China’s Global Investment
On the 4th and 5th of September, the East Asian Bureau of Economic Affairs
(EABER) presented a roundtable and public forum on Chinese investment. Hosted
by Professor Peter Drysdale, the conference was an opportunity for leaders in business, government and academia to share their thoughts on Chinese investment. It was also an opportunity to dispel some myths about the nature and effects of Chinese investment in Australia.
The first day consisted of three roundtable discussions, chaired respectively by Professor Peter Drysdale, Professor Ligang Song and Dr Ken Henry, Special Advisor to the Prime Minister. The first session focused on the regulation of Chinese firms. It was agreed that China’s investment model needed to be changed. The current system has held institutional advantages for large state-owned enterprises, but if China is to assume greater global economic responsibility, private firms must also be encouraged to ‘go out’ and state-owned enterprises need to be more accountable to the market. Reforms removing institutional advantages for large state-owned enterprises are in China’s domestic and national interest.
The second session focused on the corporate character of Chinese firms that invest overseas. Chinese ODI is dominated by large, centrally administered SOEs from coastal provinces. These firms can afford to take on risk and have the resources and ability to invest overseas. The geographic origin of Chinese investment is unlikely to change. But panellists agreed it was possible that the dominance of SOEs was beginning to fade. Chinese investment will increasingly be motivated by the search for new markets and greater efficiency, as well as resources. Those newer motivations are of a private, not public character.
Finally the panel considered the public reaction to Chinese investment in host countries. The panel agreed that the public response to Chinese investment has often been negative despite the benefits of Chinese investment can bring. In countries with regulation that ensures the market functions properly, Chinese investment has been good for the destination country, as well as for China.
The public forum took a more Australian perspective. In his keynote address to the forum, Dr Henry gave a robust defence of the role of foreign investment in Australia. Dr Henry called the current debate on Chinese investment ‘misinformed’, and found some comments ‘irrational’. The nature of Australian regulation meant Chinese firms that invest in Australia must adapt to Australian regulatory norms.
The second panel agreed that Australian regulatory response is well balanced. The way the Foreign Investment Review Board approves investment has not changed for decades. The board has struck the right balance as it has dealt with successive waves of foreign investment since the 1970s.
In many ways, the current debate of Chinese investment is similar to that which occurred over US, UK and Japanese investment in earlier periods of Australia’s history. While managing Chinese investment does present new challenges, it undoubtedly presents numerous opportunities as well.