Working Papers

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 11 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 12 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 29 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 19 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:


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


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


About the 15, 50 per cent and the…


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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Complete Confusion

You know it’s Friday whenever the government slips out another late afternoon FDI approval.  The government continues to micro-manage FDI in Australia, with another long list of conditions attached to Yanzhou Coal Mining Company Limited’s acquisition of Felix Resources, while creating even more uncertainty about government policy:

One adviser to Chinese companies trying to invest in Australian resources, who has had potential takeovers of Australian public companies quashed by FIRB before they were made public, expressed frustration at the lack of consistency.

“It creates complete confusion as to what the policy is,” he said.

“All we can see is that there is no policy.”

Senator Sherry’s office would not comment on what could be gleaned from the decision in terms of policy.

Because there is none.


posted on 24 October 2009 by skirchner in Economics, Foreign Investment

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When FDI Regulation Turns to Crap

John Garnaut continues to expose the chaos in the regulation of foreign direct investment in Australia:

a whole industry of lawyers, lobbyists and retired politicians is springing up to earn fees by promising China that they can divine the mysteries of Australia’s foreign investment laws. Many contacted by BusinessDay are critical of the review board and others are critical of the Australian media. But they are all fearful of speaking publicly, lest they offend the agency they are paid to deal with.

Garnaut quotes my former colleague Stephen Joske on the government’s failure to construct a coherent framework for dealing with China:

“There wasn’t strong public resistance to Chinese investment in Australia a few years ago,” he said.

“But indecision from the Government and negative signals created a vacuum in which concerns grew. As soon as FIRB started to define what the national interest is they bound their hands without really resolving the issue; now FIRB is being used to fan public opinion and concerns about state-owned enterprises.”..

He said he was “shocked” at Treasury’s failure to brief its boss, Swan, on the usual pros and cons of foreign investment…

Joske said the investment policy setting was getting worse because of a lack of leadership.

“There is no strategic framework with China,” he said. “I don’t know what caused it but it’s a fact. Because of this vacuum you get crap policy.”

And the result, he said, is that the review board ‘‘has been allowed to depart from the spirit of the open economy and to effectively dominate the entire economic relationship”…

“The thing that’s inexplicable is this is the overall approach to China: you’re setting foundations for Australia’s economic future,” he said. “The business lobbyists have dropped the ball, the bureaucracy is under-resourced, BHP is doing what it always does and the Opposition is making things worse.”


posted on 15 October 2009 by skirchner in Economics, Foreign Investment

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The Feral FIRB

John Garnaut has a story in the SMH highlighting the arbitrary and capricious nature of Australia’s regulation of foreign direct investment and the damage it is doing to Australia’s international reputation as an investment destination.  If Garnaut is to be believed, the FIRB is a bureaucracy turned feral, which would help explain the Patrick Colmer speech debacle.  Extract over the fold, but read the whole thing.

continue reading

posted on 06 October 2009 by skirchner in Economics, Foreign Investment

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The Colmer Doctrine?

Matthew Stevens coins the phrase ‘the Colmer Doctrine’, but as his own analysis suggests, the real problem is the complete absence of anything that could be called a doctrine:

There are two quite different conclusion[s] to draw from Colmer’s contribution to last week’s Australian China Business Council conference. Either he is a very new kind of beast in FIRB, in that he has seized the opportunity offered by government uncertainty to help shape foreign investment policy.

Or, as is far more likely, the commentary he offered was vetted and approved by a government still unwilling to formally define its preferences on Chinese investment…

That we are 18 months into our national reflection on China’s investment intentions and we are still so unsure about the FIRB process says only that the government had failed to plainly explain its policy.

That failure would seem to reflect either policy uncertainty or a failure of will. Either way, it is time to sort it out.

posted on 02 October 2009 by skirchner in Economics, Foreign Investment

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The Great Pat Colmer Speech Hunt

Glenda Korporaal weighs in on the Pat Colmer speech:

A week later the FIRB says there is no transcript of the speech, and the Australia China Business Council, which is to be commended for organising a conference with a wide range of Australia-Chinese experts, has been deluged with requests for a copy from every lawyer advising on foreign investment.

As of yesterday afternoon none was available…

The fact that the speech is not yet available—and may not be made available—to people who would genuinely like guidance on foreign investment applications can only add to the potential for criticism that Australia’s foreign investment policy is less than clear…

That said, there is still a real hunger for more information and more clarity about both the official policy and the administration of that policy.

This is an issue that should be acknowledged and addressed at higher levels than the FIRB director, but making the speech generally available would be a start.

The Executive Director of the FIRB is the designated Australian National Contact Point (ANCP) under the OECD Guidelines for Multilateral Enterprises.  According to the government, ‘the ANCP is committed to carrying out these responsibilities in accordance with the Guidelines requirement for NCPs to be visible, accessible, transparent, and accountable.’

All rhetoric, no substance.

posted on 02 October 2009 by skirchner in Economics, Foreign Investment

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Yes, We Have No Patrick Colmer Speeches

I really shouldn’t complain about FIRB secrecy.  Variations on ‘Patrick Colmer speech’ are now the number one search term delivering traffic to this site.  Alan Jury’s Chanticleer column in the AFR yesterday (gated, so no link) deserves considerable credit for highlighting the issue of making pseudo-policy announcements via speeches that are not in the public domain.  As Jury noted, it makes a complete mockery of the government’s posturing on transparency and accountability in international fora like the G20, not to mention the ‘Government 2.0 Taskforce’ (I would settle for some Government 1.0).

posted on 01 October 2009 by skirchner in Economics, Foreign Investment

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Xenophobic, Not Racist

I have an op-ed in today’s Wall Street Journal on the confusion being created by the government’s discretionary approach to the regulation of foreign direct investment.

This morning I read in one of the US equity analyst reports I receive that ‘we hear out of Australia that its foreign investment regulator wants to impose 15% caps for global purchases of the country’s large companies.’  This is over-stating the situation, but is indicative of the perceptions now being created among offshore investors.

Australian mining magnate Clive Palmer is not taking Patrick Colmer’s advice to leave the lawyers and media out of it and quietly cut deals in Canberra.  He is threatening to take an FDI case to the High Court.  Palmer is also calling Australia’s regulatory regime for FDI racist.  I think ‘xenophobic’ is a better characterisation (hence the title of my monograph on the subject).  Colmer effectively conceded as much when he said that part of FIRB’s role was to maintain public support for foreign direct investment by managing an ‘orderly’ flow of FDI transactions.

posted on 30 September 2009 by skirchner in Economics, Foreign Investment

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The FIRB and the Rule of Law

If you need further evidence that the rule of law is largely non-existent with respect to foreign direct investment in Australia, you need look no further than a speech FIRB director Patrick Colmer gave to the Australia-China Business Council last week, as reported in The Australian:

Mr Colmer said many of the foreign investment decisions were matters of “policy” rather than black-letter law.

He said the government had to balance the need for an orderly flow of foreign investment into Australia with the need to ensure continued public support for foreign investment proposals.

“One of the problems we have also seen is where lawyers get involved and try to turn a policy argument into a legal debate,” Mr Colmer said. “It is not effective. The lawyers don’t like us telling them that, but we do try to steer people through the policy issues rather than the legal issues ... Don’t turn it into a legal stoush, and deal with us the way we like to deal with you - in confidence.”

The last thing FIRB wants is a review of decisions on common law grounds (other forms of administrative and judicial review being effectively precluded).  As the ACCC would no doubt tell their FIRB colleagues, legal process and case law are the enemies of bureaucratic discretion. 

Perhaps the most tragic aspect of Colmer’s speech is that it was actually welcomed by some commentators as a clarification of the regulatory regime for FDI.  This interpretation would be somewhat less ludicrous if Colmer’s speech were actually a publicly available document, accessible by foreign investors.  FIRB is evidently too busy micro-managing FDI on behalf of the Treasurer to put the speech on its web site.  I have emailed FIRB requesting a copy, but have no expectation of receiving a reply.

posted on 28 September 2009 by skirchner in Economics, Foreign Investment

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Australia: Developed Country Institutions, Emerging Market Growth Rates

Treasury Secretary Ken Henry suggests that Australia remains an attractive proposition to foreign investors:

it seems quite likely — to me at least — that the Australian economy might attract an even greater share of global capital flows, and quite possibly even larger capital flows in aggregate.

This fifth observation might surprise you. My thinking is simply that, in a world that pays more attention to fundamentals than herd-driven investor psychology, the Australian economy will be seen as possessing the best of the qualities — of governance and flexibility — of the developed world while also offering an abundance of real investment opportunities usually found only in the developing world. That is to say, the Australian economy may be seen as offering the best of both worlds.

It follows from what I have just said that I do not think it likely that, relative to earlier growth periods, the future expansion of the Australian economy will be constrained by a reduced capacity to attract foreign capital.

Henry failed to mention that the main constraints on Australia attracting foreign capital are imposed internally, not externally: relatively high rates of tax on capital and a Whitlam-era, Chinese-style regulatory regime for foreign direct investment.  We will find out at the end of the year what Henry proposes to do about the former.  The government’s modest tinkering with the latter suggests that Australia will continue to underperform its potential in attracting FDI.

posted on 18 August 2009 by skirchner in Economics, Foreign Investment

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FDI Liberalisation Falls Short

Following hot on the heels of the New Zealand government’s announcement of reforms to its regulation of foreign direct investment, the Australian Treasurer has also announced changes to the thresholds for screening FDI applications.  My take on the changes can be found in an op-ed in The Canberra Times today (text below the fold).  I’m also quoted on the subject in a story on page three of the AFR today.

continue reading

posted on 05 August 2009 by skirchner in Economics, Foreign Investment

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