Foreword
Foreign investment has always been a key issue in national policy debates. During the global financial crisis, the rising level of foreign investment provided support for the Australian economy and played a role in funding the resource boom
. However, this has also caused a lot of political controversy, especially on the impact of Chinese state-owned enterprise investment and the sensitive issue of foreign investment in agricultural land. What causes people’s concern is that in recent years, at least three Senate investigations have been launched on foreign investment issues. However, the main finding of Murdoch’s First Committee is that although Australia is generally successful in attracting foreign investment, its investment relationship with Asian partners is still relatively underdeveloped. Murdoch First Committee was established by Murdoch University in early 2013. It is an independent investigative committee aimed at investigating Western Australia and Australia’s role and relationship in Asia. Its final report entitled “Western Australia and the Evolving Regional Order: Challenges and Opportunities” was released this week in Perth. The purpose of Murdoch’s First Committee is to investigate how the economic interdependence between Australia and Asia will bring mutual benefit to both sides during the upcoming “Asian Century”. The report analyzes a series of issues involved in Australia’s relations in the region, including the driving force of the rise of Asia, regional institution building, trade and investment agreements, resource security, and exchanges and diplomacy. One of the key issues identified by the committee is the role of foreign investment, studying the potential benefits it may bring to the Australian economy and its role in supporting the development of economic ties with Asian partners. The committee found that it can be said that Australia did not receive foreign investment from the right source or the right sector and was unable to take full advantage of the economic opportunities offered by Asia.
Australia’s open attitude
As a small open economy, Australia relies on foreign investment to build large-scale capital-intensive industries. For most of the past time, Australia has been adopting an “open door” approach to foreign investors. The Foreign Investment Review Board (FIRB) only screens a small number of investments in a certain size threshold or a few sensitive areas. In fact, all foreign investments are approved by the government, and in the past ten years, only one commercial investment (the proposed acquisition of ASX by the Singapore Stock Exchange) has been rejected. As a result, Australia has performed very well in attracting foreign investment. Australia currently has a foreign investment stock of approximately A$2.2 trillion.
In recent years, its attractiveness as a base has grown steadily. The annual inflow has doubled from an average of A$71 billion per year in 2001-05, reaching the level of 2006-2010. 150 billion Australian dollars. However, it can be said that the structure of Australia’s foreign investment model is not commensurate with its broader economic relationship. At the national level, Australia’s investment relationship with its Asian partners is still underdeveloped. Europe and the United States are the main sources of foreign investment (58% of the existing stock), while Asian partners together account for 11%. Despite the fact that in 2012, 67% of Australia’s export destinations were Asian markets. From a department perspective, the story is similar. Banking and finance are an industry that only accounts for more than half of the foreign investment stock, while the mining industry accounts for 13%.
In contrast, many other sectors have performed poorly in attracting foreign investment, especially manufacturing, agriculture and non-retail services. As these industries will promote the diversification of Australia’s economic relations with Asia in the next few years, not just resources, the lack of foreign investment is worrying.
Importance of foreign investment links
For a small country like Australia, foreign investment is vital to promoting economic growth. Its main (and most discussed) contribution is financing capital-intensive industries. Australia’s capital market is relatively shallow, and companies in large industries (such as mining, infrastructure and construction) often rely on overseas capital sources for investment.
However, foreign investment can also provide other benefits, which can help integrate Australian businesses with foreign partners. One is through marketing channels, where foreign investors can help create new export opportunities by opening their markets to Australia in their home countries. This is particularly evident in the Australian iron ore industry. In Australia, many of China’s recent investments have “off-take agreements” that guarantee future sales to junior companies developing new mines in China. The second benefit is technology transfer. On a global scale, most private R&D activities are undertaken by multinational companies, which have the scale, scale, and technical capabilities required to develop new technologies.
The investment custody of these companies allows economies to access the technology they own without having to pay onerous license fees. In view of its huge solar, wind and geothermal resources, the clean energy industry is becoming one of the areas where Australia particularly benefits from foreign investment.
Third, foreign investment can also help promote the integration of global value chains. The products of these industries are not produced in a single country/region, but the production stages are distributed in multiple economies. Global value chains are common in Asia and have been well developed in the textile, electronics, consumer goods, food and automotive industries. Foreign investment links are important for connecting companies in global value chains. An important example is the automotive industry.
After General Motors decided to sell cars assembled in Australia as Chevrolet SS in the United States, exports of VF Commodore began to take off.
Readjust foreign relations
With these benefits, it is clear that Australia can benefit from realigning its foreign investment relations. Developing investment relationships in Asia will help to integrate the economy more closely with increasingly important partners in the region, and create opportunities to diversify inward investment beyond the financial and mining industries. The government can implement various strategies for this purpose. First, Australia can better communicate its investment openness to partners in the region. Although few investment proposals have been rejected by FIRB, the region (especially China) still believes that Australia is restricting foreign investment. The Commonwealth Government and statutory bodies (such as the Australian Trade Commission) can do more to correct this misunderstanding abroad. In some sectors, the public is deeply disgusted with foreign investment. This is especially true in agriculture. In foreign agriculture, foreign investment is often opposed, leading to loss of state control or harmful to food security.
However, the latest research by the Rural Industry Research and Development Corporation shows that foreign investment in Australian agriculture is relatively low, which has a positive net impact on food security. Efforts to raise public awareness of the benefits of foreign agricultural investment, especially in terms of technology transfer and sales channels, may help alleviate the concerns of such communities. Finally, Australia may also explore intergovernmental mechanisms to promote investment links in the region. Negotiations of free trade agreements-including bilateral agreements with Japan, China, and South Korea, as well as regional trans-Pacific partnerships-currently include investment clauses on the agenda. If carefully crafted, these agreements will help enhance Australia’s regional interests as an investment location.
