Aussie jingoism jangles in the Chinese century

Anxieties about investment in Australia by Chinese state-owned enterprises continue to surface, often conflated with worries about an overarching (if nebulous) geostrategic strategy led from Beijing.

“It’s the Communist People’s Republic of China, 100 per cent Communist-owned, buying up sections of the country and minerals in the ground which they will then sell to the Communist People’s Republic of China” claimed Senator Barnaby Joyce.

Even Kevin Rudd pandered to economic protectionism against Chinese SOE inbound investment in the lead-up to the election. “I'm not quite as free market as Tony on this stuff,” the prime minister said.

When thinking about Chinese SOE investment, the default position has often been to retreat from the unknown, and followed up with economic jingoism. The Australian foreign investment debate has demonstrated woefully unsophisticated discourse about the pros and cons of Chinese SOE investment.

In actual fact, the motivations of Chinese SOE managers are far from simple. Chinese SOE-outbound investment to Australia, and OECD economies more generally, faces an inherent tension: the execution of state industrial and political objectives versus self-interested profit maximisation.

What has been overlooked is that when this tension meets Australia’s ambivalence towards Chinese SOE investment, a favourable risk management environment is created. That is, the heightened political and media scrutiny Chinese SOEs face in Australia mitigates the danger that an SOE would brazenly sacrifice commercial self-interest in favour of industrial and/or political interests.

As part of the Chinese government’s concerted effort to improve its comprehensive national power – whereby an SOE is viewed as either a de facto or de jure extension of the state – national prestige and image throughout OECD economies increasingly matters to Beijing. As a result, the consequences of an SOE being perceived as acting for motives other than commercial interest are becoming increasingly dire, and not worth the risk.

So it is important for Australia to deal effectively with the challenge of economic jingoism. The alternative is to risk losing investment capital and enhanced access to Chinese markets.

Tempering the hysteria that occasionally surrounds inbound Chinese SOE investment will reduce the chances of Chinese geopolitical and economic backlash. Granted, investment and national security safeguards must never be ignored when dealing with inbound Chinese SOE investment. However, economic nationalism and protectionism must not trump balanced analysis.

The Brookings Institute’s Erica Downs has carried out extensive research on the behaviour of Chinese SOE outbound investment in pursuit of China’s energy security objectives. She concludes that the extent to which China’s cross-border energy acquisitions are the product of coordination between Chinese firms and the Chinese government is limited.

Outside observers have explicitly or implicitly assumed that China Development Bank’s deals, including a range of energy backed loans, are the work of China, Inc: China’s government, state-owned banks and SOEs operating as an aligned enterprise in a global pursuit of energy. The main finding of Downs’ study was that the China Development Bank's energy backed loans are the result of coordination between government and business, but the motive frequently attributed to these transactions – to secure oil and natural gas supplies for Chinese consumers – is just one of the multiple commercial and national interests that underpinned the transactions.

Downs’ research found no support for the notion that Chinese SOEs were “mere puppets of the state executing directives of their political masters”. Further, Downs’ findings suggest that where private and state interests have conflicted, private interests have trumped state industrial and political goals. This conclusion is reinforced by the Asia Society’s research that stated that “China’s [SOEs]… typically put self-interest and profitability above all else”.

The inflow of select Chinese capital into OECD markets like Australia presents a profusion of opportunities. But if Chinese SOEs perceive that Australia is thumbing its nose at their investment, Chinese capital will simply re-direct its investment flow to other resource-rich competitor nations. Perception matters. Australian economic jingoism must not trump reasoned analysis this Asian (read: Chinese) century.

Henry F Makeham is founder and director of the Australia-China Youth Dialogue (ACYD). Gregory Ainsworth is manager of Partnership Development for the ACYD and runs an early-stage healthcare technology company in Boston.

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A public relations piece, I think. The purpose of Chinese investment abroad has been stated many times by the Chinese Communist Party/State leadership over time. That purpose is clear and apparent to anyone who bothers to look into it. Control over that investment of State funds by the CCP in State is evident and normal. The authors of this article fudge the issue and then propose that politicians acting in Australia's national interest will be acting out of jingoism. I would accuse the authors of being 'unsophisticated' and naive but as the article is simply a cynical, public relations piece, I would be mistaken. It is strange that the authors consider it acceptable to argue for the economic interests of the Chinese State and then to categorise attention to Australia's economic interest as 'jingoism'.

A public relations piece, definitely. Unfortunately, our politicians are more interested in the jingoistic media grab than Australian sovereignty.

Australian concerns aren't just with China, they include all foreign and multi-national purchase of both primary and processing businesses, along with our best brands and export arms of industry. Very few other countries have as large a 'for sale' sign as Australia. Most, including China and the US, create major restrictions on foreign ownership.

I have long struggled with the concept that wholesale purchase of Australian property and business without serious restriction, by foreign entities, as 'investing' in Australia, for the benefit of Australians. Obviously our politicians aren't as concern given their refusal to allow a register of foreign ownership so we can see the extent of the sell out.

To say that the machinations of the Chinese Government do not interfere or influence the investment decision making of Chinese enterprises for offshore M&A acquisition is naivety in the extreme.

I can give several examples of having meetings postponed at the last minute during M&A negotiations, due to the Chinese acquirer being summonsed to Beijing at a moment's notice to meet with Government handlers and their ministries, and these are private companies not just SOEs which engage in this behaviour.

I can see the emphasis on "Youth" by this contributor is well founded on the basis that they clearly do not have much practical experience of how matters actually proceed on the ground in China.

Australians must be amongst the most stupid of people on the planet so the fact that their politicians have been flogging off the place with no thought for future Australians does not surprise me one bit.

I tried to get the SALE OF FREEHOLD FERTILE FARMLAND TO STATE OWNED COMPANIES on the agenda before the election. I pleaded with journalists who simple decided to ignore this most important of all issues. Welcome to Australia.

Whilst politicians call the above "foreign investment" it is nothing of the sort. "Freehold" means gone forever because that is what the title means. "investment" it is not because apart from the initial sale price there is nothing more in the sale for the nation. Food will NOT be sold but simply loaded onto ships and sailed home - to China. No tax payable in Australia. And then what is never considered is that Australia will in the future be a nation of 100 million people or more. This requires FOOD and WATER for survival. But with most of our productive farmland in the hand of foreign GOVERNMENTS we will at best have some marginal land to farm. This will lead to starvation and ultimately war.

It is the worst of all policies. It is not permitted in most countries in the world, INCLUDING CHINA. So why can our current crop of politicians not think past their own term and extend out to the next 100 years? And why is the so called free Press not able to ask the hard questions and then run the same sort of dogmatic propaganda campaign as occurred in the recent election?

We need to protect the future generation, not sell it out for lifestyle for the current generation. If only Australians had the grey matter to so and the backbone to act. Do we not owe our great great grandchildren something other than starvation and poverty?

Rambo-etc, we have just elected a Coalition Govt. You heard Abbott's pre-election reply when asked about this subject in Rooty Hill - 'they cant take our land away'. So, you are not going to get any joy from him and the Nats. You might have to wait for Rudd V III - ha?
Someone needs to explain to Abbott and National Party colleagues 'they' cant take the land away, but 'they' can very easily take the *produce* of that land away - without paying any local taxes, and perhaps without even employing locals. Methinks this is hardly in the national interest.

Barnaby Joyce is not as stupid as some of the business owned coalition puppets. He understands the FUTURE problem and hopefully will stand up and speak to the parliament and try to educate those who care so little about future generations.

I heard tonight that Indonesia is the latest nation to line up and it wants to buy 1 million hectares. That's 2.5 million acres. Apparently the NT farmers are fuelling the fires for the deal to proceed.

What is not canvassed in this nation is that China will not let foreigners own even 1 square metre of its land. Most other nations will not permit foreigners to own farmland in their own country. The reasons for this require no more than a primary school education but our politicians just do not get it.

While Australia must continue to welcome Chinese investment (alongside investment from all other countries), we need to insist on reciprocal policies that allow Australian companies similar access in other countries. We should also continue to distinguish between private enterprises and State Owned Enterprises, which are clearly two very different beasts. From my own long-term observations while living and working in China for 20 years, Chinese SOE's are sometimes pawns of the government / Party. Take for example the recent territorial disputes between the Philippines and China - which resulted in retaliatory sanctions with Chinese state owned airlines halting flights and a ban on the import of bananas from the Philippines. While some will argue that these were coincidental "commercial decisions" made by SOE's, the China Daily (Wed 23rd May, p. 11) was quoted as saying this was "China exerting economic pressure on the Philippines, blocking imports of bananas and canceling tour packages". Please see: http://www.chinadaily.com.cn/cndy/2012-05/23/content_15361633.htm While we should continue to welcome SOE investment from China and other nations, we would be well advised to carefully observe and understand how SOE's operate and tailor our policies to suit this form of investment to ensure it meets our national interests. China, on the other hand, would do well to lessen its heavy reliance on SOE investment overseas, and can help ensure greater independence and transparency is at play at SOEs.