investment, human capital and labour...

CHAPTER4investment, human capital and labour movement

109

Key messAges

Two-wayflowsofinvestment,peopleandideasareessentialtoadvancingeconomic,politicalandsocialtiesbetweenAustraliaandChina,andtorealisethefullpotentialforexpandingtradeinhighervalue-addedgoodsandmoresophisticatedservices.Chinahasbecomeamajorsupplierofinternationalcapital.Australia’sresourceendowmentsmadeitanaturaldestinationforChineseinvestmentduringtheminingboom.Australianowfacesglobalcompetitiontoattracttheforeigncapitalitneedstoservicegrowthinagriculture,tourismandinfrastructure.

China’sdomesticeconomictransformationisprioritisingdevelopmentoftheservicessector.InthesamewaythatforeigninvestmentintoChina’smanufacturingsectormadeChinaahighlycompetitivegoodsproducer,foreigninvestmentintoservicesindustrieswillimprovequality,reducecostsandfurthertheChinesereformagenda.Thefreerexchangeofpeopleandideaswillbecrucialtostrengtheningbilateralinvestmentandtrade.MorecanbedonetoleveragediasporacommunitiesinfacilitatingeconomicexchangeandinensuringthatChineseandAustralianstudents,touristsandbusinesspeopleenjoygreaterfreedomofmovement.

Theargumentinthechapterconcludesthat:

• TheChAFTAframeworkopenstheopportunitytoupgradetheexistingAustralia–ChinaBilateralInvestmentTreaty(BIT)byadoptingtheprinciplesofnationaltreatmentandanegativelistoninvestmentaccess.TheearlynegotiationsofanewAustralia–ChinainvestmentagreementinthisframeworkwillalsoassisttheprogresswithRCEPinvestmentprotocolsandChina’sBITnegotiationswiththeUnitedStatesandtheEU.

• Australia’scurrentforeigninvestmentreviewregimerisksdeterringbeneficialChinesecapitalbyincreasingthecostsandtheuncertaintyofdoingbusinessinAustralia—especiallyascapitallookingtoinvestinmanufacturing,agriculture,tourismandservicesisfarmoremobilecomparedtothatseekingresourcesinvestment.Australiashouldinstituteamorepredictableandtransparentinvestmentreviewprocessthatfocusesonongoingriskmanagementratherthanapre-approvalprocess,andmovetoa‘notificationandcompliance’systemforcommerciallycertifiedstate-ownedenterprises.ForeigninvestmentpolicyinChinaisintheearlystagesofliberalisation.Chinashouldapproachforeigninvestmentfromtheperspectiveofnegative-listingandnationaltreatment,andshouldreconsidersector-specificinvestmentrestrictionsthatapplytobothdomesticandforeigninvestors.

• Bothsideswouldbenefitfromclearframeworksforcooperationonthebilateralmovementofpeopleandideas.Abilateralworkingpartyconsistingofofficial,business,tourismandeducationrepresentativesshouldbeconvenedtoreviewtheadequacyofvisaarrangementsonbothsides.Existinginitiatives,suchasAustralia’sSignificantInvestorVisaprogram,couldbemorewidelyadvertisedtopromoteuptake.Bothcountriesshouldconsidermakingiteasierforoneanother’scitizenstoliveandworkineithercountry.

• Forexample:AustraliashouldconsiderrelaxingthecaponChineseworkingholidayvisas;AustralianstudentsshouldbeextendedmoreopportunitytoaccessAustralianincomecontingentloansfordegreestudyattop-rankingChineseuniversities;andAustraliashouldexpanditsnetworkofbilingualEnglish–Chineseschools.

110

PartnershiP for Change

Fullyrealisingthepotentialfortradeinhighervalue-addedgoodsandmoresophisticatedservicesrequiresChinaandAustraliatogobeyondatransactionalrelationshipbasedonresourcesandmanufacturedgoods,towardapartnershipthatsupportslong-termtwo-wayinvestmentandtheexchangeofideasandtalentinbuildinginnovativeandmoreproductiveeconomies.Whiletheresourcestraderemainscentral,thefuturerelationshipcannotbefocusedonlyonresourcesorcontainedtoprescribedsectors.Rather,itisarelationshipthatinfuturemustencompassconnectionsbetweenalldimensionsofthebroadereconomicrelationship—tradeingoodsandservices,investmentandpeople-to-peopleconnections.

Thischapterconsidersthebenefitsfromdirectinvestmentandfrompeople-to-peopleconnectionsbetweenthetwocountries(Box4.1).Chapter5discussestheevolvingframeworkwithinwhichportfolioinvestmentandotherfinancialflowswillgrowandcapitalmarketswillintegratemorefully.

BOx 4.1: THe BeneFiTs OF FOReign DiReCT invesTmenT

Foreigninvestmenthelpsmeetthegapbetweenwhatdomesticresidentsareabletosave,andtheproductiveinvestmentopportunitiesintheeconomy.Itimprovestheglobalallocationofresourcesbyincreasinginvestmentinthecountriesthathavelowerdomesticsavingsandincreasingreturnsincountrieswithexcesssavings.

Investorsprimarilyseekareturnonthecapitaltheyinvest.Butinvestmentisalsogoodforworkers,asitequipsthemwithmorecapitalandthereforemakesthemmoreproductive.Thisincreaseswagesandlivingstandards.Localasset-holdersbenefitfrombeingabletoselltothehighestbidderontheworldmarket,makingitmoreprofitabletodevelopnewassets.

Theextentofthis‘capitaldeepening’effectappliestoallforeigninvestment,andwillbeinfluenced,amongotherthings,bytheratesoftaxationoncapital,thegeneralbusinessenvironmentandtheperceivedpoliticalriskofinvestingoffshore.

Thebenefitsofdirectinvestmentgobeyondsimplyprovidingloansorbuyingsharesinaforeigncompany,toestablishingorbuyingacontrollinginterestinthecompany,injectingnotonlycapital,butalsocruciallinkagestoforeignmarketsandtechnologies,whichfurtherexpandsexportopportunitiesforproducersandopensupawiderrangeofcheapergoodsforconsumers.

Unlikeportfolioinvestment,whichcanbeeasilyliquidatedandtransferredinresponsetofinancialmarketfluctuations,directinvestmenttendstobuildlonger-livedassetsthatprovidereturnsoveryearsorevendecades,includinglong-terminvestmentininfrastructure.Foreigndirectinvestment(FDI)createspowerfullong-termcommercialinterestsinmaintaininggoodrelationsbetweencountries.

Directinvestmentabroaddeliversbenefitsthatcanspillovertothewholeeconomy—includingfamiliarisinglocalswithnewproductiontechniquesandbringinginternationalstandardsintodomesticproduction.

111

CHAPtER 4: Investment, human capital and labour movement

Australia’spopulationislowrelativetoitslandareaandnaturalresources.Foreigninvestmentinmines,ports,transportinfrastructure,technology,landandfactoriesisessentialtotransformresourceendowmentsintorealwealth.ForeigncapitalinAustraliacamefirstfromtheUnitedKingdom,butmorerecentwaveshavecomefromtheUnitedStates,JapanandnowChina.Australiahashistoricallyrunasmall,butpersistent,currentaccountdeficit.ThatmeansthatAustraliansinvestmorethantheysave,withthedifferencemadeupbyborrowingfromabroad.ReducingforeigninvestmentwouldmeanthatmanyproductiveinvestmentsinAustraliacouldsimplynolongerbefunded.Thatwouldlowerproductivity,andreducethestandardoflivingandtheeconomicstrengthofthecountry.

DespitebeingafoundationofAustralia’seconomicprosperity,theroleofforeigninvestmentisnotalwaysfullyorwidelyunderstoodinthecommunity.ConcernsinAustraliaabout‘sellingoffthefarm’andshiftingprofitsoverseasmissthepointthatforeigninvestmentenhancestheproductivityoflocallabour,liftswagesandincreasesthevalueofdomesticassets.InvestmentininfrastructureandbetterlinkagestoforeignmarketsfurtherexpandexportopportunitiesforAustralianproducers,andopenupawiderrangeofcheapergoodsforAustralianconsumers.Australianasset-holdersbenefitfrombeingabletoselltothehighestbidderontheworldmarket,makingitmoreprofitabletodevelopnewassets.

ForeigninvestmenthasalsoplayedacrucialroleinChina’sreformandopeningsince1978.InvestorsfromHongKongandTaiwanwerethefirsttodevelopChina’semergingcoastaltradinghubs.FDIhelpedtransplanttherulesandinstitutionsofamodernmarketeconomyintoChina.Forexample,whenaspecialeconomiczonewasestablishedinShenzhenin1980,thatcitywasasmallfishingtown.ItisnowoneofChina’slargestandwealthiestmetropolises.

Despitephenomenallyhighratesofinvestmentoverthepasttwodecades,Chinahasrunacurrentaccountsurpluseveryyearsince1994.Thismeansthat,unlikeAustralia,Chinadoesnotdependonglobalsavingstomeetitsinvestmentneedsbecauseitsownsavingsareveryhigh.ButChina’seconomicgrowth,particularlyinitsexport-orientedmanufacturingsector,hasreliedheavilyonthetechnologytransferandadvancedlabourskillsthatcomewithFDI.

OnewayofdealingwithpersistentcurrentaccountsurpluseswasfortheChinesegovernmenttoallowChinesecompaniestoinvestabroad.This‘goingout’policywaslaunchedin1999andformallyincludedinChina’ssubsequentFiveYearPlans.AswellasprovidingahigherreturnonChinesesavingsthanthatavailableonUSgovernmentdebt,thestatedgoalsofthispolicyaretoensurethatChinacanaccessthenaturalresourcesitneedsforeconomicdevelopment,accessexportmarketsandacquireforeigntechnologyneededtoimproveeconomiccapacityinChina(GovernmentofChina2006).

Morerecently,China’sOBORinitiative,anditsleadershipinestablishingthemultilateralAIIB,seeknotjusttoconnectChinatoforeignmarkets,butalsotobuildconnectivity—andthereforeprosperity—acrosstheregion.ThiswillprovideinvestmentopportunitiestoexpandinfrastructureinvestmentsinAustralia,includingreapingthebenefitsofagriculturalinvestmentinNorthernAustralia.

112


The benefits of opening up to foreign investment and services

Tocapturethegainsfromthesepolicyinitiatives,therewillneedtobefurtherpolicyengagementofthekindrecommendedintheargumentofthisReport.

TheeconomicbenefitsofChina’sopeninguptoforeigncapitalandtocompetitionintheservicessectorareverysubstantial.

Inordertogivearoughquantificationofthesebenefits,modellingcanbeusedtosimulatetheeffectofservicessectorandfinancialmarketreformthatmightbesetintrainbyastrongpolicycommitmenttoopeningup,utilisingtheGTAPmodelintroducedinChapter3(Gretton2016).

Domesticreformsacrosstheservicessectorswouldimprovetheproductivityofvalue-addinglabourandcapitalinproductionandwouldbetradeliberalising.Themodellingsuggests,forexample,thatforevery1percentimprovementintheproductivityofserviceprovisioninChina,ChineseGDPcouldbeincreasedby0.68percent,withasmallbutpositiveflow-oneffecttoAustralia.ThesameproportionalincreaseintheproductivityofserviceprovisioninAustraliacouldgenerateanincreaseinAustralianGDPof1.13percent.

Barrierstotheefficientfunctioningofthefinancialsystemariseforavarietyofreasons,includingownershiprestrictions,governmentdirectivesontheuseoffinance,domesticmarketpracticesandregulationsfavouringdesignatedactivities,aswellasdiscriminationbetweenforeignanddomesticinvestors.Higherinvestmentcostsraisethepriceofaneffectiveunitofcapitalusedinproductionandreducethecompetitivenessofcapital-usingactivitiesandpotentialoutput.AreductionintheriskpremiumofinvestmentinChinaachievedthroughdomesticfinancialsystemreformswouldlowertherateofreturnrequiredbydomesticandforeigninvestorstoundertakenewinvestment.

Themodellingestimatessuggestthata10percentreductioninthecostofcapitalthroughfinancialmarketreformcouldincreaseChina’sGDPby5.7percentabovelevelsthatwouldotherwisebeachievedinthelongerterm.Thisprojectiondoesnotnecessarilyrepresenttheeffectsofasinglepolicy,butratheraconcertedefforttoimprovetheoperationofthefinancialsystem.Thetimehorizonoverwhichthebenefitscouldbeachievedwould,inturn,dependonthepaceofreform,therateatwhichbusinessestookupnewopportunitiesandthetransitionoflabourtothesenewactivities.

WhiletheseprojectionsprovideanindicationofthepotentialeconomicbenefitsoftradeliberalisationandeconomicreformtowardsbetterfunctioningmarketsforgoodsandservicesandamoreefficientfinancialsysteminChinaandinAustralia,theydonotdirectlycapturealleffects.Beyondreducingtherisksassociatedwithinvestment,forexample,awell-functioningandefficientfinancialsectorinChinashouldalsoallocatecapitaltothemostprofitablefirmsandexertpressureonthosefirmstomaintainhighstandardsofcorporategovernance,affordingadditionalpotentialproductivitybenefits.DistributionaleffectswithintheChineseeconomycouldalsofollow,suchasbetweengovernment-ownedorcontrolledsectorsandothersectorswithintheeconomy,andbetweentheChineseeconomyandothereconomies.Overall,aloweringofinvestmentriskinChinawouldbeexpectedtoraiseglobaleconomicactivityandincomes.

113


Thesesimulationsoftheeffectsofalternativepolicydirectionsillustratetheimportanceofleveragingbroaderregionalandglobaltradeliberalisationagendastothebilateralagenda,andpressingaheadwithatradeliberalisationagendathatgoesbeyondmerchandisetradetoincludetheservicessector,thefinancialsectorandinvestmentreform.CapturingthesegainswillbecentraltorealisingthepotentialofthenextphaseofAustralia–Chinaeconomicengagement.Therestofthischapterconsidersinmoredetailthechallengesthatpolicymakersmustnavigateandthespecificreformsthatwillbenecessaryforsecuringthebenefitsfromliberalisation.

Adapting to Chinese FDi in Australia

Inthe1980s,China’stwolargestinvestmentsoutsideofHongKongwerebothinAustralia—ChinaInternationalTrustandInvestmentCorporation(CITIC)investedinthePortlandaluminiumsmelter,andtheChineseMinistryofMetallurgicalIndustrytooka40percentstakeinanewironminewithRioTintoatMtChannarinWesternAustralia.ThesetwoinvestmentsoperationalisedimportantaspectsofChina’sreformandopeningtradeandeconomicstrategy.Today,investmentfromChinaintotheAustralianmarkethasdiversifiedintoothersectors.Lastyear,China’soutboundinvestmentreachedUS$118billion,anincreaseof15percenton2014.AustraliaisamajorinvestmentmarketforChina.In2015,ChineseinvestmentinAustraliaamountedtoUS$11billion—a33percentincreaseontheyearbefore(Figure4.1).

TheKPMG–UniversityofSydneydatabaseonChinesedirectinvestmentinAustraliadetailsthechangingtrends.Withtheresourceboomover,Australiahasfallenbacktobeonlythesecond-largestdestinationforChinesedirectinvestmentaftertheUnitedStates.Butrelativetoeconomicsize,AustraliaisChina’smostimportantultimatedestinationforforeigninvestment.WithareductioninChineseinvestmentinresourcesastheresourcesboomends,45percentoftherecordedinboundinvestmentin2015wasinrealestate.TheshiftawayfromresourcessawprivateChineseinvestorsexceedingChineseSOEinvestmentforthefirsttimein2014(KPMG2016).The2015sharewas49percentSOE,48percentprivate,3percentSOE–privatejointventure.

MOFCOMandMFAidentifyopportunitiesforChineseinvestmentinAustralianagriculture,aquaculture,dairy,ironore,naturalgas,coal,bauxiteminingandaluminiumsmelting,shaleoil,pharmaceuticalproduction,trade,retail,transport,research,finance,telecommunicationsandtourism(MFA2014).Thepromotionofbilateralinvestmentgivesmomentumtothedevelopmentofbilateraltrade.

ThelegacyoftheplannedeconomyhasmeantthatallmajorChineseinvestments—whetherprivateorstate-owned,domesticorforeign—historicallyrequiredgovernmentapprovals.Ontopofproject-levelapprovals,restrictionsontheChinesecapitalaccounthavelimitedtheabilityofChinesefirmstoinvestoffshore.However,therequirementsforproject-levelinvestmentapprovalshavebeenrelaxedovertime,andasrestrictionsonthecapitalaccountareremoved,theflowofChineseinvestmentislikelytoexpanddramatically.AccordingtoABSdataforforeigninvestmentstocksin2015,Chinaisonlythefifth-largestdirectinvestorinAustraliabehindtheUnitedStates,Japan,theUnitedKingdomandtheNetherlands.However,ChinesedirectinvestmentinAustraliahasbeenincreasingrapidlyfromalowbase,growingfromA$3.6billionin2008toA$35billionin2015(ABS2016f).

114


Figure 4.1: stock of foreign direct investment in Australia by source (2014 A$ billion)

0 20 $

40 60 80 100 120 140 160 180 200

United States

Japan

United Kingdom

Netherlands

China

Singapore

Canada

Other

Unspecified

Source:ABSCat.No.5352.0,table2,2016f.

ThespeedwithwhichChinahasexpandeditsglobalinvestmenthasraisedsomeconcernsintheAustraliancommunity.Theseconcernsarenotnew,andnotuniquetoChineseinvestment(Box4.2).TheForeignInvestmentReviewBoard(FIRB)processhashelpedallaypopularconcernsaboutnewwavesofforeigninvestmentinAustraliasince1976.ButthediscretionaccordedtotheAustralianTreasurertoblockcertainproposalson‘nationalinterest’groundsmeansthatindividualcasescanbecomehighlypoliticised.Whileinpractice,theformalpowerisrarelyused,itneverthelessaddstotheuncertainty,andthereforetherisks,forforeigncompaniesseekingtoinvestinAustralia.

AslongasAustraliawascompetingforinvestmenttodevelopitsrichnaturalresourceendowments,thisriskmayhavebeentrivialcomparedtothesovereignrisksinvolvedinmanyotherresource-richnations.Internationalcapitallookingtoinvestinmanufacturing,agriculture,tourismandservicesismuchmoremobile.Inthesesectors,Australia’scompetitorsareadvancedeconomiesinEurope,AsiaandNorthAmerica.AmongstitsOECDpeers,Australia’sregimeranksasthesixth-mostrestrictivebasedontheOECD’sindexofforeignequityrestrictions,screeningandotherpriorapprovalrequirements,rulesforkeypersonnelandotherrestrictionsontheoperationofforeignenterprises(Figure4.2).Itisonlyslightlymoreliberalthantheaverageofnon-OECDmembersthatareassessed.TheChineseinwardinvestmentregime,whichisdiscussedlaterinthischapter,isthemostrestrictiveofallcountriessurveyedonthismeasure.

115


BOx 4.2: POPuLAR ATTiTuDes TOWARD FOReign invesTmenT

SuccessivewavesofforeigninvestmentinAustraliafromtheUnitedKingdom,theUnitedStates,JapanandnowChinahaveallcausedcommunityanxieties(Groot1990).AGalluppollinJune1972,whichreferencedBritishandAmericaninvestors,reportedthatalmost90percentofAustralianswouldlimitthesharesthattheseforeignerscouldpurchaseinAustraliancompanies.AsurveyconductedbytheJapaneseembassyin1988foundthat36percentofAustraliansbelievedthattheirgovernmentshouldactivelydiscourageJapaneseinvestment.A1996Newspollrecorded56percentofAustraliansagreeingthatforeigninvestmentlevelswerealready‘toohigh’.

AnnualsurveysconductedbytheLowyInstituteforInternationalPolicyfrom2009to2014,afterChineseinvestmenthadbecomeprominentinAustralia,consistentlyfoundthatmorethanhalfofrespondentsagreedwiththepropositionthattheAustraliangovernmentallows‘toomuch’investmentfromChina(LowyInstitute2015).AnEssentialReportfromAugust2012suggeststhatmostAustraliansarewaryaboutinvestmentfromanyforeigngovernment-relatedentities—Chineseorotherwise(LewisandWoods2012).

AforeigninvestmentstudybyUTSresearchersin2015suggeststhattheAustralianpublicismoreconcernedabouthowlargetheshareofanAustraliancompanybeingboughtbyaforeigninvestorisratherthanwhetherthatinvestorisastate-ownedentityorwhethertheforeigninvestorisfromaparticularcountry—althoughChinaispreferredsignificantlylessthantheUnitedStatesorJapan(Laurencesonetal2015).

CommunityapprehensiontowardsFDIisequallypresentinChina—aPewGlobalAttitudessurveyfoundthat50percentofChinesebelievethatforeigncompaniesbuyinglocalcompaniesis‘bad’(PewResearchCentre2014).However,ACRI-Zogbypollingin2015foundthatChinesebusinesselitesviewAustraliaasamoreattractiveplacetoinvestthanGermany,theUnitedStates,Singapore,Canada,NewZealand,SouthKoreaandRussia(ZogbyResearchServices2015).

Potentialinvestors,andgovernments,haveanimportantroletoplayinensuringthatthedirectandindirectbenefitsofforeigninvestmentprojectsareunderstoodthroughoutwidercommunities.

SinceChAFTAcameintoforce,privateinvestmentsfromChinainmostsectorsonlyrequirescreeningwhenthetotalprojectvalueisaboveanA$1094millionthreshold.ThiseffectivelyremovesmuchofChineseprivateinvestmentfromscreening.Nevertheless,thereareexceptionsonasectoralbasis,includingmedia,airports,telecommunications,transport,defenceanduraniummining,whicharesubjecttomorerestrictivethresholds.Allapplicationstoinvestinresidentialorvacantcommerciallandarereviewed,andinvestmentsinAustralianagribusinessandpurchasesofagriculturallandalsohavestricterthresholds.

Mandatoryscreeningalsoappliestoinvestorswhichareatleast20percentownedbyaforeigngovernment.ThisprovisionhasbeenalongstandingfeatureoftheFIRBprocess,andisnotformallydirectedatChineseSOEs.GiventhatChina’sresourcessectorsandpublicutilitiesarelargelystate-owned,theseprovisionsaremorelikelytoaffectinvestorsinthesesectorswhocomefromChina.

116


Figure 4.2: OeCD foreign direct investment regulatory restrictiveness index

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

Average excludingAustralia

Australia Average for selectednon-OECD

China

OECD Selected non-OECD

Note:Averagesareunweighted.Othernon-OECDcountriesratedbyOECDare:Argentina,Brazil,Colombia,CostaRica,Egypt,India,Indonesia,Jordan,Kazakhstan,Kyrgyzstan,Latvia,Lithuania,Malaysia,Mongolia,Morocco,Myanmar,Peru,Romania,Russia,SaudiArabia,SouthAfrica,TunisiaandUkraine.Source:OECDFDIRegulatoryRestrictivenessIndex2014b.

Forprojectssubjecttoscreening,theTreasurermayapproveaprojectsubjecttoconditions.Inthepast,thishasincludedconditionsthatproscribeparticularcorporatestructuresonforeigninvestors.Investorswhocontravenetheseorderscanfacecivilpenaltiesandpossiblecriminalprosecution,althoughinvestorscanlaterapplytochangetheconditions.

Afterreceivingapproval,andsubjecttoanyconditions,Chineseinvestmentreceivesthesametreatmentasadomesticinvestorwithrespecttodomesticlaws(‘nationaltreatment’).Chinesecompaniesfacethesamecompetition,taxation,labour,environmental,andworkplacehealthandsafetyregulationsasAustraliancompanies.Investmentsinpubliclylistedcompaniesdemandevenhigherstandardsofcorporategovernanceandtransparency.Nationaltreatmentinthiswayissubjecttorobustprotectionunderanimpartiallegalframework.

Veryfewforeigninvestmentapplicationshavebeenexplicitlyrejected(AustralianTreasury2015).Between1July2008and30June2014,theAustraliangovernmentapproved67,582suchapplications(themajoritybeingapplicationstobuyrealestate)andrejectedonly65applications,mostlyrelatingtorealestate.Thevalueofrejectedproposalsisverylowrelativetothevalueofapprovals,althoughin2010–2011thegovernmentrejectedA$8.8billion(5percent)worthofproposalscomparedtotheA$176.7billionitapproved.In2013–2014,Chinabecamethelargestsourcecountryintermsofvolumeofinvestmentapprovals(14,716),aswellastotalvalueofproposedinvestment(A$27.7billion).

Whiletheformalrejectionrateislow,itisnotclearhowmanyinvestmentproposalsarewithdrawnbeforeaformalrejectionisdelivered,ormoreimportantly,howmanypotentiallysuccessfulinvestmentprojectsaredeterredbytheuncertaintiesofthescreeningregime.SuchuncertaintyisrootedinthediscretionoftheTreasurertorejectprojectsorapplyconditionsbasedonthe‘nationalinterest’.

117


TheAustralianGovernment’sDecember2015foreigninvestmentpolicyprovidessomeguidanceastothefactorsthatthegovernmentwouldtypicallyconsider.Theseincludenationalsecurity,competition,tax,theeffectontheeconomyandthecommunity,competitionandthecharacteroftheinvestor,alongwithspecificconsiderationsforagriculturalinvestment,investmentinresidentiallandandnon-governmentinvestors(FIRB2015).However,thispolicyisnotbindingontheTreasurer,andadditionalconsiderationscanbeincluded,asthepolicyisinterpretedonacase-by-casebasis.WhilethismaybereassuringfortheAustraliancommunity,itdoessoatthecostofuncertaintyforpotentialinvestors.Specifically,itcreatesanapplicationriskthatdoesnotapplytodomesticinvestors.Inparticular,asaseniormemberofgovernmentoftheday,theTreasurermayonlyconsiderthenationalinterestinresponsetoshort-termpoliticalissuesorpopularpressure.

AsAustraliaincreasinglycompeteswithotheradvancedeconomiesonthebasisofitsbusinessenvironmentratherthanitsnaturalresourceendowments,thereisnobenefitfromthegovernmentcreatingregulatoryuncertainty.Forthemostpart,Australiancompetitionlaw,labourstandards,corporategovernanceandenvironmentalregulationsshouldbeenoughtoensurethatforeigninvestorsfollowthesame‘rulesoftheroad’asdomesticinvestorsintheAustralianeconomy.

Therecenthigh-profiledecisiontorejectanapplicationforaChinesecompanytoacquirean80percentstakeinAustralia’slargestprivateland-holding,ownedbyS.Kidman&CoLtdonaccountofits‘sizeandsignificance’createsuncertaintyforChineseandotherforeigninvestors(TreasurerofAustralia2016).ThepropertyportfolioisAustralia’slargestintermsoftotallandarea,including10cattlestationsacrossfourAustralianstatesandterritories,coveringover100,000squarekilometresandsocollectivelyaccountsformorethan1percentofAustralia’stotallandarea,and2percentofitsagriculturalland(TreasurerofAustralia2015).ThepublicexplanationgivenbytheTreasurernotesthatforeignacquisitionsoflandthislargewouldnotbepermittedinmanyothercountries.ThiswouldincludeChina.

ThisReportdoesnottakeaviewonthemeritsoftheargumentinlimitingthesizeoflandparcelsavailableforforeigninvestments.However,thiscaseillustrateswelltheproblemthatthecurrentFDIregimedoesnotspecifysuchlimitsclearlyinadvance,whichwouldhaveallowedallpartiestoproceedwithmorecertaintyandavoidtheadditionalcosts,delayanduncertaintyofthereviewprocess.Italsosuggeststhatconsiderationofthebenefitsofforeigninvestoracquisitionsshouldbeproperlyjudgedindependentlyofthechoicesmadebyothercountriesonsimilarinvestmentacquisitions:itmakesnosensetoreplicatedecisionsthataredamagingwherevertheyaremade.Amarketenvironmentthatallowsthefreeentryandexitofcompanies,togetherwithsoundmarketregulationandnon-discriminatoryenforcementofAustralianlaws,islikelyabetterguaranteeofnationaleconomicwellbeingthanone-timeapprovalsofbusinesstransactionsbyFIRBinanadhocscreeningprocess.

Dealing with sensitive sectors

WhilenationaltreatmentforforeigninvestorslookingtocometoAustraliaisasoundprinciple,therewillbesomesectorswheretheAustraliangovernmentmightstillreservetherighttoimposesector-specificrestrictionstoguaranteenationalsecurityorprotectotherlegitimatepublicpolicyconcerns.Australiaalreadyidentifiesthesectorsinwhichadditionalrestrictionstoforeigninvestmentapply(a‘negativelist’),buttherearenobindingprinciplesthattheTreasurermustconsiderwhendecidingthesematters.

118


Theforeigninvestmentregimeshouldprovideaclearlinebetweensectorsinwhichforeigninvestmentiswelcome(thereforeremovingapplicationrisk),andthoseinwhichthegovernmentretainsdiscretion.Insectorswherediscretionisretained,thenatureofthenationalinterestconsiderationsbeingappliedshouldbewellspecifiedanddefinedastightlyaspossible.Sector-specificregulatorsratherthantheTreasurermightimposetheseconsiderations.Prioritydevelopmentareasmightstillbedesignatedinwhichforeigninvestmentinlandandagribusinessisaccordedlessrestrictivetreatment.

ClearlydefiningboundariesandprovidingguidanceforpotentialinvestorsinAustralianinfrastructureisalsoimportant.Giventhelong-termnatureandverylargecapitalrequirementsofinfrastructureinvestment,thisisanidealcandidateforforeigndirectinvestment(Box4.3).ChineseinvestmentinAustralianinfrastructureassetshasbeenthecauseofpublicdebateinAustraliaonthegroundsthatsomeinfrastructureassetsmaybecriticaltoAustralia’snationaleconomicandstrategicsecurity.

BOx 4.3: inFRAsTRuCTuRe invesTmenT in AusTRALiA

Priorto1945,neithertheprivatesectornorthefederalgovernmentwereinvolvedintheprovisionofinfrastructureinAustralia:stategovernmentsprovidedthevastproportionofinfrastructure.Inthepostwaryears,federalinfrastructureinvestmentunderpinnedAustralia’srapidindustrialexpansionandurbanisation.Sincethe1950s,thepublicinvestmentshareofAustralia’stotalinfrastructureinvestmenthasremainedfairlystableatjustunder6percentofGDP.

Sincethemid-1990s,therehasbeenadeclineinpublicsectorinfrastructureinvestment.Thishasbeenmorethanoffsetbyprivatesectorinvestmentininfrastructure.

Australia’spopulationisexpectedtoreachover30millionpeopleby2031—withthree-quartersofthisgrowthoccurringinSydney,Melbourne,BrisbaneandPerth—whichwillputpressureonurbaninfrastructurethatisalreadyinhighdemand.Inordertoaddresssomeoftheseconcerns,InfrastructureAustraliareleasedanAustralianInfrastructurePlaninFebruary2016,whichoutlinesreformsforimprovinginvestment,deliveranceandusageofAustralia’sinfrastructure.

TheAustralianInfrastructurePlanhighlightsthetelecommunications,transportationandenergysectorsaswellasurbancongestionandinter-urbanconnectivityaskeyareasforinfrastructureinvestment(InfrastructureAustralia2016).ThequestionforAustralia,however,iswherewillthemoneycomefrom?

Giventhefederalgovernment’sdebtpositionisexpectedtoworsen,theavailabilityofpublicinfrastructurefundingwillbeincreasinglylimited.Fundingforinfrastructureinvestmentfromforeigninvestmentshouldthereforebemobilisedtoplayamuchlargerrole.

Thisriskmanagementisbestapproachedasamatterofbroadpolicythatensuresongoingmonitoringandmitigationofrisks,regardlessoftheidentityoftheassetowner.Foreignoperatorsinthisareacanbelegitimatelyrequiredtonotifygovernmentoftheirinvolvement,andabidebyallrelevantlawsandregulations,includinglicensingconditionsfortheoperationofkeyinfrastructure.Wherethebehaviourofaforeigninvestorbreaksthelaworthreatensnationalsecurity,thentheAustraliangovernmentshouldreservetherighttoforcedivestmentoftheasset.

119


Suchanongoing,risk-managementapproachtomanagingAustraliancriticalinfrastructurewouldbemoreeffectivethanone-offscreeningatthepre-establishmentphase.ReformsalongtheselineswouldthereforeenhancethesecurityofAustralianinfrastructureassets,whilereducingtheuncertaintythatotherwisedetersforeigncapital.

AsmoreChineseconstructionandpublicutilitieslooktoexpandabroad,thereisalargeopportunitytoattractmoreChinesecapitalininfrastructure.ThepolicydirectionsuggestedinthisReportshouldnot,ofcourse,berestrictedtoChineseinvestors,orbepreferentialtothem.Wherestategovernmentschoosetopartnerwithinternationalinvestorstobuildorupgradestateinfrastructureassets,thiscanusuallybepresumedtobeinthenationalinterest.Oneoptiontoexplorewouldbetoallowthestategovernmenttoissuesomeformof‘conclusivecertificate’thataninvestmentisinthestate’sinterestandthereforedoesnotrequirethesameforeigninvestmentapprovalsthatcurrentlyapplytoforthesaleofstategovernment-ownedinfrastructureassets.

TheUnitedKingdommightprovideausefulmodelforAustralia.ThereisnolegislativeframeworkdistinguishingforeignfromdomesticinvestorsintheUK.However,certainsectorshavetheirownregulatorybodies,throughwhichforeigninvestorsmayhavetoapplyforauthorisation.Thesesectorsincludewater,gas,financialservices,mediaanddefence,allofwhichrequirepermitstosetuporacquirecompanies.ThesebodiesdonotrestrictFDIinparticular,butenforceanumberofobligations,suchastheneedtonotifysubstantialchangesinshareholdings(Box4.4).

BOx 4.4: FOReign invesTmenT in THe uniTeD KingDOm

Inthelastthreedecades,theUKhasconsistentlybeenoneofthemostsuccessfuldevelopedcountriesinattractingFDI(Driffieldetal2013).Ratherthanpre-screeninginvestors,itreliesonstrongdomesticlegalandregulatoryframeworkstoprotecttheUK’snationalinterests.IntermsofitsstockofFDI,theUKrankedthirdintheworldin2014,behindChinaandtheUnitedStates.Thatyear,whileglobaldirectinvestmentflowsfellby11percent,theUKachieveda50percentincreaseinitsinflows.TheUKledEuropeintermsofthestock,flowandprojectvolumeofFDI(UKTI2015).

InOctober2015,UKPrimeMinisterandChinesePresidentannounceda‘flagship’GBP6billionChineseinvestmentintheHinkleyPointCnuclearplantinSomerset.AChineseSOE,theChinaGeneralNuclearPowerCorporation,wouldbailouttheplant’smaindeveloper,France’sEDF.Inthesameweek,furtherinvestmentprojectswerestruckinareasasdiverseastheautomobileindustry(AstonMartin),creativeindustries(BBCWorld)andproperty(theAdvancedBusinessPark).

TheUK’sattractivenessforforeigninvestorscanbepartlyexplainedbyitslowcorporatetaxrates,aswellasadditionaltaxincentivessuchasresearchanddevelopmentandpatentcredits.TheUK’scorporatetaxrateisunder20percentandisthelowestintheG20andsignificantlylowerthanAustralia’scurrent30percentcompanytaxandtheAustraliangovernment’sannouncedtargetof25percentby2026–2027.Additionally,theUKdoesnotimposeexchangecontrolsthataffectFDIandtherearenogeographicalrestrictionsontheestablishmentofforeignbusinessesintheUK(Smith2012).

120


investment from Chinese sOes

WhilenotexplicitlytargetedatSOEsfromChina,theeffectofAustralia’sforeigninvestmentregimetoscreenallforeigngovernmentinvestmentproposalshasadisproportionateimpactonChina.ThisisbecauseofthestillsignificantlegacyofSOEsinallsectorsoftheChineseeconomy,andtheircontinuedleadingroleinresources,financeandpublicutilities(Box4.5).InadditiontoSOEs,Chinacontrolslargesovereignwealthfundsthatseekfinancialreturnsaspartofadiversified,globalportfolio.Thesefundsprovideanadditionalandimportantpoolofnewinternationalinvestmentcapital,whethertheycomewithownershipcontrolthroughdirectinvestmentorwithoutownershipcontrolthroughequityinvestment.

BOx 4.5: unDeRsTAnDing CHinese sOes

DespitetheemergenceofadynamicprivatesectorinChinathatdominatesitsmanufacturingeconomy,SOEsplayanimportantroleinkeyareasoftheChineseeconomy,includingresources,energy,telecommunications,mediaandfinance.DoingbusinesswithChinainoneofthesesectorsmostlymeanshavingtodealwithSOEs.

SOEsarenolongermereinstrumentsofthegovernment,astheywerewhenChinabeganinvestingoverseasinthe1980s(forexample,intheMtChannarproject).SOEreformsinthe1990sand2000stransformedSOEsfromministriesandindustrialbureauxintomarket-orientedoperationswithcorporategovernance,commercialgoalsandassessmentsbasedonfinancialperformance.ManysubsidiariesofSOEsarepubliclylistedonsecuritiesmarketsinChina,HongKongorNewYork.ReformsannouncedinSeptember2014requireindividualSOEstobeclassifiedaccordingtowhethertheyarepursuingstrictlycommercialorbroaderpublicpolicyfunctions.

ThelargestSOEsinindustriesthatareconsideredmostvitaltothenationaleconomy,includingoilandelectricity,aresupervisedbythecentralState-ownedAssetsSupervisionandAdministrationCommission(SASAC).These106centralSOEsaremoderncorporatestructureswithhundredsofsubsidiaries.SASACoverseestheirinvestmentbehaviour,andplaysaroleinpreventing‘destructivecompetition’betweencentralSOEsintheiroverseasinvestments.InpracticethismeansdampeningwhatcansometimesbefiercecompetitionbetweentwoormoreSOEscompetinginthesamemarket.China’sprovinceseachhavetheirownprovincial-levelSOEsthatalsooperateinhighlycompetitivesectorsoftheChineseeconomy.TherearethousandsofSOEsthatcompetebothamongthemselvesandwiththeprivatesector.

OnereasontopaycloserattentiontoSOEinvestmentmightbethepotentialharmtothemarketenvironmentinthehostcountry.TheabilityofSOEstoborrowfromstate-ownedbanksandthepotentialforstatebailoutsleadstofearsthatSOEsmightacceptheavyinitiallossestodriveoutprivatecompetitorsinthehostcountry.Inreality,thecommercialconstraintsonoverseasinvestmentsbyChineseSOEshavebecomemorestringentandtheChinesestateislesswillingtobankrollandsubsidiseunprofitableprojects.

Inaddition,someSOEshaveverylargeassetholdingsand—insomesectors,includingelectricity,oilandtobacco—monopolisetheirsegmentoftheChinesedomesticmarket.Thiscanimprovethecreditworthinessofthesecompaniesevenonpurelyprivateinternational

121


lendingcriteria.However,thisdomesticpositiondoesnotautomaticallyflowthroughtotheirbehaviourinoverseasmarkets.Forexample,evidencefromSOEinvestmentbehaviourintheresourcesmarketindicatesthattheyhavetendedtoincreasecompetitionandexpandsupply(Box4.6).Thegeneralapplicationofdomesticanti-monopolyprovisionsregardlessofownershiptypeisthemostappropriateresponse.

ButwhileSOEsdodominatesomeimportantsectorsoftheChineseeconomy,stateownershipisnotsynonymouswithmonopoly.SteelisoneofChina’slargestindustrialsectorsanditispredominantlystate-owned.Butthemostprominentplayersarelocal-levelSOEs,whichcompetefiercelyamongeachother.UsingthesamemeasureofindustrialconcentrationastheUnitedStatesappliestoanti-trustprovisions(theHerfindahl-Hirschmanindex),steelisnotaconcentratedmarketinChina.Moreover,onaccountofthehistoriclegacyoftheplannedeconomyinwhichalmostallindustrialproductionwasdonebySOEs,theystillcontinuetooperateinallkindsofindustrysectors.AroundhalfoftheassetsownedbylocalSOEs(whichaccountforaroundhalfoftotalstateassets)areinun-concentratedmanufacturingsectors,inwhichSOEscompetewithprivatecompanies(Hubbard2016).

BOx 4.6: CHinese gLOBAL invesTmenTs in iROn ORe

China’sglobalinvestmentsinironoreprovidevaluableinformationabouthowcompetitiveneutralityworksinpractice.From2002to2015,Chinamade30overseasdirectinvestmentsinironore,with25madebySOEs.Chinesestatebankinginstitutionsprovidedcreditbasedoninternationalbenchmarks,plusamargin,generallymakingthiscreditcheaperthaninternationalcommercialfinance.

Butdidthisdeparturefromcompetitiveneutralityharmthemarket?

TheseChineseironoreinvestorsincreasedratherthandecreasedpartnershipopportunitiesfornon-Chineseironoreinvestment.Ofthese30investments,21weremadebyfirmswithanoperatingcompetencyinmining.Onlyoneoftheinvestmentswasmadebyaspecialisedironoreminer.ChineseSOEsmostoftentookminorityequitypositionsinpartnershipwithspecialisednon-Chineseironoreminers.Jointventuresandminorityacquisitionsmadeup22ofthe30investments.

ArelatedconcernisthatChineseironoreminersmightattemptto‘lockup’suppliesofironoreusinglong-termcontractswithChinesebuyers,inanattempttoreducethesupplytoothersteelproducersinJapan,TaiwanandSouthKorea.

Butananalysisof50Chineseironoreprocurementarrangementsshowsthatonly63.8percentofprojectedironoreoutputfromChineseprojectswasreservedthroughlong-termcontractsforChinesebuyers.TheeffectofChina’soverseasironoreinvestmentswasthereforetoincreasesupplytotheglobalmarket(Hurst2015).

AccordingtoFIRB’spolicyguidance,theAustralianTreasurerconsiderswhetheraforeigngovernmentinvestmentproposalis‘commercialinnatureoriftheinvestormaybepursuingbroaderpoliticalorstrategicobjectives’(FIRB2015).TheAustraliangovernmenthasalreadyreceivedandapprovedlarge-scaleinvestmentsfromsomeofthemoststrategicallyimportantcentralSOEs,includingfromtheStateGridCorporationofChina,ChinaPowerInvestmentCorporation,MinmetalsandChina’sthreenationaloilcompanies.

122


ThedifferencesbetweentheAustralianandChinesesystemsofpoliticsandgovernance(seeChapter6)cangeneratecommunityconcernsinAustraliaaboutSOEs.Anupfrontandtransparentaccountofownershipstructuresandcorporategovernancearrangementsisimportanttoshowingthataninvestorhasnothingtohide.Overtime,goodcorporatebehaviouronthepartofSOEs,andfamiliarityonthepartoflocalcommunities,shouldmakeChineseinvestmentinAustralia’sdevelopmenteasier,asithasinthecaseofotherforeigninvestmentfromdifferentsources.

Thisextendsbeyondcompaniesthatareformallystate-owned.PrivateChinesecompaniessometimeshaveclosepersonneltiesorcontractualrelationshipswithstate,politicalormilitaryinstitutions.Thisisnotinanywaysurprising.TheCommunistPartyofChinahad87.8millionmembersattheendof2014(ChinaDaily2015),includingprivateentrepreneurs,whohavebeenallowedtojointhePartysince2002.AllSOEshavePartyCommittees,asdotheChineseoperationsofmanyprivateandforeigncompanies,includingglobalmarketleadersfromtheUnitedStatessuchasWal-Mart(ChinaDaily2016).

Ratherthanapplydifferentrulesonthebasisofformalownershiprequirements,foreigninvestorsinAustraliashouldbejudgedaccordingtotheiractualbehaviour.ForeigngovernmententerprisesinvestinginAustraliacouldstillbeexpectedtonotifyFIRBoftheirinvolvement.ButSOEsshouldhavetheopportunitytoprovetheircommercialcredentials,possiblybasedonanhistoricalaccreditationmodel(BCA2014),inwhichcasetherewouldbenoneedtotreatthemdifferentlyfromprivatelyownedChinesecompanies.Alternatively,investmentproposalsfromSOEsbelowthegeneralreviewthresholdcouldbegrantedanautomaticapproval,withautomaticconditionsimposedinrelationtolegalorcorporategovernancestandards.

ThisapproachwouldnotprovideChineseSOEswithpreferentialaccess;ratheritwouldremovediscriminationcurrentlyinplacethatdisproportionatelydetersanimportantclassofpotentialChineseinvestors.

investment to transform Chinese services

Inthe1970s,China’seconomywasclosedtoforeigninvestment.Theregimeisnowsignificantlymoreopen,andChinahasbecometheworld’slargestrecipientofforeigndirectinvestmentaftertheUnitedStates.ForeigninvestmentflowsintoChinain2014totalledUS$128.5billion(UNCTAD2015).Butinvestmentrulesandtreatmentvarybetweenindustries,andtheplayingfieldbetweendomesticcompaniesandforeignenterprisesseekingtoenterChinesemarketsisnotyeteven.

ForeigncapitalinChinahasbeenmostwelcomeinthemanufacturingsectorsthatfuelledChina’sexport-ledgrowththroughthe1990sand2000s.Almostthree-quartersofforeigninvestmentinChinagoesintothemanufacturing,wholesaleandretailsectors.ThelargestinvestorsinChinaareitsAsianneighbours,suchasJapan,whichhaveparticularexpertiseinsupply-chainmanufacturing.ThereisalsoalargeinflowofforeigncapitalintoChina’srealestatesector.

Four-fifthsoftheinvestmentfromcompaniesregisteredinChinaasforeign-fundedfirmsorjointventuresareincoastalprovinces.Halfoftheinvestmentisinthreeprovinces—Jiangsu,GuangdongandShanghai.Thisreflectshistoricalpatternsintheopeninganddevelopmentof

123


China’sexportindustriesandindustrialproduction.Theseareallimportant‘sisterprovinces’forAustralianstates(seeChapter3),highlightingthehugeopportunityforstategovernmentstoleveragetheserelationshipsfurther.

ForeigndirectinvestmentinChinesecompaniesisalsoimportantforChina’sindustrialandregionaldevelopmentpriorities.TheNDRCandMOFCOMprovidesector-basedforeigninvestmentguidance.Asof2015,thereare349industriesinwhichforeigninvestmentis‘encouraged’,38industriesinwhichforeigninvestmentis‘restricted’,and36industriesinwhichforeigninvestmentis‘prohibited’,withforeigninvestmentinallotherindustriesdeemed‘permitted’.Thestatusofnewsectorsisundefined.RestrictedindustriesincludekeysectorsofinterestforAustralia,suchasfinance,healthandeducation.ForeigninvestmentinChinesemediaisprohibited.

In24oftherestrictedsectors,additionalconditionsareimposedthatpreventwhollyforeign-ownedinvestorsfromenteringtheindustry.ThisisusuallyintheformofarequirementthataChinesepartnermustbethemajorityshareholder.Dependingonthescaleofinvestment,inboundinvestmentscanbeapprovedornotedatthenationalandlocallevels.Afterthis,ordinarybusinesslicencesmustbeapprovedbeforeregisteringfortaxation,customsandforeignexchange.

BusinessesseekingtoinvestinChinafaceacomplicatedregulatoryenvironment.Therearethreeseparatelawsthatgovernthecreationofforeignenterprises—theChinaForeignEquityJointVentureEnterpriseLaw,theForeignCooperativeJointVentureEnterpriseLaw,andtheForeign-InvestedEnterpriseLaw.Therearealsohundredsofsubsidiaryandlocalrulesandregulationsthataffectforeigninvestors.

Sector-andregion-specificbarrierstoinvestment,including‘behindtheborder’regulatoryrestrictionsaretreatedcomprehensivelyintheAmericanChamberofCommerce’s2015(AmCham)WhitePaper,‘AmericanBusinessinChina’.ThisReportdoesnotendorsespecificrecommendationsmadebyAmCham,butinsteadencouragesAustralianinvestorsinChinatobevocaltobothMOFCOMandDFATtoensurethattheseprovisionsareontheradarforongoingconsultationsunderChAFTA.

Whileinvestmentinsophisticatedservicessectors,suchasinsurance,financeandlaw,issignificantlymorerestricted,AustralianbankshavebeeninChinaforalongtime(seeChapter5).ButdespiteChina’sWTOcommitmentstoopenupitsbankingsystemtocompetition,thelargestAustralianbankinChina,ANZ,hasjustfourChinesebranches,twosub-branchesandoneruralbank(AustCham2012).Eachofthebanks,exceptWestpac,holdsstakesinlocalbanksbutcannotincreasetheirequityshareabove20percent.Theserestrictionsinhibitthecross-borderfinancialinfrastructureneededtounderwritemoretradeandinvestment.

Despitethis,AustraliandirectinvestmentinChinahasalsogrownsignificantlyoverthepastdecade.SuccessfulAustralianinvestmentsofarhasbeeninnicheareasincludingbanking,medicaldevices,biopharmaceuticalsandwatermanagement,andthereiscurrentlyactiveinvestmentintherenewableenergysector(Au-Yeungetal2012).AccordingtotheABS,therewaslessthanA$500millionofAustraliandirectinvestmentinChinain2004.By2015,thisstockhadgrowntooverA$14billion(ABS2016f).ThisiswellbehindAustralia’sdirectinvestmentintheUnitedStates,theUnitedKingdom,NewZealandandevenSingapore(Figure4.3).

124


Figure 4.3: Recipients of Australian direct investment, 2014 (A$billion)

0 20 40

(A$ billion)

60 80 100 120

United States

United Kingdom

New Zealand

Singapore

China

Canada

Other

Note:Aninvestmentisdeemedtobea‘directinvestment’wheretheinvestorholdsatleast10percentofequityintheinvestedentity.Source:CalculationsbasedonABSCat.No.5352.02016f.

investment in Chinese services sectors

InthesamewaythatforeigninvestmentinmanufacturingmadeChinaanindustrialpowerhouse,Chinanowwantstouseforeigninvestmenttohelpdrivethetransformationofitsdomesticservicessector.Fosteringforeignparticipationandgivingfullplaytothemarketwillhelpallocatecapitalmoreefficiently.ThisbenefitsChina’seconomicdevelopment,andprovidesanopportunityforexperiencedAustralianservicesfirmstoexpandtheirmarketinChinawhilecontributingtoitstransformation.

China’soverallpolicydirectioninrelationtoinboundinvestmentisclearlyarticulatedintheNovember2013DecisionoftheThirdPlenumoftheCentralCommitteeoftheCommunistPartyofChinaonSomeMajorIssuesConcerningComprehensivelyDeepingReform(‘theDecision’).TheDecisioncommitsChinato‘stimulatetheorderlyandfreeflowofinternationalanddomesticfactorsofproduction,highlyefficientallocationofresourcesandin-depthmarketintegration,andfosternewadvantagesinparticipatinginandleadinginternationaleconomiccooperationandcompetitionatafasterpace,inordertopromotereformthroughopeningup’.

TheDecisionacknowledgestheimportantrolethatFDIcanplayinChineseeconomicreform.Specifically,theCentralCommitteecommittedtoapply‘thesamelawsandregulationsonChineseandforeigninvestment’(nationaltreatmentforforeigninvestors),aswellas‘keepforeigninvestmentpoliciesstable,transparentandpredictable’.ConsistentwithChina’stransitiontoahigher-incomeservices-basedeconomy,theDecisionemphasisedopeningarangeofservicessectors,particularly‘finance,education,cultureandhealthcare’.

Chineseauthoritieshavelongtrialledpolicyreformsinparticulargeographicareasasawayoftestingthembeforenationwideimplementation.ThecreationofaPilotFreeTradeZoneinShanghai,followedbysimilarzonesinTianjin,GuangdongandFujian,hasprovidedanadditionalplatformfromwhichtotrialtheThirdPlenumreforms.Ifthesepoliciesarejudgedtobesuccessful,theyshouldbeexpandedtoanationalscale.

125


TheDecisionalsocommittedChineseauthoritiesto‘exploreamanagementmodelforforeigninvestorswithpre-entrynationaltreatmentplusthenegativelist’.Ifrealised,thiswouldeffectivelygiveforeigninvestorsthesamerightstoinvestinChinaasdomesticinvestors,subjecttospecifiedexemptions(‘thenegativelist’).TobringthegreatestgainstoChina’seconomy,thelistofexemptionsshouldbeasnarrowlyspecifiedaspossibletocoreareasofnationalsecurityandotherconcerns.InJanuary2015,MOFCOMreleasedadraftlawonforeigninvestmentthatwouldconsolidateandreplacetheexistinglaws.

Thisdraftlawwouldenshrinethe‘negativelist’principleandwouldmoveChineseinvestmentapprovalsawayfromlistsofinvestmentsthatare‘prohibited’,‘restricted’and‘encouraged’towardapresumptionthatforeigninvestmentispermitted,subjecttoawell-defined‘negativelist’ofindustrieswhererestrictionsaremaintained,andahighmonetarythresholdabovewhichscreeningisstillrequired.This‘negativelist’hasalsobecomethebasisofChina’sBITnegotiationswiththeUnitedStatesandtheEU.AfterabusinessisestablishedinChina,theyaretobeaccordednationaltreatment.

Theinvestmentlawwouldalsointroduceanexplicitnationalsecuritytest,whichwouldgivetheStateCounciltheauthoritytoapprove,approvewithconditions,orrejectapplicationsthattouchonnationaldefence,keyinfrastructure(includingtelecommunications),keycommodityresources,investmentscontrolledbyforeigngovernments,orapplicationsthatthreateneconomicstability,publicstabilityor‘anyotherfactor’whichthegovernmentconsidersnecessarytoaddress.

Whiletheseproposedscreeningarrangementsimposerestrictions,thelawwouldforthefirsttimeallowfreeinvestmentinandoutofsectorsthatarenotlistedandthatdonottouchonbroadernationalsecurityquestions.Inthecontinuingrevisionofthedraftlaw,andwhenitisimplemented,itisrecommendedthatthresholdsforreviewareasliberalaspossibleandthatthelistofrestrictedandprohibitedinvestmentsisasshortaspossible.ThiswillmaximiseitspositiveeffectontransformingChina’sservicessectors.

ButanewinvestmentlawwillnotremovealltheobstaclestodevelopingChina’sserviceindustry.Investmentsinagriculture,energy,transportation,civilaviation,telecommunications,automobiles,tobacco,aerospace,urbaninfrastructureandlarge-scaletourismdevelopmentsarestillsubjecttovariousadditionalapprovalshurdlesthatapplytobothdomesticandforeigninvestments.Nevertheless,itwouldbeasignificantmilestoneforChina’seconomicdevelopment.

Opportunity for an enhanced investment agreement

BothAustraliaandChinahavetheirowndomesticpolicyinterestsinreformingtheirtreatmentofinvestmentflows.Thesecouldbepursuedunilaterally.CooperationinthespiritoftheComprehensiveStrategicPartnershipforChangegiveseachpartnertheopportunitytoleveragereformthroughcloserpolicycoordination.

DespitetheprogressChAFTAhasmade,theagreementretainstradebarriersinsectorsofboththeAustralianandChineseeconomies.Theserestrictionsgenerallyrequirefirmswishingtoenterthesesectors(Table4.1)tobeownedormanagedresidentsofthatcountry,orrunasajointpartnership.Liberalisingthesesectorscanprovidecommercialopportunitiesinbothcountries.

126


AustraliaandChinahavehadaBITsince1988.Thishasprovidedthebasiclegalframeworkthatgovernsbilateralinvestmenttodate.ItwasadaptedtoanearlierstageofChinesedevelopmentwhenChinawasstillestablishingitsbasicmarketsystemtosupportthedevelopmentofitsownexportmanufacturingsectors.

Table 4.1: Remaining barriers to investment

in Australia: in China:

• Real-estateservices

• Telecommunications

• Fishing

• Professionalservices(patentattorney,trusteecompanies,auditororliquidator,architect(NT),migrationagentandcustomsbroker)

• Shipping/freightservices

• Aviation

• Banking

• Securityservices(NSW)

• Publictransport(NT,ACTandWA)

• Biologicalresearch(QLD)

• Wineproduction(QLD)

• Tourism(QLD)

• Alcoholandtobaccoretail(NT)

• Legalservices

• Medicalanddentalservices

• Advertising/marketresearchservices

• Technicaltestingandanalysisservices

• Agriculture,forestry,huntingandfishingservices

• Mining/oilextraction

• Photographyservices

• Conventionservices

• Telecommunications

• Audiovisual/cinematheatreservices

• Retail

• Natureandlandscape/environmentalprotectionservices

• Insurance/banking/securitiesservices

• Hospitalservices(notincludingBeijing,Tianjin,Shanghai,Jiangsu,Fujian,GuangdongandHainanprovince)

• Maritimeroadandaviationtransportservices

• Constructionandrelatedengineeringservices

Source:China–AustraliaFreeTradeAgreement,Annex3Part1:ScheduleofNon-ConformingMeasures2015.

ChAFTAnowprovidesanappropriatevehicletofosterChina’sservicestransformation,andtomaintainAustralia’sstatusasapreferreddestinationformobileinvestmentcapital.Italsoprovidesopportunitytodevelopcloserlinkagesbetweenthetwocountries’agriculturalsectors.ItincludesanagreementtoreviewtheBITwithinthreeyears,andconsiderthe‘negativelist’principlethatisthebasisofChina’sBITnegotiationswithotherpartners.

Anenhancedinvestmentagreement,whichmightproceedwithintheprocesssetupbyChAFTA(thoughmoreexpeditiouslythanforeshadowed),wouldprovidecommercialcertaintytobothsides,byremovingsomeoftheapplicationsrisksandtheuncertaintyaroundestablishmentofnewenterprisesthatcurrentlyplaguebiginvestmentdecisions.Bothpartieswouldmakecommitmentstoundertakethereformssuggestedearlier.Andbothpartieswouldcontinuetobeabletoapplydomesticlawstoprotectlegitimateinterestsinsovereignty,publichealthandsecurityonanon-discriminatorybasis.

Theconclusionofanenhancedinvestmentagreementcouldbeanappropriatemilestonetomarkthe30thanniversaryoftheoriginal1988BIT.

127


Therearetwomajorbenefitsfromadoptingsuchanexpeditedtimeline.

First,Australiaisanadvancedmarketeconomywithahighlydevelopedservicessector,althoughitissmallrelativetotheEUandtheUnitedStates.ThismakesAustraliaanideal‘piloteconomy’forChina’s‘negativelist’and‘nationaltreatment’approachbeforeitconcludesdealswithmuchlargermarkets.AsuccessfulAustralia–ChinainvestmentagreementcouldthereforehelpbreakthelogjaminChina’snegotiationswiththeEUandtheUnitedStates.

Second,anenhancedAustralia–Chinainvestmentagreement,basedonthemutualapplicationofthe‘negativelist’principle,wouldsetthepaceforthedevelopmentnormsrelatingtoforeigninvestment.Unliketradeingoodsandservices,whichisgovernedbyWTOdisciplines,therearenowell-developeddisciplinesandnormsforFDIflowsexceptthoseappliedatanationallevel.TheprinciplesderivingfromanewAustralian–Chineseinvestmentagreementcouldnotonlyserveasamodelforfurtherbilateralnegotiationswiththirdparties,butalsoactasthepilotandthetemplatefornewmultilateralinvestmentliberalisationruleswithinRCEP.Amultilateralarrangementgoverninginvestmentflowswouldbesuperiortobilateralagreementsbecausetheyestablishconsistentrulesacrossmultiplejurisdictions.

ThiscouldhelpcreateopportunitiesforChinaandAustraliatocooperateinIndiaandIndonesia,forexample,andtoassistregionalgrowthbyensuringthatinvestmentflowsaccordingtoeconomicproductivityratherthanpoliticalpreference.ThisisaconcreteexampleofthetypeofengagementenvisagedbytheComprehensiveStrategicPartnershipforChangenotjustinthebilateralrelationship,butalsointheregionandbeyond.

movement of people

Fromtheearliestdaysofglobaltrade,themovementofpeoplehasbeenessentialtothemovementofgoods,servicesandfinance.Inthefuture,increasedbilateralFDIandtheprovisionofservicesrequireopportunitiesforthetwo-wayexchangeofskilledlabour.Therearecurrentlyaround15,000Australiansliving,workingandstudyingintheChinesemainland,manyofwhomareAustralian-Chinese(AustralianCentreonChinaintheWorld2015).ThereisafargreaternumberofChinesecitizensliving,workingandstudyinginAustralia(seebelow).Therearemanybenefitsfromexpandingthistwo-wayflow,bothdirectlyinsupportoftradeandinvestment,andindirectlytobuildthesocialtrustandculturalunderstandingthatwillbecrucialtothedeeperlevelofcooperationenvisagedbythisReport.Thisdoesnotentailapolicyofopenbordersormassmigration,asbothAustraliaandChinaunderstandeachother’ssovereignrighttocontroltheirbordersandensuresocialstability.Butthereareopportunitiestomakethebilateralflowsofpeoplemoreconducivetomutualprosperity.

ThisReportdoesnotattempttoprovideanexhaustivetreatmentofbilateralquestionsinrelationtotheissuingofvisasandthegrantingofvisa-freestatusforAustralianandChinesecitizensineachother’scountry.Itseeksonlytonoteafewkeyareasthatneedtobeconsideredinordertobuilduptheharmoniousandfriendlysocialrelationsthatwillunderpinthenextstageintherelationship.Thereisalreadyanofficialbilateralworkinggroupthatconsiderstourismissues.Abilateralworkinggroup,ledbygovernmentandinvolvingrepresentativesfrombusiness,education,tourismandcommunitygroups,shouldbecommissionedtoreviewvisaissuesmorebroadlyandtocomeupwithaspecifictimetablefortheimplementationofneededreforms.Thiswouldincludeconsideringthecostofvisas,particularlytouristvisas,toensurethatthepricechargedforvisaapplicationsdoesnotexceedtheexpectedadministrativecostsassociatedwithprocessingtheapplication.

128


Permanent migration and citizenship

ChinesehavecometoAustraliasincethegoldrushesofthemid-19thcenturyandhavehadacontinuouspresenceeversince.IncreasedrecentmigrationfromChinahasgrowntheChinesediasporacommunityinAustralia(Box4.7).The2011Censusrecorded319,000AustralianresidentswhowereborninChina,andapproximately865,000peopleinAustraliareportedthattheyhadChineseancestry,or4percentofthetotalpopulation(ABS2011).Thisdiasporaisavaluablesharedassetforthebilateralrelationship.

BecauseofAustralia’sChinesediaspora,MandarinChinesehasbecomethesecond-mostwidelyspokenlanguageotherthanEnglishinAustralia.Accordingtothe2011Census,336,410peopleinAustraliaspeakMandarinathome.Significantly,thenumberofMandarinspeakershadincreasedbyover125,000sincethe2006Census.Morethanaquarter-millionpeoplespeakCantonese,meaningthatover600,000AustraliansalreadyspeakaChineselanguage.

BOx 4.7: THe CHinese DiAsPORA in AusTRALiA

TheAustralianCouncilofLearnedAcademies’(ACOLA)2015reportSmartEngagementwithAsiaand2016reportAustralia’sDiasporaAdvantagelookedattheroleofdiasporacommunitiesasoneaspectofthelong-termengagementneededforlastingsocial,economicandpoliticalbenefits(Angetal2015;Rizvietal2016).ACOLAstressesthatpolicymakersmustengagewithabroadlyconceived‘diaspora’thatincludesmigrants,subsequentAustralian-borngenerations,thoseofmixedculturalheritage,andtemporaryresidentsinAustraliaforworkorstudy.

Diasporasareimportant,notjustbecausetheycontributetosocialandculturaldiversity,butalsoforthebusinessandprofessionallinksthattheymaintainwiththeircountriesoffamilyorigin.Diasporasusetheirlanguagecapabilities,culturalunderstandingandglobalnetworkstocirculatebusiness,informationandresources.Particularlyindevelopingtradingrelationshipswithcountrieswherelegalprotectionsandmarketnormsarestilldeveloping,theinformalnetworksoftrustandreputationamongdiasporacommunitiesareabletofacilitateinvestmentandexchange.

Sincethedaysofthegoldrush,ChinesediasporacommunitieshaveplayedacontinuousroleinAustraliansociety.Since2000,thenumberofmainlandChineseresidinginAustraliahasgrowndramatically—overhalfoftheChinesemigrantpopulationinAustraliaarrivedafter2000.Today,AustraliaboastsoneofthelargestChinesediasporacommunitiesintheWesternworld.ProjectionsestimatethatAustralia’sChinese-bornpopulationwillreach1.3millionpeoplein2031.

FourpercentofAustralianresidentsreportsomekindofChineseheritage(ABS2011).ThisproportionisthesameinNewZealand(4.0percent;171,000),muchsmallerintheUS(1.0percent;3.14million)andEnglandandWales(0.7percent;393,000),andslightlygreaterinCanada(4.5percent;1.49million)(StatisticsCanada2011;StatisticsNewZealand2013).In2014,447,400Australianresidents,or1.9percentofthepopulation,wereborninChina.Chinaisnowthethirdmostcommoncountryofbirthforoverseas-bornAustralians,behindtheUnitedKingdomandNewZealand(ABS2016d).InCanada,Chinaisthesecondmostcommoncountryofbirthforrecentimmigrants,afterthePhilippines.InNewZealand,ChinaissecondtotheUnitedKingdomonthismeasure.

129


Migration,tourism,educationandinvestmenttoAustraliaallprovidearouteforChinesetoformpermanentbondswithAustralia.In2014–2015,Australiaissued27,872permanentmigrationvisastoChinesenationals,makingChinathesecond-largestsourceofnewmigrantsafterIndia(DIBP2015a).ChinawasAustralia’sfourth-largestsourceofnewlynaturalisedcitizensin2014–2015,constituting7549(5.5percent)of136,572newcitizensinthatyear,withmoreChinesethanNewZealanderstakingupAustraliancitizenship(DIBP2016a).

ButthemovementofpeoplebetweenAustraliaandChinacansometimesbeproblematic.TheChineseLawonNationalitydoesnotrecognisedualnationality,andsomenewAustraliancitizensmaynotrenouncetheirChinesecitizenship.ThismeansthattheymaycontinuetobetreatedasChinesecitizenswheninChina,andthereforenotbeinapositiontoavailthemselvesofAustralianstatusandconsularassistanceintheeventoflegalissues.ThisisparticularlyanissueforAustralianbusinesspeopleofChineseoriginconductingcommercialactivitiesinChina.

Ultimately,itistheresponsibilityofindividualstoensurethattheircitizenshipstatusisclearwithrespecttothelawsofbothcountries,anditisintheinterestsofbothcountriestohaveclearunderstandingsandagreementsregardingtherightsandlegaltreatmentoftheircitizensineachother’scountry(seefurtherdiscussioninChapter6).

Visas for significant investors

TheAustraliangovernmentalsoprovidesvisasleadingtopotentialresidencyandcitizenshipforbusinessownersandinvestors.TheseprogramsaredominatedbyChineseinvestors,whoreceivedalmost90percentoftheSignificantInvestorVisasgrantedfrom2012toMay2016.

ThereareseparatestreamsforbusinessownersandinvestorsinAustralia(A$1.5millioninvestmentthreshold)and‘significantinvestors’(A$5millioninvestmentthreshold).SuchinvestorsneedtobenominatedeitherbyastategovernmentorbyAustrade.AnewPremiumInvestmentVisa,availableonlyoninvitationfromAustrade,providesapathwaytopermanentresidencyinAustraliaafter12monthsforaninvestmentofA$15million,andisinitiallytargetedatUSinvestors.

ThesevisatypesencouragewealthyChinesetomakeapermanentconnectionwithAustralia.Australiaisnottheonlycountrythatdoesthis.Otherdevelopedeconomies,includedtheUnitedKingdom(Box4.8),alsooffervisasforpotentialinvestors,withouttryingtodirectinvestmentintoparticularsectors.

BOx 4.8: visAs FOR invesTORs AnD TOuRism in THe uniTeD KingDOm

TherearenumerousvisacategoriesforpeopleinvolvedwithFDIprojects:investors(thoseoutsidetheEuropeanEconomicAreawhowanttoinvestGBP2millionintheUK);entrepreneurs(thosewhowanttostartabusinessintheUnitedKingdom);graduateentrepreneurs(graduatesofUKuniversitieswithanapprovedbusinessidea);representativesofoverseasbusinesses;andgeneralvisas.InvestorsfromwithintheEUhavetherighttoliveandworkintheUK(UKTI2011).InvestmentpromotionprogramssuchasthoseofferedbyUKTIservetoreducetheliabilityofforeignnessfacedbyoverseasinvestors(Driffieldetal2013).TheUnitedKingdomalsoextendsvisasto‘maximise’thespendingpowerofChinesetourists(Inmanetal2015).

130


SinceJuly2015,Australia’sinvestorvisashavebeenlinkedtothegovernment’sinnovationpolicy.Thiscompelssubstantialinvestmentinventurecapitalorprivateequityfunds,managedfundsorothervehiclesthatinvestinemergingcompanies.Thisisintendedtodirectinvestmentawayfromareasthatalreadyreceivelargecapitalflowsintoriskierandless-establishedareas.

Whileitisdesirabletohaveamigrationpathwaythatisopentotalentedentrepreneurs,managinginvestmentdecisionsthroughimmigrationpolicyratherthangeneralmarketprovisionsriskscreatingbubblesanddistortionsratherthandevelopingasustainableinnovationagenda.Therefore,theSignificantInvestorVisaprogramshouldhaveregularreviewsthatcontinuetoimproveitsimplementation.

ChinaalsoprovidesavisaforsignificantforeigninvestorstoresideandworkpermanentlyinChina.InlinewithChina’sforeigninvestmentpolicy,investmentthresholdsareassociatedwithwhetheraninvestmentisan‘encouraged’sectorandwhetheritisinWesternChina(US$500,000threshold),CentralChina(US$1million)orotherregions(US$2million).Permanentresidencyisalsoavailableafteratimetohigh-rankingprofessionalsanduniversityresearchers.

Butuptakeofthisvisahasbeenverylow.In2012,only1202residencypermitsweregrantedtoallcountries.UnlikeAustralia’sinvestmentvisas,whichareheavilypromotedbyAustrade,thewebsiteoftheChineseEmbassyinCanberradoesnotprovideinformationaboutpermanentresidencyopportunitiesforsignificantinvestors.BetterpublicityandpromotionofthisvisaprogramcouldhelpChinaattractforeigninvestmentandencouragemoreinvestmentinservices.

temporary skilled labour flows

OneadvantageofFDIistheopportunitytoshareknowledge,businesspracticesandtechnologyacrossbordersbywayofthemovementofskilledlabour.The1988Australia–ChinaBITsecuredtherightofinvestorsfromeachcountrytovisittheothertocarryoninvestmentbusiness,andprovidesfortheappointmentofkeytechnicalandmanagementrolesregardlessofnationality.Thisprovidespracticalsupportfordirectinvestmentonbothsides,andprovidesenoughtimetoallowbusinessprofessionalstoestablishprofessional,personalandculturalbondsbetweenthetwocountries.TheAustraliantemporaryskilledmigrationprogramisdesignedtomeetonlygenuineskillsshortagesinAustraliabutgiventheissuesthatmanyChineseinvestorsencounterinAustralia,thoughtcouldbegiventoencouragingmoreChineseskilledprofessionalstoutilisethisprogram.ThenumberofskilledChineseprofessionalsworkinginAustraliaunderthesearrangements,however,isverylow.AccordingtotheAustralianDepartmentofImmigrationandBorderProtection(DIBP2016b),from1July2015to31March2016,2080applicantsfromChinaweregrantedtemporaryworkvisas.ChinawasthethirdmostpopularsourceofworkersafterIndia(8320grants)andtheUnitedKingdom(5750).

ChAFTAprovidedmorespecificcommitments,allowingfour-yearAustralianvisastotheexecutives,managersandspecialistsofChinesefirmsoperatinginAustralia,andthree-yearvisasfortheAustralianexecutives,managersandspecialistsofAustralianfirmsinChina.Inbothcases,familyvisasarealsooffered.ThesenumbersarealsolikelytoexpandthroughtheoperationoftheInvestmentFacilitationArrangement(IFA)thatcameintoforcewithChAFTA.

131


TheIFAexpandedthescopeoftemporaryskilledlabourmovementtoAustraliatomeetthelabourneedsofChinese-registeredcompaniesinvolvedinlargeinfrastructureprojectsinpriorityindustrysectors,includingfoodandagribusiness,resourcesandenergy,transport,telecommunications,powersupplyandgeneration,environmentandtourism.WheretheChineseinvestorcannotmeettheirdemandforskilledlabourfromthelocallabourmarket,theymaynegotiatewithDIBPtoimportskilledlabourerstoworkinAustraliatemporarily.

Thisisclearlyawin–winarrangement.WhiletemporarymigrantworkersaresometimesseenasdeprivingAustraliansofjobs,undertheIFAtheyarecontributingtoprojectsthatinmanycaseswouldnothavegoneaheadbutfortheforeigninvestmentandtheavailabilityofskilledtemporarylabour.Importantly,theworkersaresubjecttoAustralianemploymentstandardsandassuranceofproperimplementationofthatprovisionisimportant.Inaddition,theycreatedemandforotherless-skilledlocalworkerswhiletheprojectisunderway.Tobolstercommunityconfidenceinthescheme,regulatingbodiesneedtohaveenoughresourcestobeabletoassesswhethercompaniesarecompliantwithsafeguardobligations.

tourism

TheprospectsfortheAustralia–ChinatourismtradearediscussedinChapter3.Torealisethepotentialofthismarketoverthenextdecade,thepromotionofAustralia’snaturalenvironmentneedstobecombinedwithinvestmentinfacilitiesandlabourthatareadequatetomeetthedemandsofChinesetourists.AnexampleofamajortourisminvestmentistheA$900millioninvestmentbyChinesecompaniesWandaandRidongGrouptobuildthreehoteltowersontheGoldCoast,anareathatisnowservicedbydirectflightsfromWuhan,acityofmorethan8millionpeople.

Inadditiontoincreasedinvestment,arrangementsfacilitatingincreasedtemporarymovementsoftouristsarewelcome.TheAustraliangovernment’sannouncementofa10-yearmultiple-entrytouristvisaforChinesetouristsisanenablerofthis.Tofacilitatebusinessandtouristexchanges,theChinesegovernmentshouldextendthesametreatmenttoAustraliancitizens.Attheleast,provisionsthatprovideshortvisa-freeentrytoChinatocitizensfromBrunei,JapanandSingaporeshouldbeextendedtoAustraliancitizensonthebasisofMFNtreatment.

From1July2014to30June2015,theAustraliangovernmentgrantedover226,812temporaryvisasforyoungpeoplefromothercountriestoworkandholidayinAustraliaforuptooneyear(thesevisascanbeextendedforonemoreyear).Theseworkingholidayvisasprovidevaluableopportunitiesforyoungpeopletolearnabouteachother’sculturesandgainworkexperience,oftenbeforefinalisingtheirlonger-termstudyandcareerplans.TheyhavebeenaseedbedofinnovationandcreativityinAustralia’sexternaleconomicandculturalrelations(Figure4.4).

AgreementswerefirstsignedwiththeUK,CanadaandIrelandin1975.WithinAsia,AustraliahasbilateralagreementswithJapan(1980),SouthKorea(1995),HongKong(2001),Taiwan(2004),Thailand(2005),MalaysiaandIndonesia(2009)andBangladesh(2010).AtthesametimeasconcludingChAFTA,AustraliaandChinasignedabilateralagreementallowing5000ChinesecitizenstocometoAustraliaonworkingholidaysvisaeachyear.

Almost2900workandholidayvisasweregrantedtoChinesebetweenthecommencementoftheprograminSeptember2015andtheendofDecember(DIBP2015b).ThereisenormousdemandfortheprograminChina,withthefirst1500visaapplications‘filledinminutes’(MinisterforImmigrationandBorderProtection2015).Butbasedonthegrantsofworking

132


holidayvisastoapplicantsfromothercountriesoverthe2014–2015financialyear,the5000visacapmeansthatChinawouldonlybethetwelfth-largestsourceofworkingholidaymakers,accountingforjustover2percentofthetotal.

The5000visacapimposedonChinaisonlyaroundhalfthenumberofvisasgrantedtoChinesefromHongKong,andonlyone-fifthofthenumbergrantedtoTaiwanese.UnlikemainlandChina,bothTaiwanandHongKongofferreciprocalopportunitiesforyoungAustralians,andarenotsubjecttoaquota.

Thequotashouldbeexpandedatleastsix-foldtomatchthenumberofworkingholidaymakerscurrentlyacceptedfromTaiwan.GiventheopportunitiestoexpandAustralia’sdomestictourismindustryandtomeetthevacationingdemandsofthenewChinesemiddleclass,thiswouldbeasensibleapproachbothtoincreasedemandfortourisminAustralia,andtosupplyasourceoflanguage-equippedandculturallyawareseasonalworkerstomeetthatdemand.

ChinashouldmakereciprocalopportunitiesavailableforyoungAustralianstolive,workandstudyinChina.Stepstowardthisshouldcommenceimmediately,andneednotwaituntiltheformalreviewofthebilateralagreementin2018.

Figure 4.4: Working holiday visas granted from 1 July 2014 to 30 June 2015

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

KingdomUnite

d

Taiw

an

Germany

South K

orea

France

Ita

ly

Japan

Hong Kong

United Sta

tes

Ireland

Canada

China (5000)

Sweden

Netherla

nds

Belgium

Note:ThesestatisticsapplybeforetheWorkandHolidayagreementwithChinacameintoeffect,sotheChinesefigurebasedontheassignedquotaisforcomparisonpurposesonly.Source:DIBP2015b.

Education

AustraliaandChinahavealonghistoryofeducationalexchange.China’sfirstacademicexchangeagreementwithaforeignuniversityafter1978wasestablishedbetweenPekingUniversityandtheANUinDecember1980.Sincethen,therelationshiphasexpandeddramatically.Australianuniversitieshavesignedover1200agreementswithChineseinstitutions,evenmorethanwiththeUnitedStates(UniversitiesAustralia2014).Scientificexchangeandresearchcollaborationisburgeoning(Box4.9).

ExportincomerelatedtointernationaleducationistoutedasAustralia’sthird-largestexportafterironoreandcoal,worthalmostA$20billionperyear(DepartmentofEducationandTraining2015).Australiaisthethird-mostpopulardestinationforChinesestudentsafterthe

133


UnitedStatesandtheUnitedKingdom.ChinahasbeenthelargestsourceofinternationalstudentstoAustraliasince2011.Nowone-fifthofforeignstudentvisaholdersareChinese,mostofwhomstudyathighvalue-addeduniversitiesratherthanatlanguageorvocationalinstitutes(Figure4.5).

AnexampleofanewdevelopmentistherecentlyestablishedGlobalBusinessCollegeofAustralialaunchedinMelbournebyaprivateChinesefirm.ThisisthefirstChinese-ownededucationalinstitutiontoopeninAustraliathathasstudentsfromAustralia,Chinaandothercountries.ItdemonstratesthepotentialforAustraliatotapintotheexpertise(andaccesstocapital)ofChineseeducationalinvestorstoexpanditsowneducationsector.

Bycontrast,thelargestsourceofforeignstudentstoChinain2014wasSouthKorea(62,923students),followedbytheUnitedStates(24,203)andThailand(21,296).Around4700AustralianstudentsstudiedinChinain2014(ProjectAtlas2016).

Australianeducationpolicyencouragesbothshortandlonger-terminternationalstudyexperiences.Chinawasthethird-largestdestinationforshort-termexperiencesin2013,with2614Australianundergraduatesgoing,placingitbehindonlytheUnitedStatesandtheUnitedKingdom.TheAustraliangovernment’s‘NewColomboPlan’mobilityprogramsupportsover1400Australianundergraduatestoundertakeshorteducationalorwork-basedplacementinChina.In2016,Chinawasthemostpopularofthe38possibledestinations.

TheNewColomboPlanallowsforoverseasstudyofuptooneyear,inadditiontosixmonthsofinternshipplacements.However,therearefeweropportunitiesforAustralianstoaccessChinesedegree-grantinginstitutions.TheChinaScholarshipCouncilprovidesscholarshipsforoverseasstudentstostudydegreesatChineseuniversities.Privateinitiatives,suchastheBHPBillitonAustraliaChinaScholarships,whichprovideuptoA$60,000peryearforAustralianspursuingpostgraduateeducationinChina,aremostwelcome(FASIC2016).Yetbytheirnatureaccesstothesescholarshipswillbeverylimited.

BOx 4.9: COLLABORATive ReseARCH AnD sCienTiFiC exCHAnge

Collaborativeresearchisfacilitatedthroughhigh-levelprogramssuchastheAustralia–ChinaScienceandResearchFund.TheDepartmentofIndustry,InnovationandScienceandtheChineseMinistryofScienceandTechnologyjointlymanagethisfund.ItsupportsJointResearchCentres,theAustralia–ChinaScienceAcademiesSymposiaSeries,aswellasaYoungScientistExchangeProgram.Themostrecentroundofjointresearchgrants,betweenAustralianandChineseuniversitiesandgovernmentresearchinstitutions,coversfieldsrangingfromdairymanufacturing,oceanography,mineralsensingandagriculture.TheseinitiativesconcurrentlysupporttheAustraliangovernment’sNationalInnovationandScienceAgenda(MinisterforIndustry,InnovationandScience2016),aswellastheinnovationstrategyinChina’s13thFiveYearPlan.

In2015,theAustralia–ChinaYoungScientistExchangeProgramsupported13AustralianresearchersvisitingChina,and16ChineseresearchersvisitingAustraliafortwoweeks.Thisisintendedtodevelopthepotentialofearlyandmid-careerscientistsas‘scienceambassadors’andtocatalysefutureresearchcollaboration(ATSE2016).

In2012,ChinaovertooktheUnitedStatesasthenationwiththemostformalagreementsbetweendomestichighereducationinstitutionsandAustralianuniversities.

134


Theseagreementsincludestudentandstaffexchangearrangementsandresearchcollaborations(UniversitiesAustralia2014).InApril2015,Australia’sGroupofEightuniversitiesbecamethefirstuniversityumbrellagrouptosignanagreementwiththeChinaScholarshipCouncil,toincreasetwo-waymobilityofstudentsandacademics.

Theimportanceofscientificandresearchexchangetostayingabreastwiththefrontiersofinnovationrecommendsthesharpelevationoftheseandotherexchangesunderthenewbi-nationalAustralia-ChinaCommissionproposedinthisReport.

TheAustraliangovernment’sHigherEducationLoansProgram(HELP),whichprovidesincome-contingentloanstoAustraliantertiarystudents,alsoprovidesloansforexpensesforuptotwosix-monthstudy-abroadexperiencesthatcontributetoanAustraliandegree.ToensurethatAustralianswithstrongChinaskillsbuildastrongfoundationforfutureacademicandbusinessrelationshipswithChina,overseasHELPloansshouldbemadeavailableforAustralianstudentstoenrolindouble-structureddegreeprogramsathighlyregardedChineseinstitutions.

ThisinitiativerecognisesthecontinuedprogressofChineseeducation.AccordingtotheQSWorldUniversityRankings,ofthetop250universitiesworldwide,11areinAustraliaandnineareinChina.BecauseHELPloansaredesignedtoberepaidatthresholdincomes,regardlessofwhethertherecipientlivesinAustraliaornot,itwouldbealower-costwayofequippingAustralianstudentswithChinaskills.

Figure 4.5: student visa holders in Australia, 30 June 2015

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0

China In

dia

Vietnam

Nepal

Korea, S

outh

Thailand

Pakistan

Malaysia

Brazil

Indonesia

Philippines

Taiw

an

Colombia

Hong Kong

Sri Lanka

Other C

ountries

Source:BasedondatafromDIBP2015c.

Goingtheotherway,theoveronehundredthousandChinesestudentswhoalreadystudyatAustralianuniversitieseachyearwillcontinuetobuildafirmfoundationforfuturebilateraleducation.Moreover,therearealready36universitiesinChinathathaveanAustralianStudiesCentre,providinganopportunityforongoingscholarshipinChinaconcerningAustralia.TheproposedAustralia–China(Ao–Zhong)Commissioncanservetosupportandfacilitatetheseinstitutionstodevelopcapacitiesthatallowthemtobeusedasasourceofnewpolicyideasforbothgovernmentsintheareasofeconomics,trade,publicpolicy,politicalscience,internationalrelationsandthehumanities.

135


Language

WhilemanyChineselearnEnglishthroughouttheirschoolandtertiaryeducation,AustraliacannotexpecttohaveacloserelationshipwithChinabyrelyingonEnglishalone.Establishingdeeprelationshipsforofficial,businessandsociallevelsrequiresmutualcomprehensionoflanguage.Thisisdifficult.LearningChinesenotonlyinvolvesbecomingproficientatthetonesofthespokenlanguage,butalsocommittingtomemorythousandsofChinesecharactersthatarerequiredforbasicliteracy.ButthereareveryfewyoungAustralianswhoareinvolvedinthiscourseofstudy.Bytheirfinalyearofschooling,only0.1ofAustralianstudentsstudyChinese,andofthese,onlyaround400arefromanon-Chinesebackground(ACRI2016).

Allstudentsshouldhaveaccesstoappropriatelanguagestreamstoensuretheireffortsandinterestcanbeappropriatelyrewarded.ThosewhoseekanopportunitytostudyChineseinschooloruniversitybutdonothaveabackgroundinChineseoutsidetheclassroommayfindthemselvesatadisadvantageiftheymustcompeteforgradeswithstudentsfromChinesebackgrounds.Bycontrast,studentswhoarealreadyproficientinChinesecanbechallengedfurthertoensuretheyhavetop-levellanguageskillsnecessaryforprofessionalcompetenceinbusiness,governmentandeducation.

OnewaytohelpyoungstudentsachieveproficiencyisbyattendingschoolsthatareformallybilingualinChineseandEnglish.OnlyahandfulofAustraliangovernmentprimaryschoolsofferbilingualeducationinwhichclassroominstructionissplitbetweenEnglishandChinese.TherearetwoVictorianprimaryschools,andoneineachoftheACT,SouthAustralia,NewSouthWalesandWesternAustraliathatteachbilingualChinese–Englishprograms(ACRI2016).Buttheseareinsufficientandad-hocwhencomparedtonationalpolicygoals—therearemorebilingualJapanese–EnglishschoolsinVictoriathanthereareChinese–Englishschoolsnationwide.

GiventhestrategicimportanceoftheAustralia–Chinarelationship,thenetworkofbilingualschoolsteachingChineseinAustraliashouldbeexpanded.ThesecouldbenetworkedandlinkedwithanequivalentnumberofbilingualschoolsinChina.ItisestimatedthatinAustraliathecostofabilinguallanguage-programinaprimaryschoolisaroundA$500,000peryear(ACRI2016).AlthoughrunningschoolsisnotafunctionalresponsibilityoftheAustralianfederalorChinesecentralgovernments,itisappropriategiventhestrategicimportanceofthiscapacity,thataportionoftheseadditionalcostsisprovidedfrompublicfunds.

TheexpansionofChinese-languageeducationsuggestedhere—boththroughincreasingtheopportunitiestostudyChinesefornon-nativespeakersthroughtohighschoolandtheexpansionofbilingualschoolnetwork—alsorequiresanexpansionofsupplyoftalentedChineseteachers.ChAFTAdoesprovideaprovisionforalimitednumberofChineselanguagetutorsonuptofour-yearcontracts.

Thegainsfromservicesandinvestmentpolicyreformsareadditionalto,andpotentiallymuchmoreimportantthan,thegainsfrommerchandisetradeliberalisation.UsingtheopeningofservicessectorsinChAFTAtoleverageupproductivity-enhancingreformsinthesesectorsinChinaandAustraliadomesticallywouldaddconsiderablytobothcountries’incomes.And,asdiscussedinChapter5indetail,financialmarketreformwithintheservicessectorwillhelpintermediatesavingstoinvestmentswherethesesavingsaremostproductive,improveaccesstocapitalandreducetheriskpremiumoncapitalinvestmentgenerally.

136


This text is taken from Partnership for Change: Australia–China Joint Economic Report, by East Asian Bureau of Economic Research and China

Center for International Economic Exchanges, published 2016 by ANU Press, The Australian National University, Canberra, Australia.

investment, human capital and labour...

Documents