The Chinese investment elephant in the room
July 24, 2013, 4:22 pm

Much of the public discourse in Australia on Chinese investment has revolved around the role of state-owned enterprises (SOEs).

There has been much debate on the risks of SOE investments having non-commercial objectives, such as the distortion of the price of output and transfer pricing, as well as SOEs having cheaper access to capital due to state-owned Chinese banks. But are these the issues that actually concern the broader Australian public regarding Chinese investment?

In answering this question, it is first important to note that there is a divergence between government officials (the policy implementers), business and the general Australian public in their attitudes towards Chinese investment.

Fifty-seven per cent of Australians think Australia is ‘allowing too much investment from China’ according to the 2013 Lowy Institute Poll. This is not an outlying result either. In every annual Lowy Institute Poll since 2009, between 50-57 per cent of respondents have said there is too much Chinese investment in Australia.

This differs greatly from opinions offered during two months of research interviews with government officials and business people as part of a research project on Chinese perceptions of investing in Australia. Most interviewees recognised that investment from state-owned companies had become economically important for Australia.

“Fifty-seven per cent of Australians think Australia is ‘allowing too much investment from China’ according to the 2013 Lowy Institute Poll” [Getty Images]

A case in point is Peter Rowe, a senior official with the Department of Foreign Affairs and Trade, who told a conference on Chinese investment that state-owned companies and sovereign wealth funds had become increasingly important sources of capital [for Australia] since the global financial crisis.

The divergence of attitudes on this issue should be of concern to Australia. Chinese investment in Australia may be comparatively small (around three per cent by cumulative stock), but Chinese investment globally is growing rapidly. Interviewees indicated that negative perceptions in Australia towards Chinese agricultural investment, in particular, were making Chinese investors more cautious about investing in Australia.

Brian Wilson, the head of the government organisation charged with reviewing foreign investments in Australia, has reportedly stated that opposition to Chinese investment here appears xenophobic and could threaten Australia’s economic interests.

Why does the Australian public oppose investment from China? Is it because of concerns about SOEs? The 2012 Lowy Institute Poll asked respondents who expressed the view that Australia is allowing too much investment from China to choose from a list of reasons (six altogether) as to why they felt this:

The four most often selected responses were:

1. ‘China is seeking to buy Australian mining and agricultural companies and these need to be kept in Australian hands.’ (54 per cent)
2. . ‘China has so much money to invest it could end up buying and controlling a lot of Australian companies.’ (51 per cent)
3. ‘China might use its ownership of Australian companies as leverage if there is ever a conflict with Australia.’ (47 per cent)
4. ‘The Australian government is allowing too much foreign investment from all countries, not just China.’ (46 per cent)

The fairly even spread of the poll results indicates there is more than one factor contributing to anti-Chinese investment sentiment. Three of the four top results (responses one, two and four) above suggest that China’s economic heft, the industries Chinese investors are targeting and a general aversion to foreign investment (not just Chinese investment) are (almost) equally or more worrisome to Australians than ownership structure.

Australian fears about agricultural investment are not limited to Chinese investors. The 2012 Poll also revealed that 81 per cent of Australians are against ‘the Australian government allowing foreign companies [from any country] to buy Australian farmland to grow crops or farm livestock’. So any foreign investment in Australian agriculture appears unwelcome, not just investment from SOEs.

Concerns go beyond agriculture, with mining and resources at the forefront of many high profile Chinese investment cases in Australia. In particular, the 2009 failed $20 billion Chinalco investment in Rio Tinto and the 2012 purchase of 80 per cent Cubbie Station – Australia’s largest irrigation property – seemed to have crystallised Australian views that Chinese investors are big and they invest in mining and agriculture. In reality, this is only partially true. In 2012, 91 per cent (by transactional volume) of Chinese investment was in mining and gas, while only three per cent was recorded in the agricultural sector.

Any foreign investment in Australian agriculture appears unwelcome, not just investment from SOEs, says van der Kley [Xinhua]

These cases and the general economic importance of China to Australia seem to have driven anxieties over the size of China an investor. Investment from other economically powerful or populous countries, such as the United States, Japan or India, has not attracted the same level of attention. This is despite the fact that investment from the United States and Japan dwarfs Chinese investment in Australia.

There is one obvious outlier in the poll responses set out above, that is, ‘China might use its ownership of Australian companies as leverage if there is ever a conflict with Australia’. The word ‘leverage’ hints at the type (rather than the amount) of ownership in a way that the other responses do not.

The 2012 and 2013 Polls, however, do not explain the reasons why respondents are concerned about ‘leverage’. It is possibly related to perceptions that Chinese investments undertaken by SOEs could be leveraged by the Chinese government to meet non-commercial goals. Even if this response reflects apprehensions about Chinese SOEs, it should be noted that it represents only one of a range of concerns.

The imprecision of the responses to the 2012 and 2013 Lowy Institute polls on Chinese investment does not mean the information is not useful. Broadly speaking, the polling shows that Australians are concerned not just about the ownership structure but also target industries, and the size and leverage (of whatever sort) of Chinese investments.

The polls also uncover some skepticism towards foreign investment more generally. If governments wish to reduce public opposition to Chinese investment and create a more welcoming environment for Chinese investors, they will have to address a wide range of concerns around foreign investment, not just the issue of Chinese SOE investment.