Australian Institute of International Affairs
The future security and prosperity of Australia is reliant on sensible engagement with Asia. The country must learn to be more welcoming towards Chinese foreign investment, just as it has been to investment from other countries for the last two centuries. Australia should also pursue comprehensive strategic relationships with both China and the US, and not treat them as ‘two bulls in a paddock’.
Through these last 200 years, Australia’s economic development has been driven in large part by foreign investment, yet it almost always has been a bone of contention in our political debate.
Foreign investment has filled the gap in order to drive our growth, our potential and our significant prosperity. This is as true today as it was two centuries ago. The United States remains by far the largest foreign investor with 28 per cent, or around A$660 billion of capital invested in Australia. Britain follows with 16.5 per cent, 8 per cent from Belgium/Zurich, nearly 7 per cent from Japan and less than 3 per cent from mainland China.
This puts the current hand-wringing about Chinese investment into some perspective, and even warrants calling out one of our justifiably most esteemed public servants. I refer to the former Reserve Bank Governor Glenn Stevens, in his outgoing speech, where he suggested that we should have a discussion about the kind of foreign capital we want as Australians.
He suggested that “foreign capital that builds new assets, like some of the capital that funded the mining boom”…. was okay. But Mr Stevens went on explicitly to say that “foreign capital that buys up existing assets…. is not creating new capital for the country, it just alters the allocation of who owns the capital that’s here now”.
This very unfortunate statement is demonstrably wrong, and is quite dangerous to the extent that it gives succour and credence to those who oppose foreign investment, often for unrelated motives.
Most state and federal government privatisations over recent decades have very large foreign investment components. In many, if not most, cases the proceeds of these privatisations are used to finance other new infrastructure assets. So buying existing privatised assets creates new capital for our country.
For that matter, the sale of any asset to investors from other countries means the Australian seller can reinvest in creating new assets, or put it with the finance sector to invest in new assets. Even more importantly, many foreign purchases take place because the foreign investor feels that by deploying greater experience and further capital and innovation, they can make the business more competitive and more profitable. In other words, they feel that they can grow the business.
This is the 200-year story of foreign investments in Australia, as waves of new investment come in from time to time to enhance the efficiency of our productive enterprises and all the associated supply lines, and also to create new greenfield assets. As a small number of Australians, in a relatively large country and large economy, we simply have never been able to save the money necessary to fully finance the maintenance and expansion of many of our existing industries or the development of new greenfield projects.
Security issues aside, we should welcome new foreign investment and absolutely resist putting more barriers in the way. In this regard the tone of the current debate is very disturbing. The free trade treaties concluded with much of Asia over recent years are in fact “freer” trade and “freer” investment treaties. One goes with the other.
To discourage foreign investment will see so many of the opportunities I have mentioned, being lost; and, for no good reason. It means slower growth, lost jobs and less prosperity.
Two bulls in a paddock
Let me conclude with some observations regarding the impact of geopolitics on the potential prosperity of the region.
So much of the commentary is couched in terms of which country will remain, or attain, the position of dominant global or regional power. We see endless propositions and questions being raised about “Should Australia strengthen, or weaken, the alliance with the US?”, “Will China rule the world?”, “Should the US remain the dominant global power?”.
So much of this binary, black and white approach to power-sharing in our region often seems designed to deliberately create straw men, which are subsequently torn down with the result of unnecessarily fuelling regional tensions.
John Howard captured the right path for Australia, while remaining true to our long-running and successful alliance with the US, when he said “You don’t have to lose one friend, to make a new friend”. Yet, in many quarters the issue is being conducted like two bulls in a paddock where every muscle twitch, every action is analysed for adversarial intent. In all of this Australia often finds itself the meat in the sandwich, being urged to take sides by both sides—whether it be issues such as the Asia Infrastructure Investment Bank, the South China Sea or the One Belt One Road project.
The facts are that the US is our biggest investor by a large margin, as well as being our alliance partner, while China is our biggest trading partner by a large margin, with scope for much more commercial engagement through the first major free trade agreement between China and a large advanced exporting economy, Australia.
Our prosperity relies critically on both countries. No other approach makes sense, other than the one Australia has adopted, namely seeking to be a constructive partner of both countries, and other countries in our region. A constructive partner should be free to voice their desire to see a rules-based system adhered to, and to run a policy towards partner countries based on our national interest; to exercise one’s sovereignty.
The ‘two bulls in a paddock’ approach fuels regional tensions: it ignores the medium term re-emergence of India as a major global power; it ignores the instability that such an approach engenders in our region; and it ignores the potential destruction of the opportunity for billions of people to see prosperity flow from the biggest economic phenomena experienced by Asia in more than a millennium.
Every effort by the US and China should be made to engage in a comprehensive way which seeks to build mutual trust. While tensions and differences always exist between major powers, and smaller countries for that matter, there is no reason to assume that to accommodate China’s and India’s eventual re-emergence as great powers, we would need to sacrifice our sovereignty and liberal democratic values.
Much of world history is defined by major powers finding effective ways to share power. This is the way forward.
The Hon Andrew Robb AO was the federal minister for trade and investment between 2013 and 2016. This article is an extract of the Sir Zelman Cowen Oration, delivered on 13 October for AIIA Victoria. The complete speech may be viewed here.
Published October 27, 2016