ALECOMM

There are competing signals from within the Coalition on how policy makers should respond. On the one hand Malcolm Turnbull, the communications spokesperson, has noted that the ban on Huawei Technologies tendering for work on the National Broadband network would be reviewed in the event that the Coalition takes power. On the other hand, the Nationals Senate leader, Barnaby Joyce, has called for state ownership of vast swathes of agricultural land to keep the Chinese out. 

A major part of the problem in advancing the policy debate here and overseas comes from a lack of clarity about the nature of such investment. A prominent narrative is that hordes of SOEs, controlled by Beijing, are buying Australia’s mining companies. More generally, China is supposedly ‘buying the world’ through investments by SOEs that often show little, if any regard for social and environmental issues in recipient countries.

In the domestic context, it is essential that policy be informed by the changing contours of the Chinese economy and its outward investment strategic priorities. Detailed information on this topic is beginning to emerge, such as two major reports written by KPMG and the University of Sydney China Studies Centre (The Growing Tide: China Outbound Direct Investment in Australia (2011) and Demystifying Chinese Investment: China’s Outbound Direct Investment in Australia (2012)). These reports, and others, provide exceptionally useful data about Chinese investment that should be carefully considered by Australian policy makers.

Obviously Chinese overseas investment is large. In 2011, China’s overseas investment expenditure had increased to over $US375 billion.

What is more interesting is the underlying trends in that investment:

First, the rate of growth in China’s investment portfolio is substantial. The asset pool has expanded five times between 2005-2010 and is expected to grow at a similar rate until at least 2020.

Second, China is investing in an ever widening range of sectors. In 2010, and consistent with the traditional narrative, mining investment was a major portion of China’s investment portfolio (constituting US$29.6 billion of China’s total), however other sectors were also large, including wholesale and retailing ($US39.6 billion), leasing and business ($US69.7 billion), and finance ($US49.2 billion).

Third, China is expanding the range of markets in which it invests, and now operates extensively in many countries deemed too risky for substantial investment from Western firms or even multilateral donor institutions. For example, on 29 December 2011, Fitch Ratings agency released a report stating that the state-owned Export-Import Bank of China  loaned about US$67.2 billion to Africa between 2001 and 2010, a figure significantly higher than that from the World Bank (US$54.7 billion). The disparity is remarkable in some countries. For example, in 2010, the World Bank loaned US$30 million to Cameroon, while the Export-Import Bank loaned US$743 million.

Fourth, China increasingly participates in an ever-widening range of deal types. For example, high profile proposed Chinese investments in 2012 into aviation (Superior Aviation Beijing’s US$1.8 billion bid for Hawker Beechcraft), and completed deals in agribusiness (Bright Food Group’s successful acquisition of British cereal firm Weetabix). These suggest that China aims to ‘move up the value chain’ and develop more sophisticated production techniques.

Fifth, also in contrast to the traditional narrative, China is exerting increasing control over its investment vehicles in an effort to improve their attention to environmental and social standards. In January 2008, the state-owned Assets Supervision and Administration Commission (SASAC), which monitors the activity of major SOEs, issued non-binding guidelines stating that SOEs should fulfil corporate social responsibilities in countries in which they operate. Furthermore, in 2012, the SASAC issued a directive requiring centrally-controlled SOEs planning to invest overseas in areas outside of their core business to obtain approval before doing so and lodge details of their investment and financing sources with SASAC. 

Sixth, China is using a wider range of investment vehicles than the popular narrative indicates. As to be expected, Chinese SOEs are central to China’s investment strategy and so, like with the wider portfolio, have grown remarkably. In 2001, 12 Chinese companies were listed in Fortune’s Global 500. In 2011, 61 Chinese companies (all but 4 were state-owned) were on this list, the third largest in the world behind the US and Japan. However, other investment vehicles are also important to China’s investment program. Private firms were involved in 61% of Chinese foreign investment deals by number in 2011, although their contribution to overall deal size remained relatively small. China’s sovereign wealth funds are also increasingly key players in its investment strategy. China now has 4 of the world’s 11 largest funds by size.

Collectively, these trends demonstrate that Chinese investment portfolio tends to be wider, more complex, and varied than the traditional narrative, as highlighted on these pages by O'Brien and Wong. Policy makers on both sides of politics should take note of these trends, consider them carefully, and then determine legislative and policy amendments that deal with issues raised by Chinese investment, rather than pandering to fear driven hysteria about a monolithic government aiming to use SOEs to take over the world. 

Source : https://clmr.unsw.edu.au/article//chinese-investment-in-australia-and-the-world%3A-more-than-state-owned-companies-and-mines