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What’s So Special About the ASX?

Deutsche Börse AG looks set to acquire the New York Stock Exchange, while the LSE Group is also set to merge with the Toronto exchange in the latest cross-border tie-ups between securities exchanges. The local market has correctly interpreted these deals as increasing the likelihood that Australia’s Treasurer will approve the proposed merger of SGX and ASX (it has already cleared ACCC scrutiny). If an icon of US capitalism such as the NYSE can be acquired by Deutsche Börse, it becomes very difficult for Australia’s FDI protectionists to argue that the ASX should be immune from foreign acquisition. Oddly enough, opposition to the Deutsche-NYSE deal is more likely to come from European than US regulators.

We should still not underestimate the potential for the ASX-SGX deal to fall over, either because Treasurer Swan deliberately spikes the approval with so much conditionality as to make it unacceptable to the parties or because of parliamentary disallowance of the necessary regulatory changes. The deal remains a key test of Australia’s international openness, one that some combination of the federal government, the cross-benches and the opposition might still fail.

posted on 10 February 2011 by skirchner in Economics, Foreign Investment, Rule of Law

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How the ACCC Doomed ASX

Maurice Newman on a fateful decision:

When, in 1998, the Australian Competition and Consumer Commission rejected ASX’s bid for the Sydney Futures Exchange, it consigned ASX to a non-independent future. In the seven years it took for the ACCC to finally approve the merger, most of the bigger stock exchanges in our region and some outside it had emulated Australia’s aborted lead. This robbed ASX of a significant first mover advantage, depriving it of scale and scope and an unrepeatable regional leadership position.

There can be no doubt that the 2006 merger of ASX and the Sydney Futures Exchange, when it came, was a huge benefit to both markets and to Australian financial services generally, but it came too late to fully leverage this success internationally.

posted on 27 January 2011 by skirchner in Economics, Financial Markets, Foreign Investment

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The ASX-SGX Merger and the National Interest

ASX commissioned Access Economics to produce a report on why the ASX-SGX merger is in the national interest. As the report notes, internationally ‘no previously proposed cross-border exchange sector transaction has failed to proceed on the basis of regulatory disallowance.’ But in Australia, as Jennifer Hewett has noted, ‘the politics are overwhelmingly stacked against it’.

posted on 09 December 2010 by skirchner in Economics, Financial Markets, Foreign Investment

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Tories for FDI Protectionism

Opposition to FDI in Australia often comes from the political right. Canada is no different, with Mark Milke noting the hypocrisy of Canada’s Tories:

The decision by the federal Conservative government to reject the Australian mining company BHP Billiton Ltd.’s takeover bid of Potash Corp in Saskatchewan was only the latest in a series of anti-investment moves by a plethora of Canadian governments…

Those who claim that resource ownership akin to oil and gas reserves was at stake are fibbing. As with oil and gas, the subject of the takeover attempt was a company that extracts the resource; it was not about ownership of the resource itself. Oil, gas and potash all belong to provincial governments.

posted on 02 December 2010 by skirchner in Economics, Foreign Investment

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Political Leadership on Foreign Investment

Andrew Leigh gives News Ltd a taste of its own pitchfork:

An iron law of populism is that while Australian businesspeople investing abroad are portrayed as job-creating entrepreneurs, foreign investors are depicted as rapacious robber-barons.

And so it is with the latest tabloid campaign against foreign investment. Under headlines such as ‘Chinese buying up our farms’, ‘It’s time to stop selling off the farm’, and ‘It’s time to save our farms from foreign investors’, News Ltd tabloids have recently embarked upon a fear campaign against foreign investment in Australian agriculture. With anecdotes taking the place of statistics, foreign investment has been labelled ‘a dramatic global land grab’, fed by ‘a looming global food shortage’...

Most ironic about the recent tabloid campaign against foreign ownership in agriculture is the fact that the newspapers responsible are themselves owned by US citizen Rupert Murdoch. Indeed, if a campaign were to be waged against foreign ownership in the media industry, you would expect these newspapers to be among the first to describe it as economic populism. It’s funny what happens when the pitchfork is in the other hand.

 

posted on 29 November 2010 by skirchner in Economics, Foreign Investment

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A Singaporean Perspective on the SGX-ASX Bid

A comment piece in Singapore’s Straits Times, with some input from me. Wolfgang Kasper’s original Centre for Independent Studies Policy Monograph from 1984, Capital Xenophobia, also gets a mention.

posted on 01 November 2010 by skirchner in Economics, Foreign Investment

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Peter Costello Shows Canada How to Argue Against FDI

Former Australian Treasurer Peter Costello tells the Canadians that his bogus national interest arguments for FDI protectionism are much better than their bogus national interest arguments.

In an op-ed for domestic rather than Canadian consumption, Costello opposed Chinalco’s proposed acquisition of Rio Tinto and noted that his government sought to stifle the globalisation of BHP to protect Australian jobs:

I was determined to ensure that BHP’s corporate presence did not disappear from Australia in the same way as CRA, so I put conditions on its dual-listed company structure that required the global headquarters to remain in Australia, that this be specified in all public documents, that the majority of board meetings be in Australia, and most importantly, that the chief executive and chief financial officer have their principal residences in Australia. This last condition was opposed by the company.

Several times the company sought to have these conditions eased but they remain in place, and to its credit, the company has scrupulously complied with them. The world’s largest diversified mining company is still Australian…

The head office generates the corporate, financial, legal and insurance services and the highly skilled jobs that come with them.

posted on 01 November 2010 by skirchner in Economics, Foreign Investment

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Red Book Hints at (Redacted) Changes to FDI Regime

The Treasury’s incoming government briefs partly support my criticisms of Australia’s regulatory regime for foreign direct investment, noting the current framework’s ‘reliance on policy unsupported by legislation’ and calls for ‘further changes’ to the regime. The ‘next steps’ section is redacted, however.

posted on 25 September 2010 by skirchner in Economics, Foreign Investment

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Canadian FDI Protectionism

An important reason for opposing FDI protectionism at home is that Australia is also a significant exporter of direct investment capital. Australian firms are potentially vulnerable to FDI protectionism abroad. Terry Corcoran discusses the protectionist and nationalist backlash in Canada over BHP Billiton’s takeover of Potash Corp. The arguments made against foreign investment in Canada almost perfectly echo those made in Australia, but somehow sound even less convincing when an Australian listed company is on the receiving end:

Jeffrey Simpson at the Globe, David Crane at the Toronto Star, Maude Barlow of the Council of Canadians, investment guru Stephen Jarislowsky, and now former Calgary resource executive Dick Haskayne — together they have become the ersatz Paul Reveres of the Canadian economy, riding through the pages of newspapers to alert the population to the looming menace of foreign ownership of our vital natural resources. In this case, the threatened sacred trust is potash. Collectively, our midnight riders of economic nationalism have assembled a wrong-headed and misguided series of arguments against BHP Billiton’s $40-billion takeover of Potash Corp. of Saskatchewan.  If ever Canada sought to become a backwater in the global mining economy, moving to block the Potash deal would be a good place to begin.

 

posted on 15 September 2010 by skirchner in Economics, Foreign Investment

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China’s Underappreciated Boost to Global Resource Supply

China’s contribution to global resource demand is well known, but its important contribution to augmenting global resource supply is underappreciated, frequently misunderstood, and often feared. Concerns over Chinese intentions in relation to commodity production and pricing were readily apparent in the Australian debate over Chinalco’s failed bid for Rio Tinto last year, but have also been raised in relation to other acquisitions.

These issues are examined in a new study, China’s Strategy to Secure Natural Resources: Risks, Dangers, and Opportunities, published by the Peterson Institute and authored by Theodore Moran, a member of the US Director of National Intelligence Advisory Panel on International Business Practices. Rather than just raising abstract concerns, Moran examined the actual record of China’s 16 largest foreign resource procurement arrangements between 1996 and 2006, including several in Australia.

Moran concludes that ‘looking at the effect of Chinese procurement efforts on the structure of the global supplier base for energy and minerals, the empirical record to date suggests a predominant thrust … toward diversification of output and enhanced competition among producers.’ It is for these reasons that competition regulators in Australia, Germany and the United States did not raise significant objections to Chinalco’s proposed increased stake in Rio.

Moran argues that Chinese involvement in the development of rare earth elements (REEs) ‘may constitute a significant exception’ and warrants greater ‘circumspection.’ But even here, concerns have been exaggerated. Despite the name, these elements are not particularly rare. The least abundant REEs are still 200 times more abundant than gold. The idea that REEs are scarce is belied by the fact that low prices have often been the main obstacle to the development of more diversified sources of supply.

Australians tend to see China through the prism of growing export demand and higher commodity prices, although there are also significant benefits to Australia’s terms of trade through the import side of the trade relationship. China’s real long-term significance to the global resource sector may be as a source of the much-needed investment that will increasingly alleviate global supply constraints, putting downward pressure on global commodity prices by boosting output, employment and exports in countries like Australia.

posted on 18 July 2010 by skirchner in Commodity Prices, Economics, Foreign Investment

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France Welcomes Foreign Property Buyers

The French government is selling off state-owned property assets. French openness to foreign buyers makes for an interesting contrast with the xenophobic reactions to foreign investment in Australian property markets:

All buyers, French or foreign, are welcome to bid for the properties but there will be checks to ensure that they acquired their money legally…

Heritage bodies welcomed the sale plan as a way of ensuring the improvement of neglected properties.

Francis Cahuzac, the head of the Commission for the Protection of Historic and Rural Heritage, said: “What matters is that the properties are protected, never mind if the owner is a foreigner or the Government. In most cases, foreigners are very good at restoring old buildings.”

posted on 10 June 2010 by skirchner in Economics, Foreign Investment

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Data are the More than Just the Plural of Anecdote

The debate over foreign investment in Australian property is being fuelled by anecdote rather than data, largely because the available data on the subject is so limited.  In today’s Australian, Natasha Bita reports her experiences trying to extract information from the FIRB (an all too familiar story):

The Australian provided the FIRB with a list of questions, including whether it is monitoring the impact on the property market of its relaxed rules, which richocheted for three days between FIRB and the Treasury.

Eventually, a spokesman for Sherry failed to say if, or how, the impact was being monitored.

A request for a copy of FIRB’s advice to Treasury to change the foreign investment rules also was ignored.

Asked to provide up-to-date data on the sale of residential property to foreigners and temporary residents, the minister’s spokesman replied: “FIRB approvals for temporary residents to buy established houses as a percentage of the total number of transfers of established housing that occurred in the eight capital cities were at a level of approximately between 1.5 per cent and 2 per cent in recent times. Data are not available after 31 March 2009 given that temporary residents were exempted from FIRB notification requirements.”

Even the Reserve Bank, which claims to be monitoring the situation, is having trouble getting any meaningful data from FIRB.

Its only analysis is a two-page internal briefing note, based on statistics from FIRB’s 2007-08 annual report and temporary resident numbers.

“For analysis you would try to get hard data on this but there is in fact no hard data,” the Reserve Bank’s head of domestic markets, John Broadbent, says.

“The Treasury were the ones who decided to cease collecting some of the data sets on the basis they were looking to reduce the administrative burden.”

Broadbent says an analysis of “older data” from the FIRB shows the share of foreign buyers of residential properties has risen from 0.4 per cent of properties in the late 90s to 1 per cent in 2008.

This is a very good illustration of how the FIRB’s lack of transparency undermines support for foreign investment in Australia.  The publication of more detailed and timely data on the subject would go a long way to dispelling popular fears about foreign investment.  That said, I also have some sympathy for the Treasury position.  It is unrealistic to expect FIRB to monitor and enforce compliance with the rules in relation to thousands of property transactions.  Indeed, it is doubtful whether FIRB even has the resources to monitor compliance with the many conditions it has been piling on to some of the more high profile cross-border M&A transactions.  The government’s appetite for regulation in this area greatly exceeds its administrative capacity.  Much of the liberalisation of foreign investment rules undertaken by the Rudd government has been an attempt to ease the administrative burden on the FIRB.

If the anecdotes are to be believed, then the liberalisation of foreign investment rules in relation to property has been a success.  If there is a policy failure, it is in the inability of the supply-side of the market to respond flexibly to both foreign and domestic demand.  The danger now is that the government implements another of its short-term political fixes ahead of this year’s federal election and re-tightens the rules rather than addressing the supply-side constraints besetting Australian residential property.

posted on 11 April 2010 by skirchner in Economics, Foreign Investment, House Prices

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A FIRB with Chinese Characteristics

I often accuse Australia’s regulation of foreign direct investment as having disturbing parallels with China’s regulatory environment.  I was amused therefore to see the following headline:

China to Set Up Foreign Investment Review Board:

“The new agency will work independently of the current anti-monopoly investigation system,” the above source revealed.

Stating that the Ministry of Commerce’s anti-monopoly review of foreign mergers and acquisitions is only focused on the level of influence that certain mergers and acquisitions may have on competition, not on national nor industrial security.

As for the approval process under any possible future foreign investment review board, “[The process] will basically be the same as before, we are merely adding one extra procedure.”

posted on 28 March 2010 by skirchner in Economics, Foreign Investment

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Yes, We Have Patrick Colmer Speeches (for the ‘Merely Curious’)

Using Freedom of Information legislation, I have obtained a copy of a speech given by Patrick Colmer, Executive Director of the Foreign Investment Review Board, to the Australian-China Investment Forum on 24 September last year.  The background to the speech and the FOI process are discussed in an op-ed in today’s Australian.

posted on 18 February 2010 by skirchner in Economics, Foreign Investment

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Will Australian FDI Policy Be Any More Comprehensible in Chinese?

Treasurer Wayne Swan has announced an expansion of the Foreign Investment Review Board and a review of the communication of FDI policy in a speech to the Global Foundation.  The government’s first initiative will be to:

release an easy-to-read version of the foreign investment review framework for prospective investors, which will be made available in other languages, including Chinese, Japanese and Bahasa.

One would of thought that such documentation already existed.  The problem is that Australian FDI policy is not going to be any less confusing in a foreign language than it already is in English.  No amount of explanation can eliminate the fundamental source of confusion and uncertainty, which is the sweeping discretion available to the Minister and FIRB under the Foreign Acquisitions and Takeovers Act. 

The debacle of the Patrick Colmer speech demonstrated that the basic communication problem stems from the government’s lack of a clear policy framework for the exercise of this discretion.  Foreign investors cannot be expected to understand a policy that the government itself cannot articulate.

UPDATE:The Patrick Colmer saga continues:

JOURNALIST:

Do you endorse the guidelines put out by Colmer from the FIRB two weeks ago?

TREASURER:

Mr Colmer didn’t put out any guidelines two weeks ago, and you know that.

JOURNALIST:

About the 15, 50 per cent and the…

TREASURER:

Mr Colmer was asked a theoretical question to which he gave a theoretical answer, which I believe has been taken out of context.

Maybe the Chinese translation will be clearer.

posted on 10 December 2009 by skirchner in Economics, Foreign Investment

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