Chinese investment in the Australian resource sector has generated much political and media controversy of late but an expert from The Australian National University suggests that the anxiety is unfounded and that Chinese investment should be encouraged.
In a paper to be presented at the ANU China Update 2009 today, Professor Peter Drysdale argues that Australia should welcome investment of Chinese state-owned firms if it is to remain the most competitive mining sector in the world.
“Anxiety over the growth of foreign investment in resources by China is as unfounded as it was over the earlier growth in foreign investment by Japan,” Professor Drysdale said. “Australia has perhaps the most efficient mining sector in the world. It is strategically important that Australia and other developed market economies welcome participation of Chinese state-owned firms rather than remain cautious about it.
“China is a key to successful engagement of foreign investment in the foreseeable future. China is now the most important new source of foreign direct investment globally (FDI). Whereas global FDI fell by at least 20 per cent last year, Chinese FDI doubled.”
In his paper Professor Drysdale outlines a number of key considerations about the rise of Chinese investment in Australia. He argues it would be a mistake to apply special conditions on China’s state owned firms due to concerns about the extent of government influence on their operations. Instead, fuller participation of these firms in markets like Australia would mean these entities were subject to the disciplines of robust and well-governed market institutions and there would be less potential for state inference at the Chinese end of the commercial relationship.
“Applying special conditions for these investments would reinforce the perception of the primacy of regulatory solutions over market solutions, and help sustain the dominance of the bureaucracy over the market in China and drive Chinese investment to other destinations in Africa or Latin America where there are less robust institutions to host it.
“There is a complex of political and economic issues that have to be resolved both within China, and in cooperation between China and her major economic partners. It is important for China’s authorities to avoid messing in markets and for Australia to avoid investment protectionism. Both countries need to establish a cooperative framework—bilaterally, regionally and globally—where these issues can be resolved – and Australia should be at the forefront of getting this right with China.
‘’Increased international cooperation will bring benefits to both the investor and the host-nation alike, especially because granting FDI market access to a transitional market economy like China has scope to influence positively the dynamics of institutional change beyond the mere matrix of pecuniary and fiscal opportunity.”
A digest of the text of Professor Drysdale’s paper China as a new foreign investor in Australia’s Resource Sector is available here: China as a foreign investor.pdf
