This was published 15 years ago
Time to welcome Chinese investment
China's plans require a calculated response, one not based on narrow interpretations of national interest, write Allan Fels and Fred Brenchley.
By Allan Fels and Fred Brenchley
The yellow peril is abroad again. Back in early Cold War days it was the threat of Chinese communism delivered at the barrel of a gun. Now it's Chinese cash from the barrels of their state-owned companies.
Alarm for Australia's national interest has been triggered by the latest trio proposed Chinese investments, Chinaclo into Rio, Hunan Valin into Fortescue and China Minmetals into Oz Minerals. All the Chinese players are state owned, and China is an authoritarian communist state.
The Chinese are not just state-owned, they are also big buyers of Australian resources. The fear is that China Inc through its Australian resources investments will be able to force down resource prices, and hence Australian export receipts.
Chinalco's $30 billion bid for 18 per cent of Rio "will help China break the duopoly in Australian iron ore supply over time", said Shan Shanghua, the chief of China's steel industry association, as if straight from central casting to add to the yellow peril.
To the alarmists, the Chinese are buying near the bottom of the market, as if this was their fault. Scandalous. Soon they'll be acting like real capitalists.
There's no doubt, according to this viewpoint, that Australia's national interest is best served by blocking, or at least imposing tough conditions on, these Chinese investments, particularly on Chinalco's possible 18 per cent of Rio. This single move has become a touchstone of the current debate, although Minmetal's 100 per cent of Oz Minerals may set a precedent.
However, there is another higher level of national interest that must be taken into account here. It involves the wider Australian economy and the nation's future in Asia.
China is not just our largest trading partner, it is also the single most important economy that could pull Australia through the current downturn. When the global recession bottoms, it will be Chinese demand that will provide the new motor for Australian recovery.
The rise of China to economic superpower requires a calculated Australian strategy in response. The current Chinese investment proposals must not be viewed in isolation. Australia wants a free trade agreement with Beijing that opens the Chinese market to Australian investment, particularly in financial services. Freer investment will be a two-way process.
As well, China will increasingly become home for our manufacturing that cannot cope with Australia's high cost structure. Pacific Brands confirms this continuing trend.
The practical reality is that Australia and China are moving towards a symbiotic relationship. China wants resource security; Australia wants economic security. China's traditional long-term, or 100-year view, should not be lost on Australia.
The current Chinese investment proposals are not simply a matter of short-term manipulation of resource prices, although China, like any buyer would welcome lower prices.
It will not be in China's interests to destroy markets. Ultimately Australia will retain export controls if price manipulation can be demonstrated.
China will not become one of Australia's "great and powerful friends" as Britain was until World War II, and as the US has been since then. China does not favour security pacts anyway.
But China will be a "great and powerful" resources and economic partner. Japan created a similar role. China's will be deeper, and more important in the longer term. The trick for Australia will be to manage our security alliance with the US while at the same time deepening our strategic economic relationship with China.
The US and China have concerns about each other's relations with Australia. China is nervous about Australia's security ties with Washington, and the US frets that we will be too easy on Beijing.
Diplomats call it "walking both sides of the street". It is a walk that will require Australia to ponder deeply about its real national interest.
Australia has pretensions to act as a go-between in the natural tensions between Beijing and Washington. That will require a special relationship on both sides.
As a step along that walk on both sides of the street, Canberra should be just as welcoming of Chinese investment as it has been with investments from elsewhere. That may mean imposing conditions on some of the current proposals, as has happened with other deals.
Saying no to Chinese investment based on the narrow interpretations of national interest paraded so far could be disastrous.
Allan Fels is a former chairman of the Australian Competition and Consumer Commission. Fred Brenchley is a former editor of The Australian Financial Review.