Working Papers

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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Stephen, many are suggesting the current surge in house prices is due to foreign buyers, who are now able to purchase property in Australia more easily thanks to a recent relaxation in foreign investment rules.

Surely this hampers the RBA’s ability to “lean against the wind” as Mr Stevens clearly intends to do.

If RBA tightening in coming months is seen as an attempt to cool the property market (and how could it not be after this morning’s performance?) and the market keeps powering along because of the perceived influence of foreign buyers, I can see the foreign investment rules tightening up again very soon.

As for China:  It always amuses me when you bang on about the govt or FIRB disallowing Chinese investment in Australia.  Its not like the Chinese market is open to Australian investors!

Posted by .(JavaScript must be enabled to view this email address)  on  03/29  at  11:48 AM

Foreign buying of property is typically for investment rather than owner-occupation (otherwise, they would not be foreigners!), so they are adding to supply both directly and indirectly through the incentives created by higher prices.

“Its not like the Chinese market is open to Australian investors!”

Even if the Chinese market were completely closed (which it is not), Australia would still benefit from Chinese investment.

Posted by skirchner  on  03/29  at  02:45 PM

Unless the foreigners are always buying new builds (which AFAIK they’re not) how are they adding to supply?

Its my impression that many foreign investors are buying to house their son/daughter while they study in Australia—OR—they leave the property unoccupied which is common practice in Asia.

Besides, regardless of the real economic merit of foreign investors in our real estate market, this is rapidly developing into a political issue.  Rightly or wrongly, property crazed Melburnians are starting to point the finger of blame at foreign investors.

Posted by .(JavaScript must be enabled to view this email address)  on  03/29  at  04:23 PM

Foreigners are still limited to acquiring newly built dwellings, although the definition of ‘new’ has been liberalised somewhat.  Established housing is still off limits. 

My suspicion is that this restriction hurts rather than facilitates overall supply, but it would be hard to prove given the lack of data on the subject.

I have no doubt there will be plenty of people pointing fingers at foreigners blaming them for our own failures on housing.

Posted by skirchner  on  03/29  at  05:41 PM

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