Poor early signals for China FTA

The federal government is sending contradictory messages in its invitation to Chinese investors.

Australia has been very strategic with its free trade agreements and none more so than the recently concluded negotiations with China, an increasingly important trading partner.

The sweeping agreement removes tariffs on almost everything we trade, which is especially important for our agricultural products given the past experience of other emerging economies, where protectionism has been allowed to shut out Australian farmers even as we open the floodgates to a host of goods produced overseas.

It is worth noting that a CEO survey conducted by Business News late last year highlighted the benefits that business leaders saw in FTAs.

Last week, I had the opportunity to hear several experts on the subject of China when I hosted a panel session for HopgoodGanim. The panel consisted of Department of Agriculture director general Rob Delane, Triangle Partners managing director Kent Matla, and HopgoodGanim partner Kevin Dundo.

All had significant experience over several decades.

All were bullish about the China FTA, highlighting the advantages that it provided Australian business under the most-favoured-nation status.

Because the deal is with China, which is not only huge and centrally controlled but emerging in a different way than many other South-East Asian economies, the panellists did not see the same opportunity for Australia to influence the structure of the Chinese economy as we may have done in other earlier-stage connections.

Throughout the region, Australian legal, governance and communications processes have set the standard, which will inherently provide a longer-term advantage for local business over rivals from other jurisdictions that will need to work harderto adapt.

China doesn’t need our help for that kind of thing, or want it in any case.

Nevertheless, the Chinese economy is opening up, particularly in areas such as services; and having a head start in that field will make doing business for other Australians easier in the long run.

So there are the positives, but it was not all good news from the panel.

They were particularly miffed at the sudden move by the federal government to lower the Foreign Investment Review Board threshold for investment in agricultural land from $252 million to $15 million.

While this really won’t make much difference to Western Australian rural operations, the biggest concern was that the decision flew in the face of other changes in the China FTA – whereby the threshold for other investments by non-state-owned enterprises was being lifted for investment to $1 billion.

This, the suggestion was, not the diplomatic way to handle the introduction of an FTA.

Personally I am all for a foreign investors’ register of agricultural land as I believe it will highlight how little we have to worry about the so-called food security issue adopted by a particular brand of xenophobic and anti-progress opponents of rural development.

There’s nothing like a bit of sunlight to sterilise that concern.

As for rural investment in WA, some bigger farm purchases have been made by Chinese interests, but from my observation the biggest investments in our capacity to export to China have been made by locals. Andrew Forrest has bought stations and acquired meat processing operation Harvey Beef, Gina Rinehart has similarly moved into stations and partnered with agribusiness Milne AgriGroup, and ASX-listed Commodities Group is shifting into big-scale aquaculture.

Nevertheless, reality on the ground doesn’t remove the concerns that words reverberate louder than actions, and that Australia’s policy shift was ill timed and poorly communicated.

Interestingly, Chinese investment into Australia at this time has shifted markedly into property and there seems to be little being done to stem that flow despite the fact that, like rural acquisitions in the bush, there’s political heat from home buyers.

It would have seemed to me that a focus on that issue would have been more productive as it would have had a political benefit both here and in China, where the capital outflows into Australian property are unwelcome. Whether it is viewed as corrupt money seeking to be put out of reach or represents a broader concern for investment sanctuary due to sovereign and economic risk is unclear.

Either way, no developing nation wants a flight of capital.

Oddly, instead of dealing with that problem more overtly, the federal government has shifted ground on the Significant Investor Visa by being more prescriptive with regard to where migrants’ money may be directed.
It is now proposing that 20 per cent of the $5 million SIV investment is directed to early stage, growth capital investments through approved venture capital funds. A further 30 per cent would need to be invested in emerging listed companies via specialist-managed funds. Residential housing investment bans would be reinforced, suggesting that this has not been enforced.

It seems to me that this might stifle one of the most attractive elements of the scheme – attempting to attract established business owners out to Australia by giving them a safe and flexible place to park their development capital while they consider their options. This was, I thought, a clever way of being a safe haven, a back-up destination for a small number of entrepreneurial people.

Instead we are now asking them to support the riskier end of our market – hardly a safe option. Worse for WA, I reckon, is that the investment spectrum being prescribed is very much an eastern seaboard industry with a significant lack of mature players here in the west.