Ideas@TheCentre
Don’t turn Chinese on foreign direct investment
Opposition leader Tony Abbott gave a speech in Beijing this week in which he discussed the federal Coalition’s attitude to Chinese direct investment in Australia. Like the government, the opposition leader made ritual statements about ‘welcoming foreign investment.’ Abbott upheld the existing framework for regulating foreign direct investment (FDI) and noted that the federal government already routinely scrutinises FDI by foreign state-owned enterprises (SOEs). However, he seemingly went further than the government in stating that ‘it would rarely be in Australia’s national interest to allow a foreign government or its agencies to control an Australian business.’
Taken at face value, this statement would seem to imply that a future coalition government would only ‘rarely’ approve FDI on the part of foreign SOEs or sovereign wealth funds (SWFs) (although SWFs for the most part engage only in portfolio rather than direct investment).
This would be an extraordinarily restrictive policy stance by international standards. It would preclude most of the inward FDI from China, but also other substantially state-owned economies like Singapore and the Gulf states. It also sits uneasily with the Coalition’s aspiration for Australia to become the ‘food bowl of Asia,’ which would require more FDI, not less.
It is important to recall that any foreign-owned business operating in Australia is subject to Australian law. Australia has a robust regulatory framework for business investment that applies to all firms regardless of ownership.
The regulation of FDI at the border under the Foreign Acquisitions and Takeovers Act 1975 adds nothing to the regulation of foreign investment other than to provide a vehicle for political interference in the market for the ownership and control of Australian equity capital.
The Foreign Investment Review Board provides a fig leaf of bureaucratic respectability for this interference, but it is only an advisory body. The treasurer is not bound by its advice. The minister’s discretion over FDI under the Act is inconsistent with the rule of law.
It is ironic that the response of Australian politicians to concerns about foreign SOEs is to try and regulate FDI in much the same way that China regulates its economy, where politicians and bureaucrats are heavily involved in investment decisions.
Australian politicians need to put greater trust in our internationally well-regarded domestic regulatory frameworks rather than becoming more like the Chinese in our disregard for the rule of law.
Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies and a Senior Lecturer in Economics at the University of Technology Sydney Business School.
