Working Papers

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 30 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 02 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 16 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 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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