Australian Rules Against Chinese Investment Are Shortsighted

(Bloomberg View) -- From all the hysteria Down Under, you might think Australia is at risk of invasion -- by Chinese cash.

China's economy certainly is increasingly influential, but the regulatory backlash from Canberra has all the makings of a self-inflicted wound.

Australia has announced limitations on foreign purchases of power utilities and land. In case anyone missed the message, the man who led the nation's top spy agencies was appointed head of the Foreign Investment Review Board last year. (He's also a former ambassador to Beijing.)

The restrictions are shortsighted -- though luckily, likely to fail. The acquisitiveness of Chinese companies is only going to grow as the country's capital markets expand. Asia's economic superpower is increasingly the region's political superpower -- if not yet its dominant military power. 

Emotion and political expediency, rather than data, seem to be driving the bus. Should ownership rules in Australia be rigorous and subject to review as circumstances change? Sure. But there was never much of a problem when buyers came from familiar places like the U.S., the U.K., Western Europe and, to an extent, Japan. China is right to feel singled out.

While Chinese investment is growing significantly, it's dwarfed by America and Britain. The U.S. accounted for about 27 percent of foreign investment in Australia in 2016, and the U.K. another 16 percent. China was 2.7 percent and Hong Kong 3.2 percent, according to the Department of Foreign Affairs and Trade.

The numbers parallel what Australian companies are doing abroad. Despite decades of rhetoric about the need for economic and political engagement with Asia, most Australian firms prefer … you guessed it: America and Britain.

A study last year from PriceWaterhouseCoopers, the Institute for Managers and Leaders, and Asialink Business showed the top destinations for Australian corporate investment in 2015 were the U.S. with 19.4 percent, the U.K. at 15 percent, New Zealand at 11.2 percent and Singapore at 3.9 percent. Papua New Guinea, Germany and China tied for fifth.

Given the weight of money and where it's actually going to and coming from, it's hard to see a China threat. Perhaps the most startling thing is that despite the ascent of China, generally, how little it seems to figure in hard investment numbers.

It's true that China shapes Australia's economic and strategic neighborhood in ways that this type of math doesn't capture. Just look at the map and consider how China's demand for raw materials helped Australia dodge the Great Recession. Chinese tourists buoy the local economy, and Chinese students swell the coffers of Australian universities.

David Irvine, the former spymaster who now leads the Foreign Investment Review Board, appears relatively sanguine about it all: "Having a largest economic partner who is not a traditional ally, that’s I think one of the big challenges of Australian foreign policy," he told my colleague Michael Heath. "It’s a fact of life. We will adapt to it."

Investment numbers, as opposed to emotions, ought to prevail.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss writes and edits articles on economics for Bloomberg View. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

To contact the author of this story: Daniel Moss at dmoss@bloomberg.net.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net.

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