as it has in the past, this will settle down.” 

Australia could use more offshore dollars, after domestic businesses cut back their spending plans to the lowest level in nine years in the fourth quarter. That’s disappointing for central bank Governor Glenn Stevens, who had been counting on record-low interest rates and a weaker currency to encourage companies outside resources industries to step up their spending.

China’s economy may have expanded 6.9 percent in the first quarter from a year earlier following “some positive signals” from economic data in January and February, China International Capital Corp. economists wrote in a March 28 research note.

Farm Fears

Fear of Chinese investment isn’t confined to the public. Newly appointed Deputy Prime Minister Barnaby Joyce has been hostile to large foreign acquisitions of Australian assets and once called for a ban on state-owned enterprises buying local farmland.

“There is a deep and abiding undercurrent in Australian political culture that is economic-nationalist,” said Haydon Manning, a politics professor at Flinders University in Adelaide who lectures on Australia’s political-economic development. “Barnaby Joyce and others will nod their heads at foreign investment having underpinned economic development since colonial days, but when it comes to farms or prominent property it resonates deeply.”

Joyce has opposed projects including Chinese purchases of a vast cotton farm in Queensland state and the iconic S Kidman & Co. cattle station that spans 1.3 percent of Australia’s land mass. Late last year, Australia cited security concerns when it blocked the Kidman sale to an overseas buyer because one of the firm’s ranches borders a weapons testing area. China’s Shanghai Pengxin Group was the deal’s preferred bidder at that time, according to a company spokesman, and the firm is working on a new offer.

Obama Scandal

Security is increasingly talked up in concerns about China buyers. The leasing of the Port of Darwin to privately held Chinese company Landbridge Group became a scandal late last year when the Obama administration criticized Australia for failing to inform it. Up to 2,500 U.S. Marines are based in Darwin under the military alliance.

“It’s just absolutely ridiculous that you would buy a port to try and increase your spying capabilities,” said James Laurenceson, deputy director of the Australia-China Relations Institute in Sydney. “If you wanted to watch the U.S. ships you’d just sit at the fish shop in Darwin and see what’s coming in and out.”

The port sale was “pretty plainly commercial”, according to Laurenceson, as most of Australia’s cattle and beef exports go via Darwin. Even so, following the U.S. fallout, the Australian government this month announced a further tightening of rules that would see the review board assess the sale of “critical state-owned infrastructure assets to private foreign investors” for the first time.

The board could be busy for some years. Even as China’s growth decelerates to the slowest in a quarter of a century, its outward direct investment is growing, according to a March 18 HSBC Holdings Plc report. It surged 80 percent in the first two months of 2016 from a year earlier, even as fears about China roiled markets the world over.

China has floated a system of greater economic integration via its “One Belt, One Road” plan that envisages a corridor across central Asia tracing the ancient silk road to Europe, with a maritime version through Asia and across to Africa. On the Department of Foreign Affairs and Trade’s website, a map of One Belt, One Road countries doesn’t even feature Australia.

Not for much longer, maybe. ANU’s White said China’s broader rise means Australia -- and the Asia-Pacific region -- should get used to a lot more interest in investment and infrastructure over the next few decades.


Special Report: China's Investment in Australia


“We’re going to have to do a fair bit of what China wants” in order to lure Chinese investment, White said. “A lot of people find that very distasteful.”

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