tag:theconversation.com,2011:/id/topics/firb-2956/articlesFIRB – The Conversation2017-11-21T19:28:41Ztag:theconversation.com,2011:article/870892017-11-21T19:28:41Z2017-11-21T19:28:41ZForeign ownership of housing – how do Australia and New Zealand compare?<p>Foreign national ownership of property is a <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-11-20.html">growing concern</a> for many countries, including New Zealand and Australia. From 2018, New Zealand is banning foreign ownership of residential property in an attempt to curb housing inflation and high vacancy rates. </p>
<hr>
<p><em><strong>Further reading:</strong> <a href="https://theconversation.com/sydneysiders-blame-foreign-investors-for-high-housing-prices-survey-77959">Sydneysiders blame foreign investors for high housing prices – survey</a></em></p>
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<h2>What’s going on in New Zealand?</h2>
<p>New Zealand residential property inflation reached 10.46% last year. Prices <a href="https://www.domain.com.au/news/new-zealanders-defeated-by-crazy-house-prices-are-tackling-it-at-their-upcoming-elections-20170829-gy6ujd/">rose by 34% over the past three years</a>. </p>
<p>As a consequence, New Zealanders are increasingly concerned that people on low and medium incomes are being locked out of the property market. Home ownership in New Zealand has reached its <a href="https://www.domain.com.au/news/new-zealanders-defeated-by-crazy-house-prices-are-tackling-it-at-their-upcoming-elections-20170829-gy6ujd/">lowest level in 65 years</a> – only a <a href="http://m.stats.govt.nz/browse_for_stats/population.aspx">quarter of adults under 40 years</a> own their own home compared to half in 1991.</p>
<p>Immigration to New Zealand <a href="http://www.mbie.govt.nz/info-services/immigration/migration-research-and-evaluation/trends-and-outlook">grew by 19%</a> in the last financial year. Strong immigration, low interest rates and limited housing supplies, particularly in areas affected by recent earthquakes, have fuelled the rise in house prices.</p>
<p>Jancinda Ardern’s new Labour government went to the election with a comprehensive housing platform that included a <a href="http://www.labour.org.nz/cracking_down_on_speculators">crackdown on speculative investors</a>. Labour stated that <a href="http://taxpolicy.ird.govt.nz/publications/2015-ip-property-bright-line-test/overview">2015 tax changes</a> applying to investor earnings were not having the desired effect of limiting price growth.</p>
<h2>How does Australia compare?</h2>
<p>When it comes to housing, New Zealand is both leading the way while behind Australia in other areas of housing policy. The incoming New Zealand legislative changes emphasise the banning of foreign ownership of residential property. Australia’s Foreign Investment Review Board (FIRB) already <a href="http://firb.gov.au/real-estate/">applies a ban on foreign ownership</a> for existing (as opposed to new) housing. Like Australia, the New Zealand legislation will continue to allow permanent residents to buy existing homes. </p>
<p>However, there are some significant differences. New Zealand’s law will also apply to foreign trusts and foreign corporations. Australian still allows some foreign trusts and corporations to buy existing homes where staff need to be accommodated. In Australia, overseas residential investment is largely <a href="https://theconversation.com/why-chinese-investors-find-australian-real-estate-so-alluring-76310">channelled into building new homes</a>.</p>
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<p><em><strong>Further reading:</strong> <a href="https://theconversation.com/why-chinese-investors-find-australian-real-estate-so-alluring-76310">Why Chinese investors find Australian real estate so alluring</a></em></p>
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<p><a href="https://theconversation.com/sydneysiders-blame-foreign-investors-for-high-housing-prices-survey-77959">Many in Australia</a> consider that temporary residents such as students and those here for work should not be allowed to buy existing residential properties. The FIRB <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-11-20.html">allows this</a>. The proposed New Zealand legislation, in its current form, does not. </p>
<p>New Zealand anticipates that removing investor demand by excluding foreign nationals from the market will help stabilise house prices. However, there is little evidence that such measures have successfully slowed price inflation in Australia. </p>
<p><a href="http://www.revenue.nsw.gov.au/taxes/spd">Increases in stamp duty rates</a> for some foreign residential purchases are at odds with the FIRB’s long-standing need to encourage investment to offset <a href="https://tradingeconomics.com/australia/balance-of-trade">foreign trade deficits</a>. In the 2015/16 year, for example, approvals for foreign investment in real estate <a href="https://cdn.tspace.gov.au/uploads/sites/79/2017/04/1516-FIRB-Annual-Report.pdf">totalled A$72.4 billion</a>. </p>
<p>However, the <a href="http://www.revenue.nsw.gov.au/taxes/spd">New South Wales</a> and <a href="http://www.sro.vic.gov.au/foreignpurchaser">Victorian</a> governments both increased stamp duty surcharges for foreign investors in residential real estate to make it less attractive to them. The difference here between the two countries is that in Australia the surcharge is being levied as a state initiative rather than a federal one. </p>
<p>Not all states apply a surcharge to foreign investments in real estate. For this reason, the impact is less likely to antagonise Australia’s major trading partners and investors <a href="https://theconversation.com/why-china-is-cracking-down-on-overseas-investment-82763">such as China</a>. </p>
<p>The New Zealand surcharges will be applied nationally. Therefore, the surcharge may be viewed as a protectionist measure. </p>
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<p><em><strong>Further reading:</strong> <a href="https://theconversation.com/why-china-is-cracking-down-on-overseas-investment-82763">Why China is cracking down on overseas investment</a></em></p>
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<h2>Protectionism and the Productivity Commission</h2>
<p>Concern is growing that a global <a href="https://www.pc.gov.au/research/completed/rising-protectionism/rising-protectionism.pdf">increase in protectionism</a> (favoured by the Trump administration) could lead to a worldwide recession and lower living standards, including in Australia. </p>
<p>However, although foreign ownership restrictions could hurt New Zealand’s reputation as an open economy, they are unlikely to do so. This is because <a href="http://www.stats.govt.nz/browse_for_stats/economic_indicators/balance_of_payments/BalanceOfPaymentsYearEnded_HOTPYe31Mar17.aspx">58.5% of the funds</a> coming into New Zealand are from Australia, the United Kingdom and the United States. These are also the countries that New Zealand most heavily invests in. Where the surcharge remains reasonable, it is unlikely to impact upon investment or be seen as a protectionist measure. </p>
<p>New Zealand has been much slower than Australia to introduce rules on residential property ownership. Its proposed legislation closely mirrors Australia’s legislation in regard to who may buy existing homes. These measures have not significantly slowed housing price rises in Australia. </p>
<p>However, New Zealand also plans to limit residential ownership of property by temporary residents and apply a surcharge nationally. These additional measures may have greater effect on limiting housing price rises than Australia’s restrictions have had so far.</p><img src="https://counter.theconversation.com/content/87089/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erika Altmann does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Concerns about foreign investors driving up housing prices have been growing. Australia was first to bar foreign purchases of existing residential property, but New Zealand is set to go further.Erika Altmann, Property and Housing Management Researcher, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/763102017-05-01T07:20:37Z2017-05-01T07:20:37ZWhy Chinese investors find Australian real estate so alluring<p>Chinese investors <a href="http://www.smh.com.au/business/the-economy/foreigners-pile-back-into-australian-property-reigniting-bubble-fears-20161124-gsx97i.html">are often blamed for Australia’s escalating</a> house prices but a number of factors might mean the demand will drop off in coming years.</p>
<p>A <a href="http://demystifyingchina.com.au/reports/demystifying-chinese-investment-in-australia-april-2016.pdf">recently released report</a> found investment in residential real estate by the Chinese is slowing. As the gap in rental yields between the two countries closes and house prices increase, Australian residential real estate is beginning to look less attractive. The lifting of restrictions on Chinese urban residential property ownership and personal investment monetary restrictions may also play a part. </p>
<p>China <a href="http://www.hurun.net/en/">has A$1.34 million high net worth individuals</a> and 568 billionaires. Their combined net worth is equivalent to Australia’s GDP. </p>
<p>Many Chinese investors have access to both legitimate and hidden income and wealth and seek to invest both in overseas real estate. This is at a time when China is in the grip of <a href="http://www.theage.com.au/federal-politics/political-opinion/taiwanese-solution-to-soaring-house-prices-dont-have-kids-20100426-tn7m?deviceType=text">its own housing affordability crisis</a>.</p>
<h2>Why Australia has seemed attractive</h2>
<p>In 2015, Chinese investors ploughed approximately <a href="http://demystifyingchina.com.au/reports/demystifying-chinese-investment-in-australia-april-2016.pdf">A$6.8 billion into Australian commercial and residential real estate</a>. <a href="https://firb.gov.au/real-estate/">Current Foreign Investment Review Board (FIRB)</a> policies channel incoming real estate investment funding into new dwellings, creating additional jobs in <a href="https://firb.gov.au/real-estate/">construction and supporting economic growth</a>. </p>
<p>Though temporary Australian residents may be required to sell older residential property when they leave Australia, many foreign nationals are able to retain, rent out, sell or live in newly constructed dwellings. This is a major draw card for Chinese investment in new residential buildings. </p>
<p>Other pull factors include Australia’s <a href="http://demystifyingchina.com.au/reports/demystifying-chinese-investment-in-australia-april-2016.pdf">stable financial institutions, compared to China,</a>, well regulated land title system, buoyant real estate market, high capital gains rates in major cities and lower deposit requirements. </p>
<p>Australia’s <a href="https://firb.gov.au/real-estate/">Foreign Investment Review Board (FIRB)</a> may keep an eye on these factors when considering new foreign investment in the housing market, but it struggles to counteract the push effect of Chinese property law restrictions and investor needs.</p>
<h2>Factors in China at play</h2>
<p>Conditions in China’s economy and regulatory environment also push Chinese investors to focus on overseas markets. The depreciation of the <a href="http://demystifyingchina.com.au/reports/demystifying-chinese-investment-in-australia-april-2016.pdf">Chinese currency is a significant force</a>. As this currency is devalued, Chinese investors reconsider what and where they can afford to purchase. </p>
<p>Australia’s <a href="http://www.afr.com/real-estate/record-low-rental-yields-in-sydney-and-melbourne-a-risky-sign-moodys-warns-20160411-go3iq0">rental yields of 2-3% in major cities</a> are twice that of China’s. <a href="https://www.researchgate.net/project/Multi-owned-properties-in-the-Asia-Pacific-Region-Rights-Responsibilities-and-Restrictions">Legislative changes to residential property investment</a> in China also makes Australia look appealing. </p>
<p>China has a dual property ownership system that segregates rural and urban land ownership systems. Rural cooperatives own the rural land ownership rights. Cooperative members can only sell to other members of the same rural cooperative. </p>
<p>This limits competition for rural land and keeps rural land prices low. But it also means rural land is an unattractive investment choice for Chinese. </p>
<p>Urban land, on the other hand, remains state owned with a 70 year lease system to housing owners. The system limits ownership of urban residential buildings to people with urban registration or those that have lived in and paid taxes in the same urban area for five consecutive years. This situation stops many Chinese from being able to purchase urban residential property.</p>
<p>Between 2011 and 2015, those who did have the appropriate registration were limited to a maximum purchase of two residential properties within their urban area – one property to live in and one as an investment. This limitation still applies in Beijing. </p>
<p>The limitation was put in place to counteract major housing affordability discontent as an increasing number of people were locked out of the housing market. This problem is exacerbated by the <a href="https://www.princeton.edu/%7Ewxiong/papers/HousingBoom.pdf">30% deposit requirement</a> on residential real estate purchases. This combination of factors forces many Chinese investors into purchasing properties on China’s black market where ownership is uncertain or seek investment opportunities outside China. </p>
<p>The <a href="http://www.safe.gov.cn/">Chinese State Administration of Foreign Exchange</a> introduced new regulations to tighten the flow of capital from China in November 2016. This agency is tasked with the approval of outgoing overseas payments of more than US$5 million. However, most housing acquisitions in Australia fall below this limit.</p>
<p>From 2017, a new rule was introduced to limit the yearly foreign currency holding <a href="http://ny.uschinapress.com/m/spotlight/2017/01-03/110834.html">to US$50,000 for individual investors.</a>. </p>
<p>Larger Chinese development companies operating in Australia are <a href="http://www.theaustralian.com.au/business/opinion/robert-gottliebsen/apartment-outlook-brightens-as-chinese-buyers-come-rushing-back/news-story/1fcea1add2024aff1ed059c45c2883af">known to sell individual residential units “off the plan”</a> directly to Chinese property investors. Where this is the case, the developer has a vested interest in finding ways to circumvent the new limits on foreign currency holding in order to settle a contract. However, it will take time for developers to adjust their methods.</p>
<p>As house prices increase, rental yields generally fall. This is due to the large amount borrowed by investors <a href="https://www.mortgagechoice.com.au/home-loans/home-buying-advice/tips-and-tools/what-is-rental-yield.aspx">compared to what they receive in rental income</a>. </p>
<p>Though rent prices have increased significantly in Melbourne and Sydney, they have not kept pace with house prices. Rental yields have fallen in major cities. </p>
<p>In China, where the rental yield is 1-1.5%, some investors reconsider whether it is worth <a href="https://www.researchgate.net/project/Multi-owned-properties-in-the-Asia-Pacific-Region-Rights-Responsibilities-and-Restrictions">the effort of renting out their properties</a>. Instead, they rely on the capital gain to create a profit while leaving the property vacant, preventing wear and tear to it. This practice has serious implications for the supply of rental properties in China. </p>
<p>As Australia continues to struggle with escalating house prices and decreasing rental yields, residential real estate investment becomes less attractive as a long term investment for Chinese investors. The reliance on capital gains may result in higher numbers of vacant properties in Australia, counteracting the FIRB’s intentions.</p>
<p>The restrictions enacted by Chinese regulators may slow the flow of money out of China in the short term. However, Chinese investors are likely to find ways to circumvent these restrictions. The lifting of restrictions on Chinese residential property ownership may refocus investment choice location to within China.</p><img src="https://counter.theconversation.com/content/76310/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese real estate investors might be more interested in investing in their homeland rather than Australia, given the changing market and regulations.Erika Altmann, Qualitative Researcher, University of TasmaniaZhixuan Yang, Lecturer in Real Property Development and ManagementLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/717072017-01-23T19:17:35Z2017-01-23T19:17:35ZGovernment’s new critical infrastructure list raises more questions than it answers for investors<p>The government’s latest move to tighten the regulations for overseas investors may provide some clarity on what’s off limits for some projects but it doesn’t resolve the ongoing debate on what type of approach the government will take to foreign investment.</p>
<p><a href="http://sjm.ministers.treasury.gov.au/media-release/003-2017/?utm_source=wysija&utm_medium=email&utm_campaign=Media+Release+-+Keeping+Australia%27s+critical+infrastructure+secure">Treasurer Scott Morrison announced</a> the Critical Infrastructure Centre (CIC) will manage a list of assets that will automatically be referred to its scrutiny, if there’s interest from foreign investors. According <a href="http://www.theaustralian.com.au/news/nation/security-test-puts-heat-on-foreign-bids/news-story/25fa86a7acfb8c4c21abedb6a16edab7">to media reports</a> an initial list has already been approved by cabinet. The CIC will expand this list in consultation with all levels of governments, owners and operators.</p>
<p>The government needed to clarify what counts as critical infrastructure after the unpredictable decision-making in <a href="https://theconversation.com/au/topics/ausgrid-30183">the 2016 Ausgrid bid</a>. The current legislation on critical infrastructure in Australia is very wide and not geared towards encouraging foreign investment.</p>
<p>This latest move is also particularly important if the government plans to go ahead its <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201516/North">Developing Northern Australia initiative</a>. This project would require a huge amount of highly diversified infrastructure investment in areas such as transport, water, social services and others which potentially all fall under the current critical infrastructure definition.</p>
<p>As much of this investment will have to come from both overseas and local investors, there is a need to create clarity so the required foreign investors can plan their bidding on a long term basis. </p>
<p>At the same time, there are specific security aspects that need to be addressed in terms of protecting power, ports and water sectors from terrorism and sabotage. Of course, this protection should be in place irrespective of who owns the relevant assets. </p>
<p>Involvement of the CIC certainly adds an additional layer of bureaucracy to the approval process for foreign investment in Australia. The Foreign Investment Review Board (FIRB) located within Treasury was meant to mobilise sufficient expertise to decide on these matters by co-opting board members and staff from the Department of Defence and security services. The decision to establish the CIC within the Attorney General’s department seems to reflect the views of the proponents of stronger scrutiny from outside Treasury. </p>
<p>However, the establishment of the CIC does not resolve the policy debate that needs to be had about foreign investment and that will determine whether Australia will take a more restrictive security approach or a more commercially oriented approach. For example, Australia has <a href="https://www.nationalsecurity.gov.au/Media-and-publications/Publications/Documents/national-guidelines-protection-critical-infrastructure-from-terrorism.pdf">National Guidelines for Protecting Australian Critical Infrastructure from Terrorism</a> that are similar to the ones of the United States Department of Home Security. These guidelines cover banking and finance, transport, energy, water, health, food and grocery, communications as well as manufacturing and supply chains. Potentially, these guidelines could draw many regular commercial activities within the realm of critical infrastructure.</p>
<p>The <a href="https://ec.europa.eu/energy/en/topics/infrastructure/protection-critical-infrastructure">European Union’s guidelines on critical assets</a> have a much narrower focus on energy and transport, and in line with the three sectors mentioned by the treasurer, electricity, water and ports. </p>
<p>There are different assessments of what constitutes critical infrastructure, from a security and a commercial perspective. From a security perspective, assets like ports can be seen as a risk in terms of national security and sovereignty but from a commercial perspective these assets are part of a global network of infrastructure. The question is, to what extent are these two aspects compatible. </p>
<p>In 2015, the Attorney-General, in commenting on critical infrastructure resilience strategies in Australia, defined it in terms of four outcomes: a strong and effective business-government partnership; enhanced risk management of the operating environment; effective understanding and management of strategic issues; and a mature understanding and application of organisational resilience. These outcomes can’t necessarily be enforced by the foreign investment approval process, that is, in the pre-investment phase of foreign investment. Rather they need to rely on processes that cover domestic and foreign owned assets alike on a long-term basis.</p>
<p>The resulting new procedures with the CIC are likely to follow existing practice. CIC will support the existing framework, the Foreign Investment Review Board, in its assessment and management of investment applications, providing advice to the Treasurer on a case by case basis. </p>
<p>This process will maintain the treasurer’s discretion in deciding about investments deemed to affect national interest. Presumably, the Foreign Investment Review Board will refer applications to CIC if the intended investments fall within the broad definition of critical infrastructure.</p>
<p>The practical outcomes for investors depend on how this framework will be handled. If CIC is subordinate to FIRB, it would not be involved in applications that do not come before FIRB because of threshold limits or because of exemptions granted in free trade agreements. </p>
<p>If CIC can act on its own, it would depend on how wide or narrow a definition of critical infrastructure is used, whether specific infrastructure projects will have to be submitted for approval. </p>
<p>The new Critical Infrastructure Centre can play an important role in creating security and predictability for overseas investors. At the same time, it could create considerable obstacles if the approval process becomes politicised. The devil is both in the policy and the detail.</p><img src="https://counter.theconversation.com/content/71707/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hans Hendrischke has received funding from the Australia China Council. </span></em></p>The new Critical Infrastructure Centre might provide clarity on certain projects but it doesn’t resolve the ongoing debate on what approach the government should take with foreign investment.Hans Hendrischke, Professor of Chinese Business and Management, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/651552016-09-21T05:49:30Z2016-09-21T05:49:30ZFactCheck: Is 30% of Northern Territory farmland and 22% of Tasmanian farmland foreign-owned?<blockquote>
<p>There is no story of modesty here as the government is trying to frame it; 30% of the Northern Territory’s farmland is now foreign-owned, 22% of Tassie; that’s extraordinary. <strong>– Katter’s Australian Party federal MP Bob Katter, <a href="http://www.theaustralian.com.au/news/inquirer/farmland-foreign-ownership-register-gives-size-not-value/news-story/069ab738d196d20637f20f37b41fd0dc">interview</a>, September 10, 2016.</strong></p>
</blockquote>
<p>Foreign ownership of Australian agricultural land is not new. Foreign cattle barons <a href="http://www.theland.com.au/story/3377060/vestey-still-a-big-ag-player/">owned large areas</a> of land in the Australian outback throughout much of the 20th century. </p>
<p>However, foreign investors’ interest in large tracts of farmland, and the federal treasurer’s decision to <a href="https://theconversation.com/morrisons-ruling-on-kidman-and-co-sale-redefines-the-national-interest-test-58413">block the sale</a> of the <a href="http://www.kidman.com.au/">S. Kidman and Co cattle properties</a> to a Chinese buyer, have helped fuel public debate on the issue. </p>
<p>When the Australian Taxation Office (ATO) released a new <a href="https://firb.gov.au/files/2016/08/Register_of_foreign_ownership_of_agricultural_land.pdf">Agricultural Land Register</a> in early September, federal MP <a href="http://www.bobkatter.com.au/">Bob Katter</a> said that 30% of Northern Territory farmland and 22% of Tasmanian farmland is now foreign-owned. </p>
<p>Is that right? </p>
<h2>Checking the source</h2>
<p>The Conversation asked a spokesperson for Bob Katter for sources to support his assertion but did not hear back before deadline.</p>
<p>Nevertheless, it’s clear Katter was referring to the Australian Taxation Office’s new <a href="https://firb.gov.au/files/2016/08/Register_of_foreign_ownership_of_agricultural_land.pdf">Register of Foreign Ownership of Agricultural Land</a>.</p>
<p>The register lists investors who are <a href="https://www.legislation.gov.au/Details/C2015A00151">legally required</a> to report their interests in Australian agricultural land - whether that interest is freehold (meaning owned outright) or leasehold (meaning the land is rented).</p>
<p>Under rules announced in early 2015, investors must now notify the tax office within 30 days if they:</p>
<ul>
<li>Are a foreign person starting to hold agricultural land</li>
<li>Are a foreign person ceasing to hold agricultural land</li>
<li>Become a foreign person while holding agricultural land </li>
<li>Cease to be a foreign person while holding agricultural land</li>
<li>Are a foreign person holding land that becomes agricultural land or</li>
<li>Are a foreign person holding land that ceases to be agricultural land</li>
</ul>
<p>To build the register, the ATO collects investors’ names, contact details, country of incorporation and Australian Business Number or equivalent identifier. For individual investors, the ATO recorded their nationality, and passport and visa details. It also collects the land title details.</p>
<p>The ATO report covers registrations made between July 1, 2015 and June 30, 2016.</p>
<h2>What does the report show?</h2>
<p>The report shows that the largest amount of foreign agricultural land is held by investors from the United Kingdom, in control of 27.5 million hectares. Investors from the the United States (7.7 million hectares) hold the second largest amount of land, followed by the Netherlands (3.0 million hectares). Chinese investors hold the fifth largest amount of land, with about 1.5 million hectares.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/138562/original/image-20160921-12468-1wprtdj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/138562/original/image-20160921-12468-1wprtdj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=2176&fit=crop&dpr=1 600w, https://images.theconversation.com/files/138562/original/image-20160921-12468-1wprtdj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=2176&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/138562/original/image-20160921-12468-1wprtdj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=2176&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/138562/original/image-20160921-12468-1wprtdj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=2734&fit=crop&dpr=1 754w, https://images.theconversation.com/files/138562/original/image-20160921-12468-1wprtdj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=2734&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/138562/original/image-20160921-12468-1wprtdj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=2734&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://firb.gov.au/about/publication/register-of-foreign-ownership-of-agricultural-land/">The Conversation/Foreign Investment Review Board</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<h2>Leasing vs owning</h2>
<p>Bob Katter correctly quoted the percentages from the report, but his wording wasn’t quite accurate. He didn’t differentiate between foreign-owned and foreign-leased land. </p>
<p>To be fair, though, it’s not unusual for land to be leased for long periods of time – even as much as 99 years. So in practice, the difference between owning and leasing may be moot. The register doesn’t specify the length of the leases, saying only that:</p>
<blockquote>
<p>An interest in agricultural land includes a freehold interest or the right to occupy land under a lease (including a sublease or licence) where the term of the lease or licence (including any extension or renewal) is reasonably likely to exceed five years.</p>
</blockquote>
<p>What we do know is that the register shows that 30.1% of agricultural land in the Northern Territory and 21.8% of agricultural land in Tasmania is held by foreign interests.</p>
<p>As detailed in the chart below, the register shows that almost all of the foreign-held agricultural land in the Northern Territory is leased (but the register doesn’t say exactly how long the leases are). </p>
<p>In Tasmania, the numbers are very different. The register shows that of the farmland there that is held by foreigners, about 88% of it is freehold – meaning it is owned by a foreign interest.</p>
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<p>Much of the land identified in the report, particularly in the Northern Territory, is likely to be Crown leasehold. This means ultimate ownership rights remain with the Australian government, and lessees are required to manage the land in line with Australian property, agricultural and environmental laws.</p>
<h2>How does this compare to the past?</h2>
<p>We don’t know for sure, because the ATO register is the first of its kind.</p>
<p>The main previous source of official data on this issue was the Australian Bureau of Statistics’ (ABS) <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/7127.0Main+Features1Jun%202013?OpenDocument">Agricultural Land and Water Ownership Survey</a>, run in 2010 and 2013.</p>
<p>The <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/7127.0Jun%202013?OpenDocument#Data">2013 ABS survey</a> found 12.4% of Australian agricultural land had some level of foreign ownership, <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/7127.0Media%20Release1Jun%202013?opendocument&tabname=Summary&prodno=7127.0&issue=Jun%202013&num=&view=">saying</a> that:</p>
<blockquote>
<p>Of the 400 million hectares of agricultural land in Australia, nearly 50 million hectares had some level of foreign ownership; this is up by around 5 million hectares, an increase of 11% on the 2010 result.</p>
</blockquote>
<p>The ABS <a href="http://www.abs.gov.au/AUSSTATS/subscriber.nsf/log?openagent&71270do001_201306.xls&7127.0&Data%20Cubes&1E31DDCBBEDDE426CA257CFB00159A51&0&Jun%202013&19.06.2014&Latest">reported</a> 31.7% of Northern Territory farmland as foreign-owned in 2013. Unfortunately, the Tasmanian data from the 2013 survey was not published.</p>
<p>If we compare the ATO and ABS data, it appears that the percentage of foreign-held agricultural land in Australia increased slightly between 2013 and 2016. It also appears that the percentage of foreign-held farmland in the Northern Territory fell slightly.</p>
<p>But care must be taken when comparing the results from the ATO register and the ABS survey. The ABS survey presents estimates based on a sample of agricultural businesses listed in the ABS business register, and must be used with care because of <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/7127.0Explanatory%20Notes1Jun%202013?OpenDocument">potential sampling errors</a>.</p>
<p>It’s likely that the ATO register reflects a more complete record of foreign ownership and leasing than the earlier ABS data. </p>
<h2>What don’t we know about foreign control of agricultural land?</h2>
<p><a href="http://firb.gov.au/about/publication/register-of-foreign-ownership-of-agricultural-land/">Not all the information</a> collected by the ATO has been made public.</p>
<p>The publicly available report doesn’t show <em>who</em> owns the land – it doesn’t show what proportion of the foreign-held land is owned or leased by foreign governments or foreign government investors such as state-owned enterprises. </p>
<p>The register’s <a href="https://www.legislation.gov.au/Details/C2015A00151">guiding legislation</a> states that any publicly reported statistics must not identify investors, which limits what information the ATO can release for public perusal.</p>
<h2>Verdict</h2>
<p>Bob Katter got his figures right but his wording was not entirely accurate. It would have been more accurate for him to say that 30% of the Northern Territory’s farmland and about 22% of Tasmania’s farmland is now foreign-held – not foreign-“owned”.</p>
<p>In the Northern Territory, most of the foreign-held land is leased; in Tasmania most of that foreign-held land is owned outright by the foreign entity.</p>
<p>However, the register doesn’t include the length of land leases. For those tracts of land held under very long leases, the practical difference between owning and leasing may not be meaningful. <strong>– Erin Smith and Bill Pritchard.</strong></p>
<hr>
<h2>Review</h2>
<p>This is a sound FactCheck. I have independently confirmed all data and calculations used in the analysis. The authors are correct in confirming Katter’s claim, with the caveat that the term foreign “held” rather than “owned” should have been used.</p>
<p>Some further – and significant – qualifications of the ATO data can also be drawn out:</p>
<ol>
<li><p>While Tasmania and NT have relatively similar overall levels, their sectoral patterns are qualitatively different. As the <a href="https://firb.gov.au/files/2016/08/Register_of_foreign_ownership_of_agricultural_land.pdf">ATO data</a> show, most foreign-owned land in NT is for livestock production, while in Tasmania nearly all is in the forestry sector. </p></li>
<li><p>The legal differences between ownership and leasing are very slight in terms of assessing control and legal compliance matters. While the authors claim that leaseholders are required to meet “all Australian property, agricultural and environmental laws”, this is equally true of freeholders as well.</p></li>
<li><p>The ATO report appears not to adjust for the share of a property held by a foreign interest. For example, it does not differentiate between a farm that is 20% foreign-owned and one that is 100% foreign-owned. It is possible that some or even much of the “foreign held” land is actually a minority share in a joint-venture with Australian partners.</p></li>
<li><p>Significantly, the report only identifies the “place of incorporation” of the investor, rather than the nationality of the ultimate owner. Much of the British and American interests may well be held by legal persons of third countries, who have incorporated businesses (or bought shares in property trusts) in these jurisdictions. The dominance of the US and UK might therefore reflect a practice of incorporating agribusinesses in these countries, rather than ultimate ownership residing there. <strong>– Jeffrey Wilson</strong></p></li>
</ol>
<hr>
<p><div class="callout"> Have you ever seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p>
<hr>
<hr><img src="https://counter.theconversation.com/content/65155/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erin Smith's PhD research was supported by an Australian Research Council Linkage Grant.</span></em></p><p class="fine-print"><em><span>Bill Pritchard receives funding from the Australian Research Council, and has previously received funding from the Rural Industries Research and Development Corporation.
</span></em></p><p class="fine-print"><em><span>Jeffrey Wilson receives funding from the Australian Research Council for research into the politics of the Australia-China economic relationship (DP150100217). He is also a Research Fellow of the Perth USAsia Centre.</span></em></p>Katter’s Australian Party federal MP Bob Katter said 30% of the Northern Territory’s farmland and 22% of Tasmania’s farmland is foreign-owned. Is that true?Erin Smith, Post-doctoral Research Fellow, University of the Sunshine CoastBill Pritchard, Professor in Human Geography, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/650922016-09-08T20:06:08Z2016-09-08T20:06:08ZViewpoints: do foreigners have more freedom to invest in Australia than in almost any other country?<p><em>Prime Minister Malcolm Turnbull <a href="https://www.pm.gov.au/media/2016-09-04/doorstop">recently said</a>:</em></p>
<blockquote>
<p>“China has more freedom to invest in Australia, indeed all foreigners have more freedom to invest in Australia, than almost any other country.” </p>
</blockquote>
<p><em>But is this true? We asked two experts to discuss the evidence for and against this statement.</em></p>
<p><em>Gennadi Kazakevitch argues Turnbull is right given Australia’s ranking as a free and open market, while Jeffrey Wilson presents evidence to show Australia’s foreign investment regime has become much more closed in recent years.</em></p>
<hr>
<p><strong>Gennadi Kazakevitch:</strong></p>
<p>I think Mr Turnbull is right. </p>
<p>One measure to support this is the well-established <a href="http://www.heritage.org/index/">inter-country comparison of economic freedom</a> regularly published by the Heritage Foundation and Wall Street Journal. This measure also looks specifically at foreign investment freedom.</p>
<p>The economic freedom measure ranks countries according to rule of law, government size, regulatory efficiency and – of most relevance to this discussion – market openness. This includes trade freedom, investment freedom, and financial freedom.</p>
<p>In terms of general economic freedom, Australia ranked fifth behind Hong Kong, Singapore, New Zealand, and Switzerland in 2016. Within the <a href="http://www.heritage.org/index/open-markets">“Open Market” component</a> of the index, Australia scores 80 out 100 for investment freedom, putting us among the most free of the 200 countries ranked. </p>
<p>To score a perfect 100, according to the index, a country would have to have no constraints on the flow of investment capital. Individuals and firms would be allowed to move their resources into and out of specific activities, both internally and across the country’s borders, without restriction. </p>
<p>Points are deducted for different sorts of freedom “imperfections”. For Australia, one “imperfection” is the regime of <a href="http://www.australia.gov.au/directories/australia/firb">foreign investment review</a> which requires government approval of investment amounts above a particular level. But Australia’s current review regime does not discriminate against China or indeed any other country. </p>
<p><strong>Jeffrey Wilson:</strong></p>
<p>Australia’s foreign investment regime is more open than many other countries. However, it also remains the case that it has become much more closed in recent years.</p>
<p>Since taking office in September 2013, the Liberal-National Coalition government has imposed several new barriers to foreign investment coming into Australia. These policies include:</p>
<ul>
<li><p>The <a href="https://firb.gov.au/files/2015/09/FIRB_fact_sheet_business.pdf">introduction of fees</a> for FIRB applications, and an expansion of the range of <a href="https://firb.gov.au/files/2015/09/FIRB_fact_sheet_residential.pdf">sanctions and fines</a> applied to breaches.</p></li>
<li><p>Instituting new and very low <a href="https://firb.gov.au/files/2015/09/FIRB_fact_sheet_reform_overview.pdf">FIRB screening thresholds</a> for investment in the rural sector, including A$15 million for agricultural land and A$55 million for agribusinesses. The threshold had previously been A$255 million.</p></li>
<li><p>The establishment of a register of ownership of <a href="https://firb.gov.au/2016/02/foreign-owned-agricultural-land/">agricultural land</a>. While this is ostensibly designed to “increase transparency”, Deputy Prime Minister Barnaby Joyce explained the intention was to produce a map that would allow people to “<a href="http://www.aph.gov.au/Parliamentary_Business/Hansard/Hansard_Display?bid=chamber/hansardr/842ee7d9-89d4-4e4f-bc93-045b018bbeb2/&sid=0070">see who owns what</a>”.</p></li>
<li><p>The appointment of two new FIRB Members – David Irvine and David Peever – in order to add further <a href="https://theconversation.com/ex-asio-chief-to-beef-up-foreign-investment-review-boards-national-security-credentials-51861">“national security expertise”</a> to the board.</p></li>
<li><p>Extending the application of the Foreign Acquisitions and Takeovers Act (Cth, as amended) to <a href="https://firb.gov.au/2016/04/critical-asset-sales-now-reviewed/">infrastructure sales made by state governments</a>.</p></li>
</ul>
<p>The LNP Coalition government has also rejected a number of foreign investment applications on controversial grounds:</p>
<ul>
<li><p>Archer Daniels Midland (US) takeover bid for GrainCorp, 2013. The former head of the FIRB has claimed the deal was <a href="http://www.afr.com/news/policy/foreign-investment/graincorp-veto-was-political-says-firbchairman-brian-wilson-20140609-iwo2y">killed for political reasons</a>.</p></li>
<li><p>Dakang Holdings and Pengxin Group (China) bids for Kidman cattle properties, 2016. The bidders appear to have been rejected simply because <a href="https://theconversation.com/morrisons-ruling-on-kidman-and-co-sale-redefines-the-national-interest-test-58413">no Australian buyer made a competitive offer</a>.</p></li>
<li><p>China State Grid bid for Ausgrid in NSW privatisation program, 2016. Treasurer Scott Morrison <a href="http://www.afr.com/news/politics/scott-morrison-says-ausgrid-sale-to-chinese-contrary-to-the-national-interest-20160810-gqptc1">refused to explain the full reasons for the rejection</a>, citing national security and confidentiality concerns.</p></li>
</ul>
<p>Tellingly, in its entire six-year term in office, the Rudd/Gillard ALP governments rejected only a single large foreign investment application: A bid by the Shanghai Stock Exchange to acquire the ASX in 2011.</p>
<p>As a result of these policy changes and investment decisions, the Australian foreign investment regime is now less open than it has been for over 20 years.</p>
<p>The prime minister’s claim was about the freedom of Chinese companies to make foreign investments into Australia. Unfortunately, there is no quantifiable metric that measures the openness of a country’s foreign investment regime specifically. The Economic Freedom statistics Gennadi cites are instead a broader measure of economic openness and transparency. Thus, they cannot be used to evaluate the prime minister’s claim.</p>
<p><strong>Gennadi Kazakevitch:</strong></p>
<p>The investment freedom component of the economic freedom index is not a perfect measure, but it is sophisticated. It allows for comparing “apples with apples” based on eight <a href="http://www.heritage.org/index/investment-freedom">qualitative characteristics</a>: national treatment of foreign investments; transparency; policy implementation; restrictions on land ownership; sectoral restrictions; expropriation of investments without fair compensation; foreign exchange controls; and capital controls. For each of those characteristics, there is a breakdown into several levels of restrictions, rules or practices. </p>
<p>It is true that in the most resent years (2012-2016) the investment freedom score for Australia has decreased from 83.7 to 80. But it is also true that Australia remains within a cluster of free economies.</p>
<p>It would be easy to attribute the decline in Australia’s score to the recent changes to regulation rules and practices. However, those changes have not critically affected the investment freedom index for Australia, nor are they discriminatory against a particular country. Therefore, Mr Turnbull’s statement is quite justified. </p>
<p>The six years of Rudd/Gillard ALP governments Jeffrey is referring to was business as usual as far as foreign investment was concerned. However, it is not business as usual any anymore. The most recent cases, such as the Port of Darwin, the Kidman station, and the Ausgrid power transmission business in NSW, have alerted the government and public to national security issues, and rightfully so. </p>
<p>As I proposed in my <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Foreign_Investment_Review/Submissions">submission</a> to the Senate inquiry on the foreign investment review framework, the world has changed dramatically since the current regulation was established in 1975. </p>
<p>Until the late 1980s, Australia’s investing partners were mostly persons and companies from developed market economies with similar values and similar foreign investment perceptions of independent entrepreneurship. Economic transition in communist countries, market reforms in one-party controlled countries, and emerging developing market economies have created a variety of economic systems with very different sovereign involvement in running economies and companies. Therefore a “foreign interest independence test” and security risk assessment should be done that takes into account which country the foreign investor is from. </p>
<p>If Australia eventually goes down this path, freedom of investment might be further compromised. If so it will arguably be for a good reason.</p>
<p><strong>Jeffrey Wilson:</strong></p>
<p>It is certainly true Australia’s foreign investment partners have changed many times through history. Prior to the 1950s the main foreign investor was Great Britain, which remains a major investor to this date. But progressive waves of new investors have also arrived: America during the 1960s; Japan in the 1970s; Singapore and Hong Kong in the 1990s; and more recently Chinese investors since 2005.</p>
<p>The arrival of each of these groups has presented Australia with distinct political tension. American investors faced accusations of “neo-imperialism” and threats to Australia’s independence in the world. Japanese investors faced considerable xenophobia, particularly as a result of “war memories”. And today, we are dealing with the fact that many Chinese investors are state-owned corporations, which pose their own unique political and regulatory challenges.</p>
<p>However, these are arguably issues to be managed rather than reasons to reject foreign investment. Australia is a small open economy, which depends on foreign investment to bring in the capital, technology, skills and marketing channels critical for 21st century industries. </p>
<p>In each previous wave, Australian governments have had to devise novel solutions for how to remain open to foreign investment, while managing their distinct political sensitivities. This has been successful in previous years, and there is no reason it should not be possible with Chinese investors today.</p><img src="https://counter.theconversation.com/content/65092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeffrey Wilson receives funding from the Australian Research Council (DP150100217) to research the politics of China-Australian economic relations; and is currently a Research Fellow of the Perth USAsia Centre. </span></em></p><p class="fine-print"><em><span>Gennadi Kazakevitch does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Evidence suggests our foreign investment policy has changed over time, but to what end?Jeffrey Wilson, Fellow of the Asia Research Centre, Murdoch UniversityGennadi Kazakevitch, Deputy Head, Department of Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/638642016-08-12T07:28:28Z2016-08-12T07:28:28ZAusgrid decision justified but more transparency needed<p>Treasurer Scott Morrison has decided <a href="https://theconversation.com/morrison-blocks-chinese-bids-for-nsw-power-grid-63821">not to approve a controlling stake</a> for either of two Chinese bidders in Ausgrid, the electricity network in New South Wales. He has cited national security concerns but has refused to be drawn further on the reasons. </p>
<p>In explaining his rejection of the bids, Morrison said: “The only person who’s security-cleared in this room to be able to hear the answer to that question is me.” </p>
<p>This position has been dictated by the government’s lack of candour and clarity about the threat faced from China in cyber space. Control of the NSW electricity grid gives its operators the ability to shut down much of Australia’s internet, including for many national security purposes. But Morrison appears to feel he can’t say that and this should be a secret.</p>
<p>A quick reading of the international media, the <a href="http://www.uscc.gov/Hearings/hearing-chinese-intelligence-services-and-espionage-operations">United States Congressional record</a>, or press <a href="https://www.dni.gov/index.php/newsroom/press-releases/215-press-releases-2016/1405-new-video-highlights-foreign-risks-to-private-sector-supply-chains">releases from the intelligence agencies</a> tells us more about this subject than anything the Australian government has ever said in public. </p>
<p>From President Obama down, the United States makes no secret that China has targeted the US electric grid in cyber space, a view made plain without naming China in his <a href="https://www.whitehouse.gov/the-press-office/2013/02/12/remarks-president-state-union-address">2013 State of the Union address</a>:</p>
<blockquote>
<p>our enemies are also seeking the ability to sabotage our power grid, our financial institutions, our air traffic control systems. </p>
</blockquote>
<p>The US Department of Energy <a href="http://energy.gov/oe/services/cybersecurity">has identified cyber attacks as a major threat</a> to the reliability of energy supply in the country.</p>
<p>China, though not named in public by the government, is one of the major sources of <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22publications%2Ftabledpapers%2Fd6a67da5-ecfc-4307-a29f-b8be09890967%22;src1=sm1">cyber espionage that threatens Australia</a>. And it engages in massive cyber surveillance of its own people. </p>
<p>However China has important economic interests in Australia. And, <a href="http://news.xinhuanet.com/english/2016-06/01/c_135402671.htm">as President Xi Jinping said in June 2016</a>, China also remains technologically backward compared with the United States and its allies. For these reasons, we can conclude as the Australian government has, that China has no inclination to mount a devastating attack on Australia in cyber space except in a major war. This assessment was contained in <a href="https://www.acsc.gov.au/publications/ACSC_Threat_Report_2015.pdf">an Australian government threat report in 2015</a>. </p>
<p>The report said such an attack on Australia was not likely outside of period of significantly heightened tension of escalation to a major conflict, though it did not name China. Australia assesses such a war with China to be highly unlikely, noting in the 2016 Defence White Paper that a “military attack” on Australia is “no more than a remote possibility”. </p>
<p>However there is wide confusion in Australia about how the China factor shapes or should shape government review of foreign investments. On the one hand, the government repeatedly suggests China is a threat to our trade in the South China Sea and that it is a threat to global rule of law. On July 13 2016, for instance, <a href="http://www.abc.net.au/worldtoday/content/2016/s4499613.htm">Foreign Minister Julie Bishop said</a> the United Nation’s Convention on the Law of the Sea is: “a foundation to maritime trade and commerce globally and so to ignore it would be a serious international transgression”.</p>
<p>In 2012 under Labor’s Julia Gillard, and then again in 2013, under the Coalition, Australia also prevented Chinese-owned Huawei from bidding on contracts for the national broadband network <a href="https://www.aei.org/publication/australia-leaves-huawei-standing-at-the-altar/">because of “national security concerns”</a>. This is “diplomatic speak” for the company’s known or assumed links with Chinese cyber intelligence activities. </p>
<p>On the other hand, the Australian government has signed a free trade agreement with China that opens the door to large scale investment from the country. The government also says that China is a worthwhile and reliable partner (listed among “key partners” in the <a href="http://www.defence.gov.au/WhitePaper/">2016 Defence White Paper</a>) in solving global and region security problems, including cyber security, disaster relief and humanitarian assistance. </p>
<p>Australia participates in joint exercises between the Chinese military personnel and the Australian Defence Force, <a href="http://www.abc.net.au/news/2015-09-12/china,-us,-aussies-nt-training-kowari/6770004">extending even to small exercises on Australian territory as recently as 2015</a>. The Australian government also allowed Alcatel Lucent to be a supplier for the national broadband network when some of the components parts for NBN are sourced from Chinese manufacturers a short distance away from a Huawei plant near Shanghai.</p>
<p>These competing impulses were visible in 2015 when Australia went against the express wishes of the US government by approving a Chinese corporation’s bid to lease wharves in Darwin harbour, a move which <a href="http://thediplomat.com/2015/11/yes-a-chinese-company-leased-darwin-port-so-what/">I see as quite reasonable</a> and not inconsistent with our national security interests.</p>
<p>The possible negative impact on Australian security of China’s leasing two wharves is very different from that of leasing electricity assets in Australian biggest state economy, New South Wales. The Australian government apparently agrees. </p>
<p>But as Morrison implied, the reasons are “too secret” for the Australian public to know. I support Morrison’s decision, but there is a need for a more mature and open conversation between the government and the country about why this decision was made.</p><img src="https://counter.theconversation.com/content/63864/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Greg Austin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There is a real threat from Chinese ownership of electricity networks such as Ausgrid. The Treasurer needs to be more frank about these threats.Greg Austin, Professor, Australian Centre for Cyber Security, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/637572016-08-11T07:27:52Z2016-08-11T07:27:52ZChanging state-owned enterprises provide less cause for Chinese investment fears<p>China’s state-owned enterprises are becoming increasingly privatised, as government involvement shifts from full control to economic guidance. This means these firms should be treated like any other foreign investor when it comes to buying Australian assets. </p>
<p>Treasurer Scott Morrison <a href="https://theconversation.com/morrison-blocks-chinese-bids-for-nsw-power-grid-63821">recently rejected the bids</a> by both state-owned State Grid Corporation of China and private Hong Kong firm Cheung Kong Infrastructure for the lease of 50.4% of Ausgrid, the New South Wales electricity distribution network, on the grounds of national security.</p>
<p>Concerns about Chinese investment usually centre around the role of the Chinese government and its noncommercial objectives. China’s government does maintain extensive influence over its market economy, through both indirect policy measures as well as direct participation via state-owned enterprises. </p>
<p>However <a href="http://ser.oxfordjournals.org/content/11/2/265.short">political economists</a> argue the Chinese state is more developmental than predatory. This is because Chinese foreign investment policies have changed from a restricting and regulating approach, through strict approval mechanisms and foreign exchange allocation, towards a more facilitating approach.</p>
<p>The Chinese government provides general guidance, government services, and financial incentives to align commercial decisions of firms with the strategic planning of the country. One example of this is <a href="https://theconversation.com/chinas-five-year-economic-plan-is-rich-with-symbolism-50001">the one-belt-one-road strategy</a> aimed at building economic cooperation and trade links with a number of countries, including Australia. </p>
<p>The vast majority of Chinese state-owned enterprises have upgraded their internal governance and senior management teams including appointing external independent directors or foreign senior managers. Many of these enterprises have taken steps to introduce mixed private ownership to improve managerial autonomy. </p>
<p>According to <a href="http://link.springer.com/article/10.1007%2Fs10490-015-9436-x">research</a>, by 2013, more than 52% of central state-owned enterprises have transitioned into mixed-ownership enterprises. For example, China’s biggest oil producer, PetroChina Company Limited, is the the listed arm of state-owned China National Petroleum Corporation (CNPC), now publicly traded on <a href="http://www.sse.com.cn/assortment/stock/list/info/company/index.shtml?COMPANY_CODE=601857">Shanghai</a>, <a href="https://www.hkex.com.hk/chi/invest/company/quote_page_c.asp?WidCoID=0857">Hong Kong</a>, and <a href="https://www.nyse.com/quote/XNYS:PTR">New York</a> Stock Exchanges. </p>
<p>The role of Chinese government in foreign investment alternates between that of a shareholder, who wants to invest in the safest and most profitable foreign assets to that of an economic coordinator, using investment as a channel of upgrading the country’s industry infrastructure. </p>
<h2>China’s changing investment in Australia</h2>
<p>China as an emerging economy has been a popular destination of foreign direct investment for decades since its <a href="http://www.jstor.org/stable/4540439">“open-door” policy in the 1980s</a>. Its participation in the global economy as an outward investor is a relatively recent phenomenon, with substantial growth only after China’s entry into the World Trade Organisation in 2001. The growth has however been trending upwards consistently in the recent years despite the global financial crisis. </p>
<p>The driving forces, motivations, and the resultant patterns of Chinese investment overseas have evolved over time. Starting in the early 1990s, Chinese investment was primarily concentrated in the natural resource sector, directly mandated by the state to compensate for the <a href="http://www.jstor.org/stable/4540439">lack of raw material and energy supply domestically</a>. </p>
<p>Chinese investment in manufacturing overseas picked up steam in the following years, partially in response to the rising labour costs and market competition at home that motivated producers to seek cost efficiency and market potentials in neighbouring emerging economies. It was also partly aiming to catch up with global market leaders by tapping into foreign markets for high-value brand assets, technological competencies, and other intangibles. </p>
<p>More recent years have seen Chinese <a href="http://www.e-elgar.com/shop/multinational-enterprises-and-the-global-economy-second-edition">foreign investment diversifying</a> into the service sector, such as commercial services, mining services, logistics, and utility infrastructures, reflecting an effort by Chinese investors to move up the global value chain.</p>
<h2>A level playing field in assessment</h2>
<p>The notion that Western economies need to have foreign investment regulations (often China-specific) to ensure national security is disputed in <a href="http://link.springer.com/article/10.1007/s10490-008-9112-5">academic research</a>.</p>
<p>Existing regulations for foreign direct investment in advanced economies are already sufficient for safeguarding national interests. The sale of Ausgrid should have been evaluated based on the existing foreign investment regulations only rather than relying on the decision of the Treasurer, made on a case by case basis. </p>
<p>State-owned enterprises should disclosure the details of asset sales, not only financial details, but also the key contractual arrangements with regard to the ownership and operation of assets. Fair or unfair, Chinese state-owned enterprises are in a disadvantaged position in terms of their legitimacy perceived by host country stakeholders.</p>
<p>According to <a href="http://link.springer.com/article/10.1057/jibs.2012.1">research</a>, these sorts of enterprises should pursue shared ownership arrangements, such as a join venture structure, which can help these firms mitigate formal and informal institutional barriers in the host country. </p>
<p>Adhering to corporate governance practices and information disclosure norms of the host country can deliver greater transparency against sinophobia. Non-market strategies, such as networking with social and political leaders, as well as corporate social responsibility initiatives, can also help Chinese investors build local legitimacy in host countries.</p><img src="https://counter.theconversation.com/content/63757/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lin Cui receives funding from the ARC. </span></em></p>The Chinese government is changing its role in state-owned enterprises and there’s less cause for concern about the investment bids of these firms in Australia.Lin Cui, Associate Professor School of Management, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/587162016-05-02T11:07:50Z2016-05-02T11:07:50ZKidman & Co and Huawei decisions mean mixed messages for Chinese investors<p>It is hard to think of an issue more likely to antagonise and enflame the wider Australian public than Chinese involvement in local agricultural land. This is despite most only holding a hazy notion of either how agriculture as a sector works, or the mechanisms and reality of foreign direct investment. This area is laden with symbolism, whatever (and often despite) the underlying facts.</p>
<p>The tone of Treasurer Scott Morrison’s “<a href="http://sjm.ministers.treasury.gov.au/media-release/050-2016/">preliminary decision” on the sale of the huge S. Kidman & Co. estate</a> to a predominantly Chinese-owned consortium, suggests it is much more likely the deal will not happen, even though the proposed buyers have until tomorrow to lodge an appeal.</p>
<p>Turning its back on investment from a source with the potential and importance of China would be a huge strategic decision for Australia. The Turnbull government may argue this is not what they have done with the Kidman decision. </p>
<p>But it certainly will be interpreted this way by some potential investors from China. It grates with the friendly messages being put out by, for instance, the large trade delegation that visited China in April. It threatens to show that this is all fluffy rhetoric and that, in many ways, as with the <a href="https://theconversation.com/government-ban-on-chinese-tech-giant-gets-us-support-10062">Huawei decision</a> in 2012, Australia holds a hostile view to Chinese investment. </p>
<p>Land, particularly agricultural land, occupies an almost spiritual position in the Australian psyche. And the Kidman sale involved a significant chunk of it. The largest private estate in the country, it constitutes 1.3% of the whole Australian landmass. Even with Chinese investment becoming better known and increasing over the last ten years, this particular deal, at any time, would have been a contentious one. </p>
<p>The current political leadership in Canberra has shown they are as unwilling to break with the mould of the past and relinquish caution as their predecessors. Chinese President Xi Jinping may well have invited Australians to use “imagination and vision” over the bilateral relationship when speaking in Australian in late 2014, but his audience evidently hasn’t taken those words as having any application to an issue like this.</p>
<p>Chinese investment even outside of land has raised questions of just how closely the investors are linked to the Chinese state back home, what their real agenda is, and how much of a security issue they raise. A recent example was the Gillard government’s decision to prevent <a href="https://theconversation.com/huawei-and-the-nbn-beware-the-long-arm-of-the-ccp-6158">Chinese telecommunications giant Huawei</a> from bidding for the National Broadband Network. </p>
<p>Land is about the most tangible thing there is to invest in. As Mark Twain once urged: “Invest in Land; they’ve stopped making it!” Any foreign purchase of land is often interpreted as an outsider buying a part of a country in a way that is fundamentally different from taking control of other parts of its economy. This is despite the fact that the latter may involve ceding far more influence than the former. Land is just so solid. Investment in it has a visibility and concreteness it enjoys in few other areas.</p>
<p>Morrison hasn’t spelled out in any detail the national security issues he may have based his preliminary judgement on. Regardless, there are two problems the Turnbull government now faces. The first is that despite much effort, no local potential replacement investor has been forthcoming. This is despite hopes <a href="http://www.theaustralian.com.au/national-affairs/foreign-affairs/barnaby-joyce-draws-line-in-the-soil-on-foreign-farm-buyers/news-story/93125892ab2e02ff7951a9fc10d20e65">expressed by Deputy Prime Minister Barnaby Joyce</a> that one will eventually appear. If there were a queue of attractive counter bids, then the government would be in an easier position. In saying no to Dakang, they might be pushing away the only group at the moment that has the resources, desire and ability to buy an estate of this size.</p>
<p>And secondly, there is the larger political cost. For all the travails it is going through at the moment, China remains a global economic powerhouse. And an increasingly important part of that story is its outward investments. <a href="http://www.bakermckenzie.com/news/Chinese-FDI-hits-40-billion-in-2015-for-Europe-and-North-America-03-10-2016/">Chinese investment into the European Union</a> has soared in the last 12 months. Australia has been a recipient for much of this global flow of outward money for several years now. </p>
<p>The problem is that for Chinese investors, the message they are getting from Australia is shifting from ambiguous (we like your investment, but only in certain areas) to ominously hostile. The Kidman decision reinforces this sense of hardening opposition to Chinese large scale investment.</p>
<p>If that does prove to be the way this decision is interpreted, and Chinese investors start to fall away, there currently appears to be no alternative source of new investment waiting in the wings.</p><img src="https://counter.theconversation.com/content/58716/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kerry Brown does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The message Chinese investors are getting from Australia is shifting from ambiguous to ominously hostile.Kerry Brown, Professor of Chinese Politics; Director, Lau China Institute, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/584132016-04-29T07:02:06Z2016-04-29T07:02:06ZMorrison’s ruling on Kidman & Co sale redefines the national interest test<p>In making a preliminary decision on the sale of S. Kidman & Co to a Chinese consortium, the Treasurer Scott Morrison has shed some light on what the government defines as being in the “national interest”. He describes the Chinese bid as being <a href="http://sjm.ministers.treasury.gov.au/media-release/050-2016/?utm_source=wysija&utm_medium=email&utm_campaign=Media+Release+-+Preliminary+decision+of+foreign+investment+application+for+purchase+of+S.+Kidman+%26+Co+Limited">contrary to Australia’s national interest</a>, because:</p>
<blockquote>
<p>“the form in which the Kidman portfolio has been offered as a single aggregated asset, has rendered it difficult for Australian bidders to be able to make a competitive bid.”</p>
</blockquote>
<p>The decision was rationalised not on any of the pre-existing national interest test provisions, but rather the fact that Australian companies had struggled to make a competitive bid.</p>
<p>By doing this, the Treasurer has articulated a new policy objective, not previously part of the national interest test: that an Australian firm should have a substantial stake in the bidding process.</p>
<h2>How is national interest defined?</h2>
<p>The consortium bid for Kidman, the largest private land holding in Australia, was subject to approval by the Treasurer and the Foreign Investment Review Board (FIRB). All investments which are screened by the FIRB are subject to a “national interest test”.</p>
<p>The specific content of this test is not legislatively defined, and is decided on a case-by-case basis according to the judgement of the Treasurer. However, the FIRB does provide investors a <a href="http://firb.tspace.gov.au/files/2015/09/Australias_Foreign_Investment_Policy_December_2015_v2.pdf">set of ‘guidelines’</a>, which outline five factors that are usually considered. These include: national security, competition policy, other Australian government policies and regulations (including environment and tax), the impact on the economy and community as a whole and the character of the investor.</p>
<p>There are also an additional set of six guidelines for the agricultural sector, which cover issues relevant for this industry such as land access, biodiversity, productivity and employment.</p>
<p>These guidelines were most recently re-issued in December 2015. However, they have remained relatively unchanged since the last major revision by the Rudd government in 2008, which was made in the wake of <a href="http://www.smh.com.au/business/chinese-keen-for-slice-of-bhp-20080610-2ol9.html">Chinalco’s intervention into a proposed BHP-Rio Tinto takeover</a>. Significantly, none of these provisions express a requirement for local ownership in the agricultural sector.</p>
<p>In recent years, the overwhelming majority of investment applications assessed by the FIRB have passed the national interest test. In the relatively rare cases of rejection, it has consistently been for one of the above reasons. Examples include the ADM bid for GrainCorp <a href="http://jbh.ministers.treasury.gov.au/media-release/026-2013/">(rejected in 2013 on competition policy grounds)</a>, and the Singapore Stock Exchange’s attempted merger with the ASX <a href="http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2011/030.htm&pageID=003&min=wms&Year=&DocType">(rejected in 2011 on financial regulatory grounds)</a>.</p>
<p>However, Scott Morrison’s preliminary decision to oppose Dakang Australia’s bid for S. Kidman and Co. fundamentally reinterprets these guidelines. Despite the fact the sale process was found to be open and commercially sound, it has been rejected.</p>
<p>The clear message is that sale process now needs to be re-run – with the assets disaggregated – to ensure less-competitive local companies can win at least some of the assets.</p>
<p>This is akin to moving the goalposts when the outcome is not what you desired. It is also inherently protectionist. It rewards Australian firms who will now get a second chance to pick up a part of the Kidman portfolio.</p>
<p>In essence, the Kidman decision is a de facto introduction of a local ownership policy for agricultural land. Outside of sensitive sectors (such as media), Australia has not maintained any formal local ownership rules since 1992. This makes the Kidman rejection was of the most significant foreign investment decisions made in several decades.</p>
<p>It is clear that the Treasurer sees Australian bidders as crucial to ensuring national interests are looked after, what is still not clear is definition of “foreign interest.”</p>
<h2>How is foreign interest defined?</h2>
<p>The Kidman decision comes as a senate inquiry examining the <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Foreign_Investment_Review">effectiveness of the Foreign Investment Review Framework</a>finishes. The <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Foreign_Investment_Review/Report">final</a> and <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Foreign_Investment_Review/Supplementary_Report">supplementary</a> reports from the inquiry point to a lack of consistency and transparency of foreign investment decision making between the states and the commonwealth, particularly regarding sales of agricultural land to foreign interest.</p>
<p>At the moment <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/faata1975355/">the Foreign Acquisition and Takeovers Act 1975</a> deals with any foreign people or corporations that are seeking to acquire or to merge with a whole or a part of an Australian business. If a transaction exceeds a certain limit (different limits are applied to different industries) it’s reviewed by the <a href="https://firb.gov.au">Foreign Investment Review Board</a>(FIRB). </p>
<p>However this Act doesn’t have a definition of foreign interest. This is crucial because since 1975, the picture of the world has dramatically changed. </p>
<p>According to ABS, until late 1980s, Australia’s investing partners were <a href="https://books.google.com.au/books?id=euj9fcpbL0oC&pg=PA784&lpg=PA784&dq=foreign+investments+in+Australia+by+country+1985&source=bl&ots=jMwMGqRzyd&sig=APAFASDFFi131iA9Ky6w0E3Cwhk&hl=en&sa=X&ved=0ahUKEwiYsZKKy7LMAhVR5WMKHeBwBS0Q6AEIPzAE#v=onepage&q=foreign%20investments%20in%20Australia%20by%20country%201985&f=false">mostly persons and companies from developed market economies</a>. Therefore, there could be little concern that Australia’s foreign counterparts were different to investing domestic entities. </p>
<p>These companies were either seeking profit or also seeking company control as direct investors and usually didn’t report to or take directives from any government on commercial decisions. </p>
<p>In late 1980s, new market economies emerged in place of both former communist countries, and reforming and rapidly growing third world nations. In some of those nations, such as most counties that replaced the former USSR, as well as in China, different forms of mixed private and public ownership in companies have been established with different roles and powers of governments in companies’ decision making. </p>
<p>Despite of large scale privatisation, state and mixed ownership is still important and increasingly so <a href="https://www.oecd.org/corporate/ca/corporategovernanceprinciples/42576825.pdf">in Russia</a>. By 2014 <a href="http://dfat.gov.au/trade/topics/investment/Pages/which-countries-invest-in-australia.aspx">China has become the 7th largest foreign investor</a> in Australia, ahead of such countries as Germany, New Zealand, France. Meanwhile, <a href="http://www.economist.com/node/18928526">ownership is rarely straight forward in China</a>; and the countries’ 500 global companies are mostly <a href="http://fortune.com/2015/07/22/china-global-500-government-owned/">state-owned</a>. </p>
<p>However, the 1975 Act does not require that the FIRB to look into the proportion of foreign government’s ownership in a company; involvement of a foreign government in company’s decision making (particularly, through government’s representation on the board of directors); government’s orders that limit company’s commercial independence; or compliance with legislation beyond that which normally regulates commercial activities. </p>
<p>This issue could be addressed by including foreign interest independence test into the FIRB process. Such a test needs to deal with the magnitude of sovereign ownership and sovereign involvement in foreign company’s decision making. </p>
<p>The idea of such a test was suggested one <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Foreign_Investment_Review/Submissions">one of the submissions</a> to the review, but did not find it’s way to the report.</p><img src="https://counter.theconversation.com/content/58413/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeffrey Wilson receives funding from the Australian Research Council. He is also a consultant Research Fellow with the Perth USAsia Centre, a a non-partisan, not-for-profit think tank.</span></em></p><p class="fine-print"><em><span>Gennadi Kazakevitch does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Treasurer Scott Morrison’s reason for rejecting the Chinese bid offers a radically different definition of ‘national interest’ but doesn’t say much about how foreign interests are defined.Gennadi Kazakevitch, Deputy Head, Department of Economics, Monash UniversityJeffrey Wilson, Fellow of the Asia Research Centre, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/474042015-09-13T20:18:03Z2015-09-13T20:18:03ZChinese investment in residential real estate amounts to just 2%<p>The <a href="http://www.theaustralian.com.au/business/economics/chinas-6bn-thirst-for-apartments-fuels-economy/story-e6frg926-1227518626439">scale</a> of Chinese investment in the Australian residential property market continues to polarise public opinion. Chinese buyers are often blamed for driving up house prices in Australia and causing the current <a href="https://theconversation.com/au/topics/housing-affordability">affordability</a> crisis.</p>
<p>However, Chinese offshore purchases are surprisingly low. Based on Foreign Investment Review Board (FIRB) approval figures, ABS data, and our own data on actual Chinese investment in commercial real estate, we estimate Chinese residential real estate investment totals around 2% of all residential real estate transactions in Australia. We define “Chinese investors” in legal terms as those who require FIRB approval for their residential property purchases.</p>
<p>This figure is obtained by dividing estimated Chinese investment volume in residential real estate by the total volume of residential real estate transactions. For the financial year 2013-14, based on FIRB statistics, we estimate residential property investment by Chinese investors was A$5.8 billion. This is consistent with KPMG/University of Sydney (USYD) data on actual Chinese investment in Australia.</p>
<p>According to the Australian Bureau of Statistics, the total sales value of residential property in Australia for the same period was A$258 billion. </p>
<h2>Residential vs commercial</h2>
<p>We estimate residential property investment made by Chinese investors is A$5.8 billion for the financial year 2013-14. This figure is an estimate because FIRB data for each country only list the total value of approved real estate investment without differentiating between commercial and residential real estate. </p>
<p>The split between commercial and residential real estate is only available for the overall investment approved for all foreign countries. For 2013-14, the ratio between commercial and residential real estate was 53 to 47. Applying this ratio to the total approved volume of Chinese real estate investment of A$12.4 billion, we obtain an estimate of A$5.8 billion for residential investment and A$6.6 billion for commercial real estate investment.</p>
<p>It is important to keep in mind that FIRB approval figures are generally higher than actual investment figures. For commercial real estate investment the KPMG/USYD database shows that actual investment volume was A$4.4 billion in the 2014 calendar year, which is lower than the FIRB approval figures.</p>
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<h2>Total sales value of residential property</h2>
<p>For the financial year 2013-14, the ABS recorded 482,720 property transfers. The average price of residential properties in Australia increased by 6.3% from A$516,300 in the September 2013 quarter to 548,900 in the June 2014 quarter. Using ABS quarterly Residential Property Price Indexes data, we obtain a total sales value of residential property in Australia of A$258 billion.</p>
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<h2>The scale of Chinese investment</h2>
<p>Based on FIRB data, overall foreign investment accounts for 13.4% percent of total residential real estate investment, while Chinese residential investment in the Australian real estate market lies near the 2% mark.</p>
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<p>These estimates are aligned with the <a href="http://business.nab.com.au/wp-content/uploads/2015/01/nab-quarterly-australian-residential-property-survey-q4-2014-pdf.pdf">NAB Quarterly</a> Australian Residential Property Surveys. These show demand by all foreign buyers fluctuating between 12.5% and 10.2% for new properties and 8% and 7.2% for established properties for FY 2013-14.</p>
<p>With declining economic growth and an increasingly weakening Australian dollar, the issue of foreign investment in the Australian residential real estate market will not subside in the foreseeable future.</p>
<p>Before suggesting Chinese investors are a major factor behind declining affordability, commentators should at least consider the data.</p>
<p>Information on Chinese investment in Australian real estate relies on data sets which are compiled for different purposes and produce a variety of different and sometimes incompatible results. The House of Representatives Standing Committee on Economics in its 2014 <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House/Economics/Foreign_investment_in_real_estate/Tabled_Reports">Report on Foreign Investment in Residential Real Estate</a> highlights the discrepancy between official FIRB and ABS data and concludes that detailed information on Chinese investment in Australia’s residential property markets is not available.</p>
<p>But based on the data we do have, Chinese investment in Australian residential real estate accounts for just 2% of the total real estate sales volume. Chinese applicants for residential real estate investment approval account for one sixth or 16% of potential foreign real estate investors. This suggests the housing and housing affordability crisis will not be solved by a clamp-down on one group of buyers.</p><img src="https://counter.theconversation.com/content/47404/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The housing and housing affordability crisis will not be solved by a clamp-down on one group of buyers.Hans Hendrischke, Professor of Chinese Business and Management, University of SydneyWei Li, Lecturer, Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/380312015-02-26T05:51:18Z2015-02-26T05:51:18ZForeign investment changes should expose the rorters<figure><img src="https://images.theconversation.com/files/73153/original/image-20150226-1819-xfmrdb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Changes to Australia's foreign investment regime are supposed to strengthen protections in the residential market.</span> <span class="attribution"><span class="source">AAP/Paul Miller</span></span></figcaption></figure><p>The federal government’s proposal to charge foreign investors a minimum of A$5000 on residential property investment applications has been couched in terms of <a href="http://jbh.ministers.treasury.gov.au/transcript/033-2015/">ensuring the integrity Australia’s foreign investment regime</a>. </p>
<p>The fees, announced by treasurer Joe Hockey and Tony Abbott while touring a house for sale in Sydney this week, add to the already-revealed <a href="http://www.pm.gov.au/media/2015-02-11/government-tightens-rules-foreign-purchases-agricultural-land">changes around agriculture land ownership</a> that have included reducing the purchase threshold for Foreign Investment Review Board (FIRB) oversight from A$252 million to A$15 million, and an ATO “stocktake” of foreign-owned agricultural land.</p>
<p>The Treasury has released an <a href="http://www.treasury.gov.au/%7E/media/Treasury/Consultations%20and%20Reviews/Consultations/2015/Strengthening%20Australias%20foreign%20investment%20framework/Key%20Documents/PDF/Strengthening%20Australias%20foreign%20investment%20framework.ashx">options paper</a> seeking consultation on the proposed changes to residential property investments by 20 March 2015. This is a short timeline for such consultation.</p>
<h2>Introduction of fees</h2>
<p>Introducing fees for the first time for foreign investment applications to the FIRB is intended to support administration on a user-pays basis. For residential property and agricultural land, the fee would be up to $5000 for each application and increase to $10,000 for every additional $1 million. </p>
<p>For other business, including agribusiness, the initial fee would be $25,000, and $100,000 would be charged where “the value of the target’s assets are greater than one billion dollars”. This includes “sensitive sectors” such as the media, telecommunications, transport, defence and those related to it, as well as “uranium, plutonium or the operation of nuclear facilities”. </p>
<p>No evaluation appears to have taken place in order to establish whether the introduction of fees would act as a deterrent to application, or change the pattern of investment across sectors. In these terms, it is not clear what the intentions of the government are, given that the criteria for evaluation remain open as they are currently. </p>
<p>For applications of large value, the fees proposed remain small. Nonetheless it incurs costs to foreign investors which domestic investors do not bear and it’s hard not to read a subtext of xenophobia, particularly around the level of Chinese investment, a fear which is not largely borne out <a href="https://theconversation.com/dont-be-misled-on-chinese-foreign-investment-read-the-facts-25316">by the evidence</a>.</p>
<p>The fee is higher than that recommended by last year’s Federal Parliamentary Committee into affordable housing and foreign investment, which suggested a “<a href="http://www.aph.gov.au/%7E/media/02%20Parliamentary%20Business/24%20Committees/243%20Reps%20Committees/Economics/44p/Real%20Estate/Report/Report%20Final.pdf">modest administration fee</a>” of up to $1500, which it said would generate revenue of $158.7 million over four years.</p>
<p>I conservatively estimate the revenue obtained from charging the residential fee - based on <a href="http://www.firb.gov.au/content/Publications/AnnualReports/2012-2013/index.asp">approval numbers</a>, and making the (possibly highly optimistic) assumption that applications would continue to increase above the nearly 13,000 in 2012-13 - would be more than $63 million per year. It is not clear how the expected revenue from the new fees <a href="http://www.abc.net.au/news/2015-02-25/foreign-real-estate-buyers-to-pay-fees-up-to-10000-dollars/6260748">as given by the government</a> of $200 million a year was arrived at. </p>
<p>Still, the government expects to use this to cover the costs of the ATO unit. This is still not large compared with the total value of $135.7 billion for foreign investment approvals in 2012-13. </p>
<h2>Extending the role of the ATO</h2>
<p>The government has announced a specialist unit within the Australian Taxation Office to support compliance with and enforcement of the foreign investment rules. The government proposes this on the basis that the ATO has the skills, data-matching systems and court experience. Presumably it has consulted the ATO in order to ascertain how well the ATO aligns with this, given that its functions are entirely oriented toward tax collection.</p>
<p>Involving the ATO in this way might call for legislation that determines the functions of the ATO to be amended, as well as changes to the Foreign Acquisitions and Takeovers Act, which regulates FIRB. </p>
<p>On the user-pays basis claimed, $200 million suggests a fairly decent-sized unit at the ATO. The costs for the FIRB and its Division of the Treasury are a mere $4.5 million for 2012-13. <a href="https://www.accc.gov.au/publications/accc-aer-annual-report/accc-aer-annual-report-2013-14/accc-and-aer-annual-report-2013-14/part-1-year-in-review/finance-and-staffing-snapshot">By comparison</a> the entire ACCC cost $182 million in 2013-14. (The <a href="http://annualreport.ato.gov.au/05-financial-performance/financial-statements/cash-flow-statement">ATO cost a whopping $3.8 billion</a> in 2013-14, although consider the Commonwealth tax take of<a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5506.0Main%20Features22012-13?opendocument&tabname=Summary&prodno=5506.0&issue=2012-13&num=&view="> $338 billion in 2012-13</a>.)</p>
<h2>Lack of hard data around rorts</h2>
<p>New penalties are proposed for non-compliance with the foreign investment requirements. On its own admission, there is “limited evidence to suggest non-compliance” so it is not clear what the impact would be. The government clearly believes that improved monitoring might unearth it. </p>
<p>Hockey told the <a href="http://mpegmedia.abc.net.au/rn/podcast/2015/02/bst_20150226_0735.mp3">ABC’s Radio National</a>:</p>
<blockquote>
<p>There is some evidence that foreigners have been buying existing residential real estate in Australia. That is unlawful and we have at the moment not got the resources at the moment to properly track that, we have no register of foreign ownership of residential land in Australia. </p>
</blockquote>
<p>I have written before about <a href="https://theconversation.com/little-hard-data-in-the-hard-area-of-foreign-investment-28893">the lack of hard data</a> in foreign property ownership. The main questions are whether a register means better information will be collected and how the information might be used. </p>
<p>The only measure which looks useful is the proposed improvements to obtaining and keeping an inventory of foreign investment in property by liaising with state titles’ offices and other sources of data. This might have been useful as an exercise prior to any other proposals, in order to gain an idea of the scale, value and purpose of land purchase. Again, this would only be meaningful if the equivalent exercise is done in order to compare with domestic purchase. </p>
<p>For instance in existing estimates, foreign purchases of agricultural land remain small. This sort of investment inventory would clarify exactly the differences in treatment of foreign and domestic purchases, and how these align with policy objectives. Availability of such information about land and other resource use would also allow other objectives, for instance in regional, industry, and environmental policies, to be strengthened.</p>
<p>In the end, we need to be able to analyse whether these changes will help us identify the number of foreign investors breaking the rules. </p>
<p>FIRB is already able to prevent any foreign investment above the low existing thresholds on the grounds of (unspecified) public interest. Yet very few proposals are knocked back. It is hard to see how this might change. </p>
<p>None of the measures suggested are backed up by clear evidence as to where they fix existing inadequacies or just what those are. The public interest criteria are not tightened.</p><img src="https://counter.theconversation.com/content/38031/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margaret McKenzie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Changes to our foreign investment regime are more tinkering around the edges than true reform.Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/375172015-02-12T22:32:07Z2015-02-12T22:32:07ZLand ownership just the start in foreign investment debate<p>Prime Minister Tony Abbott <a href="http://www.pm.gov.au/media/2015-02-11/government-tightens-rules-foreign-purchases-agricultural-land">has announced</a> long-promised changes to the rules for foreign land purchases and ownership in Australia. There are two key changes. First, the Foreign Investment Review Board (FIRB) threshold will be reduced from A$252 million to A$15 million and be applied to cumulative purchases. Second, the Australian Taxation Office (ATO) will be tasked with creating a “stocktake” of foreign-owned agricultural land, which may lead to a national register.</p>
<p>Media reports of this week’s announcement have largely focused on the merits of lowering the FIRB’s screening threshold. But the foreign-owned land stocktake and register should be equally scrutinised.</p>
<p>Spearheaded by high-profile land (and water) sales to non-Australians, such as <a href="http://www.abc.net.au/news/2012-10-12/sale-of-cubbie-station-confirmed/4310256">Cubbie Station</a>, the issue of foreign investment in agriculture has generated much discussion in recent years. Central to this sensitive issue is that no one knows exactly how much agricultural land foreign companies and governments own. And while there is uncertainty, the public debate seems locked to a dualism between “we are selling the family farm” and “overseas capital can only benefit agriculture”.</p>
<p><a href="http://theconversation.com/lost-in-the-paddock-australia-flying-blind-on-farm-ownership-23836">Last year,</a> my colleague and I called for better national data sets that clearly document who owns agricultural land and at what rate it is changing hands. A land register documenting foreign ownership of agricultural land would likely address this data deficiency, but only partially. </p>
<p>Details of what the ATO will produce are yet to be delivered. But, it seems the ATO will start to record new foreign land purchases from 1 July 2015 (irrespective of value). This may then be matched with the development of a national foreign-owned land register that draws on the land titles registers kept by state and territory governments.</p>
<h2>It’s not just about land</h2>
<p>So far, media reports indicate the register will be focused on land. But what about investment in agricultural businesses separate from direct investment in land? In the most recent <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/32E9BB779DABA3C1CA257905001453BC?opendocument">Agricultural Land and Water Ownership survey</a>, the Australian Bureau of Statistics reported that almost 90% of farmland was fully Australian owned and just under 99% of farm businesses were fully Australian owned.</p>
<p>Although that survey was <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Fcommsen%2Ff49f61d7-23de-4f6f-b807-735c752ebcfa%2F0002%22">widely criticised</a>, the distinction remains important if efforts to document foreign land ownership are to prove as useful as possible. This is because although land ownership and the ownership of farm operations may or may not align, each is shaped by the other.</p>
<p>So, a register of foreign-owned land addresses only part of the huge data deficiencies related to foreign investment in the Australian farming sector. Despite the difficulties of untangling business structures, the ATO is perhaps best placed to align data collection and reporting on foreign ownership of both agricultural businesses and land.</p>
<h2>What about water?</h2>
<p>Australia’s water market and the legal separation of land and water titles further complicate the issue. It’s unclear whether a comparable register for foreign water ownership will be part of the ATO’s mandate.</p>
<p>Questions about who owns water access rights and at what rate they are changing hands are equally – or perhaps more – significant. This is especially in light of the Australian Bureau of Statistics’ results that showed agricultural water entitlements with some degree of foreign ownership increased by <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/32E9BB779DABA3C1CA257905001453BC?opendocument">55% between 2010 and 2013</a>. In contrast, Australian land with some degree of foreign ownership remained largely unchanged. </p>
<p>Like land, the state and territory governments manage their water registers, so similar integration between the state/territory systems and any national register would be required.</p>
<h2>It’s time to broaden the debate</h2>
<p>The debate about foreign ownership of agricultural land and the means used to document it need to be broadened.</p>
<p>Whether it’s ownership of land, water or agricultural businesses, non-Australian sources of capital are only part of the picture. The foreign ownership debate needs to evolve to – or be merged with – a broader debate about the future of the agricultural sector.</p>
<p>Too often the future of agriculture is reduced to a binary logic of <a href="http://theconversation.com/who-will-be-the-next-round-of-investors-in-australian-farming-23773">family farmers and corporate farms</a>. However, the reality is there are many different ways to organise agricultural business and production. </p>
<p>Foreign investment is only one of the drivers of change. Australian institutional investment or private equity partnerships and their relationships with land and water ownership are also shaping the agricultural sector and rural communities. How these alternative business models may be changing will slip through the gaps of any land register focused exclusively on foreign ownership.</p>
<p>More data will not resolve the issue of foreign ownership. It also won’t magically set the future direction of agriculture. But, good data sets that capture the full spectrum of agricultural business and asset ownership models can better inform these debates.</p>
<p>If the ATO stocktake of foreign-owned land becomes a formal register, the prime minister’s announcement is a positive step. But it doesn’t go far enough. It’s time to move beyond the foreign- versus Australian-owned dichotomy. Expanding a national foreign-owned land register to include other agricultural assets and ownership changes among domestic investors will enable more informed discussion on what Australians really value about economic development, land and water resources and food production.</p><img src="https://counter.theconversation.com/content/37517/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erin Smith's PhD was supported by a Linkage Grant from The Australian Research Council ('Rural adjustment or structural transformation? Discovering the destinations of exiting farm families'). She also received funding from the New South Wales Rural Assistance Authority.</span></em></p>Prime Minister Tony Abbott has announced long-promised changes to the rules for foreign land purchases and ownership in Australia. There are two key changes. First, the Foreign Investment Review Board…Erin Smith, Post-doctoral Research Fellow, University of the Sunshine CoastLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/324552014-10-13T19:20:10Z2014-10-13T19:20:10ZZombie economics: the notion China is to blame for Australia’s property bubble refuses to die<figure><img src="https://images.theconversation.com/files/61471/original/z76wbzrn-1413109903.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The notion that Chinese buyers are pushing up house prices is a "zombie idea"</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Despite valiant efforts by commentators such as <a href="http://www.crikey.com.au/2014/03/10/chinese-real-estate-invasion-not-according-to-the-data-fellas/">Bernard Keane</a> and <a href="http://www.smh.com.au/business/comment-and-analysis/why-we-should-welcome-chinese-housing-investment-20140311-34j00.html">Michael Pascoe</a> to slay claims that Chinese buyers are making it harder for ordinary Australians to enter the housing market, the notion <a href="http://www.smh.com.au/comment/grey-money-from-china-helps-blow-our-property-bubble-20140928-10n7a8.html">refuses to die</a>. It is the <a href="http://press.princeton.edu/titles/9702.html">“zombie idea”</a> afflicting the Australia-China economic relationship. </p>
<p>And there is a danger the zombies will multiply. Last week the <a href="http://www.afr.com/p/business/property/more_chinese_investment_likely_as_hgTpJvcLwJaFVV5MpsX5EL">Australian Financial Review</a> reported that China recently eased restrictions on outbound investment. The implication being “a fresh wave of capital [is] expected to make its way into the Australian property market”. </p>
<p>The <a href="http://www.smh.com.au/business/chinese-investors-are-pushing-into-melbourne-and-sydney-20141010-113q7x.html">Sydney Morning Herald</a> continued with the same theme listing several recent examples of Chinese-funded projects with values reaching into the billions. </p>
<p>But all these reports lack one critical factor: context. </p>
<h2>Even if Chinese investment is rising, it is still a small proportion of the market</h2>
<p>All foreign investment in Australian real estate requires approval from the Foreign Investment Review Board (FIRB). </p>
<p>According to <a href="http://www.firb.gov.au/content/publications.asp">FIRB</a>, over the period 2009-10 to 2012-13, approvals for Chinese investment in Australian real estate totalled $16.6 billion. </p>
<p>At first blush this seems an impressively large figure. But it is actually less than 10% of the total value of foreign investment approvals in the sector. </p>
<p>Approvals to Chinese investors have lagged behind those from the United States. They have also not been much more than those from the United Kingdom, which has an economy around one quarter the size of China’s and less than 5% of the population.</p>
<p>The scale of Chinese investment seems again smaller when viewed against the size of the market. In a report earlier this year, the <a href="http://www.rba.gov.au/publications/bulletin/2014/jun/bu-0614-2a.html">Reserve Bank of Australia</a> (RBA) observed that total foreign investment approvals in residential real estate have historically only been around 5-10% of the value of home sales. Chinese approvals are just a proportion of this percentage.</p>
<p>It is also important to keep in mind we are talking about approvals here, not purchases. This means FIRB data overstate the true value of foreign investment. </p>
<p>For example, a property developer in Australia can apply to the FIRB for approval to sell all new dwellings in a large scale real estate project to foreign buyers. In their <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/foreigninvestment/index.htm">submission</a> to the Inquiry into Foreign Investment in Residential Real Estate, the Commonwealth Treasury noted that based on past experience only around 35%, on average, of such dwellings end up in the hands of foreigners. </p>
<p>Also don’t forget that FIRB data is gross, not net. In any given year some foreign investors will seek FIRB approval for new purchases. Meanwhile others will sell down their existing portfolios. As a result, simply adding the value of FIRB approvals from year to year exaggerates the size of the stock of Australian real estate assets held by foreigners. </p>
<p>What all this means is that Chinese investment can grow strongly and still not come close to flooding the market. Citing preliminary FIRB data from the first three quarters of 2013-2014, the Commonwealth Treasury noted a sharp jump in foreign investment approvals over the previous year, particularly from China. But as the RBA shows, this still only takes the value of total foreign investment approvals to around 12-13% of total sales.</p>
<h2>Chinese investment actually increases housing supply</h2>
<p>Issues of scale aside, Chinese investment has the effect of increasing housing supply. This acts to restrain price growth. </p>
<p>Regulations also limit Chinese investors to buying new properties. Exceptions are few. For example, a Chinese student may purchase an established property to live in while studying in Australia. But it must be sold once they return home.<br>
Building new housing requires a lot of capital. A report earlier this year by the <a href="http://www.ahuri.edu.au/publications/projects/p81009">Australian Housing and Urban Research Institute</a> found a leading cause of the undersupply of housing in Australia is the availability of finance. Banks are the first port of call for most developers. Yet banks generally demand pre-sales, or sales of dwellings before their construction even begins, of between 50-100% of the value of the loan being sort.</p>
<p><a href="http://www.smh.com.au/business/comment-and-analysis/why-we-should-welcome-chinese-housing-investment-20140311-34j00.html">Michael Pascoe</a> put it like this, “Without the stimulus of investors to get the country building now, we’ll face demand-induced price pressure all of our own soon enough”. </p>
<p>With a small population and a limited domestic savings pool, Australia has a long tradition of accepting and benefiting from foreign investment in capital-intensive sectors of the economy. The real estate sector is no different: a dollar of Australian savings tied up in housing is a dollar that cannot be productively invested elsewhere. </p>
<p>Other benefits of Chinese investment include the very real jobs created in Australia’s construction industry and associated sectors such as housing appliances. </p>
<h2>Are foreign investors breaking the rules?</h2>
<p>Recent allegations that some foreign investors have skirted FIRB rules to purchase established housing have attracted much <a href="http://www.smh.com.au/business/punish-foreign-property-cheats-says-coalition-mp-kelly-odwyer-20140916-10hp2r.html">media attention</a>. This claim does nothing to undercut the benefits brought by foreign investment. Rather, it is a complaint about existing rules not being enforced. </p>
<p>The intensity of enforcement is entirely at the discretion of Australian authorities. The FIRB reviews around <a href="http://www.afr.com/p/national/firb_we_don_have_staff_to_veto_foreign_u7VxVO2Hr9zdQsjkc8NwyK">2.5% of housing transactions</a> to verify compliance. Simple economics says that scrutinising every one of the 600,000 housing transactions each year would not be an efficient use of resources. The FIRB employs the same risk management approach that Australian Customs uses when screening imports for contraband and counterfeit products. </p>
<p>Another factor that troubles commentators about Chinese investment is that some of this money finds its way to Australia via the <a href="http://www.smh.com.au/comment/grey-money-from-china-helps-blow-our-property-bubble-20140928-10n7a8.html">“grey economy”</a> or the <a href="http://www.theaustralian.com.au/business/banks-admit-to-limited-control-over-foreign-funds-for-housing/story-e6frg8zx-1227021005452">“shadow banking system”</a>. </p>
<p>But there is nothing sinister about it. China has a prominent informal financial system because its formal banking sector functions so poorly. It regularly offers savers negative real returns and supplies a dearth of credit to dynamic private sector firms. </p>
<p>Without an informal financial system to overcome these deficiencies, China’s growth would have been much slower than it has been and Australia would be worse off as a result. Similarly, the flow of Chinese capital to Australia would have been reduced and so too would the benefits received – there would be less housing supply and fewer construction jobs. </p>
<p>Knee-jerk arguments blaming Chinese investors for high Aussie house prices may be refuted with hard evidence. Unfortunately zombie ideas in economics have a habit of rising again.</p><img src="https://counter.theconversation.com/content/32455/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Laurenceson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite valiant efforts by commentators such as Bernard Keane and Michael Pascoe to slay claims that Chinese buyers are making it harder for ordinary Australians to enter the housing market, the notion…James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/320382014-10-05T19:05:11Z2014-10-05T19:05:11ZBar set low for a ‘do no harm’ China-Australia FTA<p><em>The clock is ticking down to the end of year deadline Australian Prime Minister Tony Abbott has given for sign off on a free trade agreement with China. In this China-Australia FTA series we explore what it’s taken to get to this stage, what’s still standing in the way, and what the signed deal will mean for Australian business.</em></p>
<hr>
<p>Recent <a href="http://www.skynews.com.au/business/business/national/2014/09/08/bishop-says-australia--china-on-track-for-fta.html">public comments</a> of senior Australian government <a href="http://www.smh.com.au/federal-politics/political-news/andrew-robb-confident-of-china-free-trade-agreement-this-year-20140625-3asv8.html">ministers</a> suggest they are increasingly confident a free trade agreement with China will be concluded by the end of the year. </p>
<p>For its part, Beijing has also offered hints an agreement will be reached within the same time frame. The speculation is a grand signing will take place in mid-November when Chinese President Xi Jinping will be in Brisbane for the G20 meeting.</p>
<p>Given that governments from both countries have staked their credibility on such a schedule, it is more likely than not pen will be put to paper next month.</p>
<p>But the significance of an Australia-China FTA is at least as much about diplomacy as it is about economics. The reality is that the Australia-China economic relationship does not really need an FTA to flourish. Agreements on all access in various sectors are concluded constantly without need for it to be part of a grander sounding FTA. Meaning the excitement behind the likely conclusion of an agreement will exceed the actual significance of such an agreement.</p>
<h2>Bored into agreement</h2>
<p>Let’s begin with what an FTA actually is. Rather than comprehensive economic agreements covering broad aspects of one’s economy, they tend to end up as rather piecemeal agreements covering specific sub-sectors that negotiators chose to target. Additionally, rather than expressing a broad meeting of minds, philosophies and policies between two economies, they contain extremely detailed provisions. </p>
<p>For example, there might be something about “processed dried stone-fruit” attracting a lower tariff than “semi-processed dried stone-fruit” with appendixes indicating what “processed” and “semi-processed” means, what constitutes a “stone-fruit”, what proportion of the product has to have dried fruit in its ingredients for it to be classified as “dried fruit”, and which stone-fruit are excluded from the provisions etc. It is no wonder that trade negotiators tend to admit the side that becomes bored first tends to lose.</p>
<p>Moreover, when one signs an FTA, especially with China, they tend to be treated as much as political and diplomatic agreements as well as economic ones. In this context, the Tony Abbott government has understood the “me too” mentality in Northeast Asia and played intra-Northeast Asian jealousies well. With Australia having signed FTAs with Japan and Korea, China pushed its own negotiators to fast-track an agreement with Australia.</p>
<h2>Foreign investment thresholds</h2>
<p>However, since Beijing needs the FTA for political and diplomatic purposes, it will want the appearance of a breakthrough in China-Australia relations. This will come in the form of China insisting that no Foreign Investment Review Board (FIRB) process is required for Chinese investment into Australia under one billion dollars, whether this be investment by Chinese state-owned-enterprises (SOEs) or private firms. </p>
<p>Such a threshold has been applied to Japan and South Korea under Australia’s FTAs with those countries. As China wants the FTA to demonstrate that it too has a special economic partnership with Australia, even if there are strategic and political differences, Beijing will insist on being treated the same as other Northeast Asian neighbours in this context.</p>
<p>For Australia’s part, this was always only really a political sticking point that Canberra will likely relent on. As surveys such as the annual <a href="http://www.lowyinstitute.org/publications/lowy-institute-poll-2014">Lowy Institute Poll</a> demonstrate, there is widespread public suspicion of Chinese foreign direct investment (FDI), most of it being undertaken by state-owned enterprises, even if the reasons for such suspicions are not well formed or articulated. In opposition, Abbott appeared to share some of these fears. But in government, his tone seems to have changed. After all, FDI entering into Australia still has to play by Australian rules and follow Australian laws and regulations.</p>
<p>The reality is that the vast majority of Chinese FDI applications into Australia have been approved over the past decade, despite some high profile knock-backs. All indications are the Abbott government will accommodate Beijing’s insistence to raise the threshold to one billion dollars knowing that almost all Chinese FDI applications would have passed the FIRB test in any event. Besides, Canberra will be happy to reduce this hurdle for Chinese firms since FIRB is only an advisory body, albeit an influential one, and the relevant minister can still knock back FDI applications on national security or other grounds.</p>
<p>In return, Australia will receive better access to the Chinese domestic market for our diary and agricultural goods, but this would have occurred in any event without an FTA since provincial governments in various Chinese markets have been agitating for high quality imports in these sector and would have formally and informally made it possible for Australian firms to more easily access those provincial markets.</p>
<p>When it comes to Australian access to the services markets such as legal and financial, we are likely to receive some concessions. But the real barriers to entry in these Chinese markets are local ones at the regulatory and social levels, and an FTA will not reduce these barriers.</p>
<p>The bottom line is that both countries want an FTA for diplomatic reasons. The major, headline concessions that both sides will offer carry few costs to the conceding country, would have occurred in any event, or were already happening in practice. If the acceptable standard is that an FTA should “do no harm” at the very minimum, then that low threshold will be met in November.</p>
<hr>
<p><em>Read the other pieces in our China-Australia FTA series here:</em></p>
<p><a href="https://theconversation.com/with-a-free-trade-deal-australia-can-win-chinas-dairy-market-31681">With a free trade deal Australia can win China’s dairy market</a></p>
<p><a href="https://theconversation.com/key-events-in-the-10-year-journey-towards-a-china-australia-fta-32328">Key events in the 10-year journey towards a China-Australia FTA</a></p><img src="https://counter.theconversation.com/content/32038/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Lee does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The clock is ticking down to the end of year deadline Australian Prime Minister Tony Abbott has given for sign off on a free trade agreement with China. In this China-Australia FTA series we explore what…John Lee, Adjunct Associate Professor at the Centre for International Security Studies, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/288932014-07-23T20:18:35Z2014-07-23T20:18:35ZLittle hard data in the hard area of foreign investment<figure><img src="https://images.theconversation.com/files/54524/original/mqh9hyqg-1406005511.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">We must address patchy data collection to get an accurate picture of foreign property investment.</span> <span class="attribution"><span class="source">ABS</span></span></figcaption></figure><p>A large portion of commentary on foreign investment in Australia is based on scant data, as recent submissions to the <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/foreigninvestment/index.htm">inquiry</a> into foreign investment in residential property show.</p>
<p>At the moment it seems the only body collecting any data on this sensitive issue is the Foreign Investment Review Board, and that appears limited. Even the Australian Bureau of Statistics and Reserve Bank <a href="http://www.canberratimes.com.au/federal-politics/political-news/abs-has-patchy-figures-on-foreign-investment-in-homes-20140625-3atp4.html">admitted</a> to the O'Dwyer inquiry its staff rely on trade magazines and newspapers to identify foreign real estate purchases.</p>
<h2>The concept of foreign investment</h2>
<p>In economics <em>investment</em> means the flow of additions (positive or negative) to a stock of <em>assets</em>, or store of value, over time in the economy. Investment is important because it contributes to the productive capacity of the economy. Residential property investment increases the flow of services from housing.</p>
<p>The term foreign investment is very often loosely used. It includes additions to assets by foreigners, such as internally financed additions or improvement to the assets, or externally through the purchase of new equity. But it also may include transfer of ownership of existing assets from local to foreign, such as through purchase of existing equity. By itself this would leave the stock of assets unchanged.</p>
<p>Prices in transactions are subject to supply and demand. They can vary from increases or improvements to production, through to speculation as in the lead up to the global financial crisis. This is another reason why the measurement of foreign investment may not be able to easily distinguish between additions to assets and the exchange of existing assets. Moreover the foreign exchange transactions which may be used to identify foreign investment do not record the reasons for the transaction.</p>
<p>Many foreign investment transactions involve selling and buying by entities which are themselves a mixture of domestic and foreign ownership. The IMF has rules about the how to categorise the various levels of foreign ownership involved in the transactions. “Direct investment” is that where a resident in one economy has control or a significant degree of influence directly or indirectly in the management of an enterprise resident in another economy. A rule of thumb is more than 10% of the worth of the entity is involved in the transaction.</p>
<h2>Data collection needs resources</h2>
<p>As in the case of any data, the quality of foreign investment data is only as good as the amount of resources devoted to the collection, and that has been determined historically. There are primarily two sources of data for foreign investment in Australia, the FIRB and the ABS. </p>
<p>The state titles and transfers offices do not record the nationality of parties in property transfers. The addition to cost for improving data collection needs to be weighed up against the benefits of the additional information gained from that data. For national data, this is invariably a political question, not only in determining the total funding or addition for data collection, but also within that the allocation to each area, as indicated in the ABS submission. </p>
<p>The Treasury budget <a href="http://www.treasury.gov.au/%7E/media/Treasury/Publications%20and%20Media/Publications/2013/PBS%202013-14/Downloads/PDF/02_ABS.ashx">documentation</a> provides no plan to increase ABS resources, nor is the purpose of expenditure identified (except for the Census).</p>
<h2>Property as a special category of foreign investment</h2>
<p>The difficulties of recording foreign investment data are widespread - Australia is one of the few countries that produce data of any sort on foreign ownership of land. </p>
<p>In the case of real estate, the stock of assets includes land (and improvements), buildings and other constructed physical structures. A problem for measurement of property as foreign or domestically owned arises because the land itself has to stay on Australia’s national balance sheet as an asset even though it may have a foreign owner. This involves separate valuation of the land. Otherwise the land would appear in the balance sheets as an asset of another country. </p>
<p>The ABS data on real estate cannot be split between foreign and local ownership, nor between commercial and residential. The ABS includes foreign investment in property in purchases of Australian equity in “other business services” which includes legal, accounting, marketing, computing and scientific services, amounting to about A$33 billion in 2013. The data is obtained by survey of the businesses involved.</p>
<h2>FIRB data is collected for a different purpose</h2>
<p>The ABS also makes use of data from the FIRB on investment intentions by foreign investors outside the Australian corporate structure, estimated at a value of A$24 billion for 2013. The FIRB data are based on applications it receives. It would only include the value of foreign investments where the amounts are greater than the threshold requirement for applications, currently A$248 million for business investment from most other countries. Lower or zero thresholds apply for real estate or for government investors. It is not clear how repeat and unsuccessful applications are accounted for.</p>
<p>Emigrating Australians increase foreign investment assets - by another A$48 billion. Overall foreign holdings of Australian real estate appear to add about 3% to total foreign investment. The RBA estimates that foreign investment is at most 5-10% of dwelling turnover value and half that in volume because the investment is in higher value houses. This leaves the likely proportion of total housing stock which is foreign owned unknown but likely to be very small.</p>
<h2>What is needed?</h2>
<p>The ABS recommends that if comprehensive data on foreign investment in real estate is a priority, the FIRB and the state offices for transfers and titles could be required to collect the data. The data required, according to the ABS, would include:</p>
<ul>
<li>the market value of property transacted</li>
<li>settlement date</li>
<li>residency of investor</li>
<li>Australian residency status of purchaser</li>
<li>seller residency, and </li>
<li>whether purchaser is a corporation or individual.</li>
</ul>
<p>Whether the foreign investor is a government could be added to the list. While the ABS proposal would need to be costed and the political will to be implemented, it appears to be a sensible suggestion to improve the data in this area.</p><img src="https://counter.theconversation.com/content/28893/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margaret McKenzie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A large portion of commentary on foreign investment in Australia is based on scant data, as recent submissions to the inquiry into foreign investment in residential property show. At the moment it seems…Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/253162014-04-09T20:43:50Z2014-04-09T20:43:50ZDon’t be misled on Chinese foreign investment: read the facts<p>As Prime Minister Tony Abbott shifts his Asian tour focus to China, it seems likely the threshold for formal approval on Chinese investment in Australia will be <a href="http://www.afr.com/p/national/abbott_set_to_give_green_light_to_anOx7qGFh00u3kTUywpJKM">raised</a> to A$1 billion. </p>
<p>But any move to open the doors to more investment from China seems destined to drive an outbreak of public concern, based more on Chinese whispers than on fact.</p>
<p>A case in point is last month’s outcry about Chinese real estate investors outbidding Australian home buyers, which resulted in the institution of a parliamentary <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/foreigninvestment/index.htm">inquiry</a> by Treasurer Joe Hockey.</p>
<p>The starting point was the publication of the <a href="http://www.firb.gov.au/content/Publications/AnnualReports/2012-2013/_downloads/FIRB-Annual-Report-2012-13.pdf">Foreign Investment Review Board’s 2012/13 annual report</a>. The report listed a figure of A$5.9 billion for Chinese real estate applications that included commercial and residential real estate. This figure was picked up by various media and analysts, some highly respected, and was <a href="http://www.abc.net.au/news/2014-03-17/house-of-reps-to-look-at-foreign-real-estate-investor-rules/5325190">soon being represented</a> as $6 billion worth of actual purchases of Australian real estate by Chinese buyers.</p>
<p>Such misrepresentation is due to a misunderstanding of what Australian Bureau of Statistics and FIRB statistics actually represent and the lack of statistics that specifically report incoming new foreign investment into Australia. </p>
<p>With the non-approval threshold for Chinese investment likely to rise to $1 billion in line with the agreements the prime minister has reached with Japan and Korea, there is likely to be more unrest about Chinese planned and real investment if the available information is not understood and used responsibly.</p>
<h2>The data gap</h2>
<p>While reports and analysis on Chinese investment in Australia mainly draw data from the ABS and FIRB, neither are set up to report on inflowing new investment, such as Chinese investment in the real estate sector.</p>
<p>The ABS international investment position (IIP) account reports annual direct investment stock and flow data from all foreign countries, including China. The bureau carries out a quarterly Survey of International Investment (SII) and collects data on FDI. This approach represents the balance of investment outflows and inflows, but not inflows per se. Moreover, the ABS provides aggregate investment data at the national level and does not give detailed breakdowns for sectors such as real estate.</p>
<p>FIRB’s annual reports present statistics on approved investment in Australia by foreign interests. Investment below FIRB’s approval thresholds is not reflected in FIRB data, unless it is made by state-owned enterprises. </p>
<p>From 2005, FIRB started to report investment applications from China disaggregated by sector. In the context of real estate investment, FIRB requires foreign persons who want to buy land for commercial development or acquire residential real estate in Australia to notify or gain approval before purchase, unless new dwellings are bought from a developer who has obtained pre-approval to sell to foreign buyers. </p>
<p>FIRB approval figures tend to be higher than actual new investment, as they reflect intended and approved investment, some of which may never eventuate. FIRB approval statistics by their nature may include double and multiple counting when more than one investor applies for the same investment project.</p>
<h2>New data sheds new light</h2>
<p>A completely new set of data has been set up by a joint team from KPMG and the University of Sydney Business School in association with the Chinese Studies Centre. This dataset on annual inflows of Chinese direct investment to Australia offers an alternative source of information on real estate investment in Australia. An interactive website built upon this dataset will be launched by the Minister for Trade and Investment, Andrew Robb, in Shanghai today. </p>
<p>Since 2011, KPMG and The University of Sydney have been working on a new database to close a noticeable gap in public information. These data include Chinese direct investments in mergers and acquisitions, joint ventures and greenfield projects, including commercial real estate deals above $5 million. </p>
<p>According to this dataset, in 2013, 20 real estate investment deals were recorded, worth a total of US$1.29 billion and amounting to 14% of the annual Chinese investment inflow. In particular, NSW has attracted the majority of Chinese commercial real estate investment. 77% of this investment has gone into NSW, followed by Victoria (15%), Queensland (5%), and Western Australia (2%). By ownership of the investors, 65% of the investment volume was made by Chinese private enterprises, while 35% was made by state-owned enterprises.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/45915/original/n5kjcdwy-1397007578.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/45915/original/n5kjcdwy-1397007578.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=431&fit=crop&dpr=1 600w, https://images.theconversation.com/files/45915/original/n5kjcdwy-1397007578.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=431&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/45915/original/n5kjcdwy-1397007578.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=431&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/45915/original/n5kjcdwy-1397007578.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=542&fit=crop&dpr=1 754w, https://images.theconversation.com/files/45915/original/n5kjcdwy-1397007578.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=542&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/45915/original/n5kjcdwy-1397007578.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=542&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>Based on this data it’s clear Chinese real estate investment has a substantial commercial component which adds new real estate to the Australian market.</p>
<p>Additional anecdotal evidence points to the long term nature of Chinese investment which allows buyers to take a long-term stance that might be reflected in higher bidding prices. Finally, in these areas there is little difference between private and state-owned investors who pursue similar projects and compete against each other.</p><img src="https://counter.theconversation.com/content/25316/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Prime Minister Tony Abbott shifts his Asian tour focus to China, it seems likely the threshold for formal approval on Chinese investment in Australia will be raised to A$1 billion. But any move to open…Hans Hendrischke, Professor of Chinese Business and Management, University of SydneyWei Li, Postdoctoral Fellow, Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/233072014-02-18T03:31:22Z2014-02-18T03:31:22ZQantas can’t have it both ways on foreign ownership<figure><img src="https://images.theconversation.com/files/41758/original/mnfgq9tx-1392691815.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Qantas is poised to receive some form of government assistance, but will it act in the national interest?</span> <span class="attribution"><span class="source">griffs0000/Flickr</span></span></figcaption></figure><p>The Federal Government appears ready to “<a href="http://www.smh.com.au/federal-politics/joe-hockey-ready-to-throw-qantas-a-lifeline-20140213-32jxc.html">throw a lifeline</a>” to Qantas, which has been seeking a government-backed debt guarantee and a lifting of the 49% foreign ownership limit in the Qantas Sale Act. </p>
<p>Although the government is yet to announce any assistance <a href="http://www.afr.com/p/business/companies/qantas_debt_deal_seen_as_inevitable_YLXnHA2olBL0zx9lCg9iYP">ahead of Qantas’ financial results</a> on February 27, Treasurer Joe Hockey says the airline’s request for assistance meets four essential preconditions:</p>
<ul>
<li>existing restrictions on the business imposed by the Parliament </li>
<li>an essential national service</li>
<li>an environment where other sovereigns are engaging in direct competition to the massive disadvantage of an Australian business. </li>
</ul>
<p>And finally, in the words of Mr Hockey:</p>
<blockquote>
<p>The business has to do its own heavy lifting on its own reform. We are not going to run the business or tell them how to reform.</p>
</blockquote>
<p>The Qantas Sale Act legislated for the privatisation of Qantas at a time when large scale privatisations were deemed to be desirable. It included setting restrictions on foreign ownership meaning:</p>
<ul>
<li>no more than 49% of Qantas can be owned by foreign persons</li>
<li>no more than 35% can be owned by a foreign airline</li>
<li>no one foreign person own more than 25% </li>
<li>no more than one third of the directors can be voted in by those representing foreign shareholdings.</li>
</ul>
<p>Qantas is also required to maintain a register of shares in which foreign persons have a relevant interest.</p>
<p>Presumably if the Qantas Sale Act were repealed, the heavy lifting on foreign ownership would be left to the Foreign Investment Review Board (FIRB) as it is for other businesses in Australia. FIRB could potentially reject, as contrary to the national interest, foreign investment proposals above the current threshold of A$248 million. The threshold for investment from American or New Zealand interests is higher at A$1078 million. </p>
<p>A proposal of any value by foreign governments, including other government-owned airlines, would be subject to review by FIRB. Rejection does not happen very often, but competition regulation could also apply.</p>
<h2>Is Qantas ‘essential’?</h2>
<p>Referring to Qantas as “an essential national service” might suggest a debt guarantee or other financial support is more palatable to the government than increased foreign ownership. </p>
<p>US multinational Archer Daniels Midland’s bid for Australian grain handler GrainCorp, knocked back by the FIRB, is a case in point. </p>
<p>The Qantas case has similarities to GrainCorp in economic terms. They are both infrastructure services that are crucial to economic activity. They are both networks. In the case of airlines this means the addition of one more destination can add more than proportionately to the value of the business, although this depends on travel density. There is also a tendency to natural monopoly because costs fall as the scale of operation gets larger. This is why policy has favoured keeping at least two airlines operating on low density Australian routes, in order to maintain competition. </p>
<h2>Facing up to global competition</h2>
<p>Qantas does face competition from government-owned airlines, at least on international routes. Government-owned airlines which operate on similar routes to Qantas include Air New Zealand, Emirates, Garuda, Malaysian, and Singapore. Qantas itself was government owned until 1995. </p>
<p>Airlines are an infrastructural service industry where government ownership is frequent. This is because the service is regarded as crucial, yet it tends to alternate between profits and losses. The activity is inherently commercially unstable because the costs of provision aren’t always covered by sales revenue. Yet the overall benefits to society remain greater than the costs of providing the service. </p>
<p>Yet Qantas also faces competition from private airlines. These tend to be owned by firms operating in a range of activities and/or the airlines frequently go broke or merge. This lends to the instability which may be regarded as against the national interest, as in the current issue with Qantas.</p>
<p>The suggestion that the government guarantees the debt of Qantas amounts to de facto government ownership in that activities become subject to a “soft budget constraint” and would be covered from government coffers. However it differs from government ownership because it would not offer the controls for the locations of maintenance and operations, workforce etc. that government ownership would offer.</p>
<h2>Who’s really in charge?</h2>
<p>Joe Hockey’s claim that Qantas would have to manage its own reform is an escape clause. Perversely, a debt guarantee would leave the possibility that Qantas avoids commercial constraint but at the same time there is no requirement of its conduct. Alternatively, increased foreign ownership could be allowed, but this presents problems for the view of it as an essential national service. </p>
<p>Qantas cannot have it both ways. Qantas chief Alan Joyce seeks a government debt guarantee without which he argues Qantas cannot remain a national carrier. This would offer the benefits to the business that government owned airlines get, but without the quid pro quo where the government requires the carrier to operate in the national interest, for instance in choosing the location of maintenance facilities, and workforce conditions. </p><img src="https://counter.theconversation.com/content/23307/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margaret McKenzie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Federal Government appears ready to “throw a lifeline” to Qantas, which has been seeking a government-backed debt guarantee and a lifting of the 49% foreign ownership limit in the Qantas Sale Act…Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/214812013-12-18T03:28:33Z2013-12-18T03:28:33ZOpen for foreign investment … conditions apply<figure><img src="https://images.theconversation.com/files/37969/original/vqgrbkr7-1387256844.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Joe Hockey has sent some mixed messages on foreign investment, but it's critical a level playing field is applied.</span> <span class="attribution"><span class="source">Alan Porritt/AAP</span></span></figcaption></figure><p><em>When Tony Abbott stepped up to claim victory for the Coalition in September, he declared Australia was “under new management and once more open for business”.</em></p>
<p><em>One hundred days on, we look at the open for business promise across major sectors including foreign investment, infrastructure, manufacturing and retail.</em></p>
<hr>
<p>Very few applications have been rejected by Australia’s Foreign Investment Review Board (FIRB), which is why the recent spurning of Archer Daniels Midland’s proposal to purchase GrainCorp stands out. </p>
<p>Treasurer Joe Hockey said the takeover could reduce competition and impede growers’ ability to access distribution networks, but in an apparent contrast this was followed by the removal of conditions on Yanzhou Mining Company, a Chinese state owned enterprise, thereby allowing it to fully own Yancoal’s Australian coal mines. </p>
<p>Mr Hockey said “since the conditions were imposed, significant challenges have emerged for the Australian coal industry, including slowing demand, declining coal prices and a number of mine closures”. The Yancoal decision is in the context of intense foreign ownership in Australia’s mining and resource industry, relative to other sectors.</p>
<p>Given almost all applications are successful, the FIRB process appears not to have impeded foreign investment, and this is likely to continue despite the GrainCorp decision. Foreign investors may say they are put off investing in Australia due to the slowness of decisions and bureaucracy, but this could be regarded as opportunistic in terms of market negotiations. The long period for review by the FIRB of up to four months plus extensions apparently has not deterred most investments which are large scale and long term. </p>
<p>It’s also unlikely the present government would seek to legislate stricter criteria, despite foreshadowing this before the election. Whether the rules present a barrier to foreign investors and lead to lower levels than otherwise would have to be considered in the context of the many factors which affect the decision to invest in Australia. These include costs (including the long-term strength of the Australian dollar) compared to other countries, geographical distance or local market size. </p>
<p>Foreign or local ownership is not all or nothing, but a continuum within a complex web of domestic and foreign ownership across companies. Foreign ownership is most intense in Australia in the resource industries, where mining involves much higher rates of foreign ownership and investment than most other industries.</p>
<p>Foreign direct investment (FDI) as a percentage of GDP in Australia lies in the average to upper range of comparable countries. This is a crude indication of how supportive of foreign investment we are, although many factors determine the percentage. </p>
<p>FDI measures investments worth more than 10% of total investment in the company. Australia’s share of FDI in GDP averaged 4.1% over the five years to 2011, the most recent figures available (World Bank data). This puts Australia almost halfway down the list of all countries ranked according to their percent share of FDI in GDP. </p>
<p>Australia ranks above the world average share of FDI in GDP of 2.9%, and above the average share of 2.4% for the 31 high-income countries in the OECD to which it belongs. Australia is also about halfway down the rankings for the East Asia and Pacific region, and its share of FDI in GDP is above the average of 3.5% for that region. </p>
<h2>The national interest test</h2>
<p>Agenda-led interests have always been present in Australia’s approach to foreign investment, that may be inevitable. However this begs the question as to what is in the national interest. It’s hard to test the impact of foreign investment on economic growth, productivity, infrastructure development, employment and welfare generally. This is why it remains a question for debate in the academic literature. </p>
<p>Foreign investment may be better considered in the context of Australia’s approach to industrial policy historically, which may be seen as arbitrary and lacking a long term perspective. It may not matter whether the investment is domestic or foreign, but that policy and regulation reflect the right industry priorities. These should nurture desirable types of technological investment regardless of the source of investment. It is of note that Australia has higher rates of private including foreign ownership in infrastructure than many other countries.</p>
<p>Australia has historically favoured the particular countries with traditional colonial or neo-colonial ties. It needs to ensure that proposals are considered on their merits. Proposals where foreign governments have a stake in the investment should also be considered on an equal basis. The national interest would be served by promoting ties and networks in our region. </p>
<h2>Political pressures</h2>
<p>While the GrainCorp application might have succeeded under the previous government, it is a stretch to see this as the start of a pattern under the Coalition. </p>
<p>In the case of infrastructural or other strategic national assets such as land or involving natural resource or environmental considerations, more scrutiny may be warranted as in the national interest. Such considerations should apply regardless of the source of the investment. </p>
<p>Any regulatory approach should apply a level playing field, applying equally to local or foreign investment from any country. At this end subsidies and taxes currently vary for industries and companies on an ad hoc basis, rather than due to cost benefit evaluation which takes account of public interest. </p>
<hr>
<p><em>This is the first piece in our series on Tony Abbott’s open for business promise across major sectors including foreign investment, infrastructure, manufacturing and retail.</em></p>
<p><em>Read the other pieces below:</em></p>
<p><a href="https://theconversation.com/open-for-business-selling-off-public-assets-to-fund-infrastructure-21471">Open for business: selling off public assets to fund infrastructure</a><br>
<a href="https://theconversation.com/poor-strategy-has-left-australian-retailers-open-to-overseas-entrants-21009">Poor strategy has left Australian retailers open to overseas entrants</a></p><img src="https://counter.theconversation.com/content/21481/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margaret McKenzie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When Tony Abbott stepped up to claim victory for the Coalition in September, he declared Australia was “under new management and once more open for business”. One hundred days on, we look at the open for…Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/86952012-08-09T20:40:11Z2012-08-09T20:40:11ZForeign investment debate re-opens old divides within the Coalition<figure><img src="https://images.theconversation.com/files/14062/original/b2kr3b77-1344485350.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tony Abbott finds himself caught between competing interests on his foreign investment policy.</span> <span class="attribution"><span class="source">AAP Image/Mick Tsikas</span></span></figcaption></figure><p>Foreign investment, like any other policy, is a complex juggling act. A balance between welcoming foreign investment – without which Australia cannot survive – and protecting Australian interests in not “selling off the farm” cannot be struck without damaging some very delicate sensibilities.</p>
<p>Australian nationalism is a curious thing: hardly overt like America’s, neither is it docile. It is instead subcutaneous: just below the skin, out of sight but not so deeply buried as to be impervious to attack. </p>
<p>The really interesting development from Opposition leader <a href="http://australianpolitics.com/2012/07/24/abbott-auscham-china-speech.html">Tony Abbott’s recent Beijing address</a> calling for tougher Australian foreign investment rules is the claim that Mr Abbott’s “new protectionism” has created a wedge among, and within, the non-Labor parties. To suggest this is a new development is nonsense: those divisions are as old as the party system itself.</p>
<p>Abbott’s views are a mere echo of a much older debate between protectionists and free traders stretching back to before Federation. Indeed, who can become a stakeholder in this country – whether through immigration of investment – comprises the oldest and longest-running Australian public issue.</p>
<p>More than a century ago the protagonists for <a href="http://en.wikipedia.org/wiki/Protectionist_Party">Protectionism</a> were our first and second prime ministers Edmund Barton and Alfred Deakin, while later Prime Ministers George Reid and Joseph Cook fired up for the <a href="http://en.wikipedia.org/wiki/Free_Trade_Party">Free Traders</a>.</p>
<p>The tariff question was, of course, settled soon after Federation, with trade protection, in Paul Kelly’s description, emerging as one of the key five pillars of the “Australian Settlement”. Yet that general bipartisanship failed to heal old schisms, and interpretations of – and variants among – strains of Australian liberalism (including inside a Labor party that was never truly socialist) continue to this day.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/14065/original/wfv5gyc9-1344485841.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/14065/original/wfv5gyc9-1344485841.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=421&fit=crop&dpr=1 600w, https://images.theconversation.com/files/14065/original/wfv5gyc9-1344485841.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=421&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/14065/original/wfv5gyc9-1344485841.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=421&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/14065/original/wfv5gyc9-1344485841.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=529&fit=crop&dpr=1 754w, https://images.theconversation.com/files/14065/original/wfv5gyc9-1344485841.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=529&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/14065/original/wfv5gyc9-1344485841.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=529&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Foreign ownership of farmland is a sensitive issue, especially in rural electorates.</span>
<span class="attribution"><span class="source">AAP Image/Kellogg Company</span></span>
</figcaption>
</figure>
<p>It’s a debate that cleaves not only along ideological but also geographical divides. A conservative wing of the Nationals in regions still pining for the old Country Party and the politics of pioneerism happily aligned with a Liberal faction – most often but not always outside New South Wales – in its support of tariffs, subsidies and other regulation.</p>
<p>Conversely, a Liberal party cell, most usually associated with Sydney, lobbied for free trade long before the Hawke-Keating-Howard revolutions that removed the remaining “Australian Establishment” pillars. </p>
<p>Almost counter-intuitively, from the 1960s, freer – if not free – trade slowly accrued support from not only sections of the Labor Party (Gough Whitlam, of course, slashed tariffs in 1973 by 25%) but, later still, from National Party moderates who undoubtedly saw the writing on the globalisation wall.</p>
<p>Whether driven by genuine ideological commitment, or populist opportunism in the hunt for xenophobic votes, or mere expediency in keeping Coalition partners onside, this relationship shaped Australian industry policy for most of the 20th century.</p>
<p>Despite his liberal rhetoric, Robert Menzies, for example, felt no need to take on the powerful protectionist and Country Party leader <a href="http://en.wikipedia.org/wiki/John_McEwen">Jack McEwen</a>, or the ominous Australian Tariff Board (a precursor to today’s <a href="http://www.pc.gov.au/">Productivity Commission</a>). Tariffs, quotas and subsidies on agricultural and, more curiously, manufacturing products therefore remained on the Australian policy table long after the post-war world began talking free trade.</p>
<p>The unabashedly nationalist <a href="http://en.wikipedia.org/wiki/John_Gorton">John Gorton</a> was even more strident in his protectionism and warnings against “selling off the farm”. As a newly installed Liberal Prime Minister in 1968, for example, Gorton blocked a British bid to take over Australia’s MLC Insurance (even after Treasury approval) and, later with McEwen’s blessing, created an oil-pricing policy to keep Bass Strait oil under tight Australian control. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/14066/original/7hdwhn99-1344486054.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/14066/original/7hdwhn99-1344486054.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/14066/original/7hdwhn99-1344486054.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/14066/original/7hdwhn99-1344486054.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/14066/original/7hdwhn99-1344486054.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/14066/original/7hdwhn99-1344486054.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/14066/original/7hdwhn99-1344486054.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The ALP are not immune from pressures over foreign investment as Treasurer Wayne Swan found in the ASX takeover debate.</span>
<span class="attribution"><span class="source">AAP Image/Paul Miller</span></span>
</figcaption>
</figure>
<p>The creation of an Australian shipping line and the Australian Industry Development Corporation – ideas that even Menzies had spurned – rounded out our new economic nationalism.</p>
<p>As above, the wheels really fell off protectionism in the 1980s. Yet, even today, no leader can ignore the populist air wafting up from Australian nationalism. Pauline Hanson’s One Nation infamously tapped into it in the late 1990s, and Liberal Treasurer Peter Costello – perhaps in a response to Hanson – created waves in 2001 when he blocked Shell’s $10 billion takeover of the Australian-owned Woodside Petroleum. </p>
<p>A clear message was then sent to world markets and the Australian dollar plummeted, but domestic political tensions were assuaged: for that and other reasons, the Coalition easily won the 2001 federal election.</p>
<p>History repeated itself in 2011 when Treasurer Wayne Swan opposed a comparable $8 billion take-over bid for ASX Limited by Singapore Exchange. Interestingly, Treasurers exercise such vetoes even when the august Australian Foreign Investment Board independently approves take-overs.</p>
<p>Abbott’s nationalist revival may have upset Establishment Liberals from Peter Reith to Bill Heffernan, but the Opposition leader sees a bigger picture. </p>
<p>He knows that, despite speaking from Beijing, constituencies outside the well-heeled Sydney suburbs were the ones really listening.</p>
<p>With the populist Katter Australia Party poised to soak up marginalised non-Labor votes (and not just in Queensland), the old cleavages between conservative and progressive Australian liberalism have merely been re-opened. </p>
<p>It seems some Australian pillars are very hard to shake.</p><img src="https://counter.theconversation.com/content/8695/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Williams does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Foreign investment, like any other policy, is a complex juggling act. A balance between welcoming foreign investment – without which Australia cannot survive – and protecting Australian interests in not…Paul Williams, Senior Lecturer, School of Humanities, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/83402012-08-01T04:17:33Z2012-08-01T04:17:33ZDon’t blame foreign investment for rising house prices<figure><img src="https://images.theconversation.com/files/13705/original/6nk2q3tf-1343792624.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There is little evidence to suggest that foreign investment is driving up the prices of Australian real estate.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>One question that arises on the topic of real estate is the scale of foreign investment and ownership in Australia. It is understandable that the public has concerns about such investment, especially as precious little information is available.</p>
<p>An <a href="http://news.domain.com.au/domain/home-investor-centre/blogs/domain-investor-centre-blog/secret-government-business-20111230-1pf7c.html">interesting case</a> arose late last year as Chris Vedelago, The Sunday Age’s property reporter, used a Freedom of Information Act (FOI) request in an attempt to gain some insight into this issue. The target of the request was the <a href="http://www.firb.gov.au">Foreign Investment Review Board</a> (FIRB), a government agency tasked with tracking, reviewing and approving submissions for investments of all kinds in Australia.</p>
<p>The reason for the FOI request is that the FIRB is notoriously opaque (non-transparent) in ensuring detailed data on foreign investment are made available to the public. The <a href="http://www.firb.gov.au/content/publications.asp?NavID=5">annual reports</a> provide some basic aggregate statistics but do not release enough information, for instance, the number of temporary residents who have purchased residential real estate and those who have violated investment regulations. Unfortunately, the FOI request revealed little as the <a href="http://news.domain.com.au/domain/home-investor-centre/blogs/domain-investor-centre-blog/secret-government-business-part-ii-20120202-1quse.html">FIRB refused to budge</a>.</p>
<p>Vedelago noted this behavior to be <a href="http://news.domain.com.au/domain/the-foreign-real-estate-raider-alarming-fact-or-urban-fiction-20101023-16ynf.html">political in nature</a>, as discouraging disclosure of relevant details limits the backlash over the perception foreigners are <a href="http://www.theage.com.au/business/chinese-buyers-fuel-topend-property-boom-20090918-fvga.html">purchasing large amounts</a> of property, causing prices to rise and reducing the options of Australian citizens (though the majority who own property would benefit).</p>
<p>With Australia’s economy appearing relatively strong on the global stage, foreign investors may see the real estate market as attractive, especially given the rapid run-up in property values (approximately 130% adjusted for inflation and quality from 1996 to 2010). Foreign investors likely heed the comforting statements by mainstream commentators who claim housing prices are based upon underlying fundamentals, or intrinsic value.</p>
<p>From what little data the FIRB provides in its <a href="http://www.firb.gov.au/content/Publications/AnnualReports/2010-2011/_downloads/2010-11_FIRB_AR.pdf">latest annual report</a> (2010-11), a picture emerges that is at odds with the conception that a foreign horde is responsible for a flood of investment into the real estate market.</p>
<p>In financial year 2010-11, the FIRB considered a total of 10,865 applications, covering all industry sectors (agriculture, forestry and fishing; finance and insurance; manufacturing, mineral exploration and development; resource processing; services; tourism; and real estate). 4,606 (42%) were approved unconditionally, 5,687 (52%) approved with conditions, with the rest rejected, withdrawn or exempt.</p>
<p>The real estate sector was the primary target of investment, with 9,771 (96%) of all applications. While clearly dominating the number of applications, real estate investment comprised only $42 (23%) out of $177 billion of investment across all sectors. This is due to the relatively small nature of investment in real estate, compared to the larger scale of business investment. For instance, mineral exploration & development garnered the most investment at $55 billion, albeit with a tiny number of applications at 222 (2%). Next was the service sector at $48 billion with 117 (1%) applications, followed by the real estate sector.</p>
<p>The overwhelming majority of real estate applications were for the residential sector rather than commercial sector, at 9,556 (98%) and 215 (2%), respectively. While the number of applications is overwhelmingly lopsided, both residential and commercial sectors received the same amount of investment at $21 billion. Within the residential sector, 3,885 (41%) applications were for existing properties and the rest for purposes of property development at 5,671 (59%).</p>
<p>Interestingly, Victoria was the target for most real estate applications, at 4,398 (45%), with New South Wales coming in at a distant second with 2,598 (27%). Given Victoria’s 2.2 million dwellings, with an estimated 40,000 new dwellings constructed last year, the number of applications amounts to 11% of all new dwellings, a fraction compared to the total dwelling stock.</p>
<p>Clearly, the vast majority of ownership within the real estate sector is domestic. The top country by investment in this sector is the UK at $4.6 billion, followed by China at $4.1 billion, and the US in third place with $3.4 billion. China headed the pack with the largest number of applications across all sectors, at 5,033 (47%) of the total.</p>
<p><a href="http://news.domain.com.au/domain/real-estate-news/apartment-prices-seem-like-a-bargain-to-wealthy-chinese-buyers-20120525-1za52.html">Chinese investors may perceive</a> Australia’s property market as a store of wealth, especially considering the relative stability of the Australian government and economy. The steadily growing Chinese economy has produced <a href="http://www.ml.com/media/114235.pdf">535,000 millionaires</a> as of 2010, outnumbering Australia’s 193,000. The growing ranks of these high net worth individuals could be a driver of foreign investment into Australia, though this cannot be confirmed without comprehensive data from the FIRB.</p>
<p>As noted, this has resulted in concerns about foreigners “interfering” in the health of the property market. The evidence, however, shows that foreign investment in real estate is relatively small. Apprehension of Chinese influence (the “yellow peril”) is unwarranted, as the US and UK are collectively responsible for double the amount of Chinese investment.</p>
<p>It is impossible to mount a case that foreign investment is a driver of increasing housing prices. This is no different to the National Housing Supply Council <a href="https://theconversation.com/beware-the-rent-seeking-organisation-dont-be-dudded-by-housing-data-8112">suggesting that homeless people</a> and caravan park residents are a cause of an undersupply, pushing up prices. The blame game in the US says that the <a href="http://www.foreignpolicy.com/articles/2012/01/17/how_china_s_boom_caused_the_financial_crisis?page=0,0">Chinese were partially responsible</a> for the housing and financial crises on the basis that the Chinese government’s purchases of US bonds kept interest rates artificially low, setting off the housing boom.</p>
<p>Blaming foreigners for astronomical prices is nothing but a scapegoat for the policies enacted by government on behalf of bankers and landowners that makes housing unaffordable. Those who are discontented with the current states of affairs should focus their attention on our own government rather than searching for foreign influences.</p><img src="https://counter.theconversation.com/content/8340/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philip Soos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>One question that arises on the topic of real estate is the scale of foreign investment and ownership in Australia. It is understandable that the public has concerns about such investment, especially as…Philip Soos, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/68752012-05-07T03:46:08Z2012-05-07T03:46:08ZIs Rupert Murdoch safe from Australian regulators?<figure><img src="https://images.theconversation.com/files/10407/original/wnmwnqsz-1336360307.jpg?ixlib=rb-1.1.0&rect=44%2C65%2C1892%2C1119&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australian media regulators would take an active interest in attempts by News Limited to increase its stake in Foxtel.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Problems facing media moguls Rupert and James Murdoch in the United Kingdom and the United States have yet to have an impact in Australia.</p>
<p>But if recent speculation is true that News Limited might be a buyer for James Packer’s 25% Foxtel stake, Murdoch could find himself in a forest of acronyms as various regulatory agencies – the Australian Consumer and Competition commission (ACCC), the Australian Communications and Media Authority (ACMA) and the Foreign Investment Review Board (FIRB) – take an active interest.</p>
<p>The continuing storm over the handling of the UK phone hacking scandal has seen a British parliamentary committee find Murdoch senior is not a <a href="http://www.guardian.co.uk/law/2011/jul/07/bskyb-bid-ofcom-fit-and-proper">fit and proper person</a> to run a multinational media company.</p>
<p>The phone-hacking and police bribery scandal has led to more than 40 arrests in Britain and to a <a href="http://www.guardian.co.uk/business/marketforceslive/2012/apr/05/bskyb-shares-plunge-email-hacking">Sky news reporter admitting to hacking emails</a> in pursuit of a story.</p>
<p>These revelations have also led to low-level investigations of News operations in the United States. In July last year, the FBI was <a href="http://www.csmonitor.com/USA/2011/0714/FBI-to-investigate-Rupert-Murdoch-s-News-Corp.-Did-it-hack-9-11-victims">reportedly opening an investigation</a> of allegations that News reporters may have hacked the phones of victims of the 9/11 terrorist attack in New York and Washington DC.</p>
<p>There is no recent information to confirm that any investigation is on-going in the US. However, American politicians – always on the look out for a media opportunity – have signaled they are taking a keen interest in the British parliamentary report and the Leveson inquiry. A Washington DC ethics lobby group has also written to the US Federal Communications Commission seeking an inquiry into Murdoch’s control of the Fox network.</p>
<p><a href="http://www.citizensforethics.org/legal-filings/entry/fcc-revoke-murdoch-broadcast-licenses-news-corp-fox">Citizens for Responsibility and Ethics</a> in Washington (CREW) want the FCC to revoke Foxtel’s broadcasting licences. A US senator has also written to the chair of the Leveson inquiry seeking any information that might suggest American laws have been broken by News journalists.</p>
<p>Even is there is no illegality, Murdoch does face some problems in the US. Under American law, the finding that he is not a fit and proper person to run a business in the UK <a href="http://www.thedailybeast.com/articles/2012/05/03/senator-jay-rockefeller-investigate-rupert-murdoch.html">can be used to trigger an inquiry in the USA</a>.</p>
<p>These ongoing worries are more than an embarrassment to the octogenarian patriarch; they are a debilitating overhang that could ultimately affect the fate of News Corporation – the parent company that manages the family’s global media business interests, including News Limited in Australia and News International in the UK. For example, BSkyB shares took a hit on UK markets after the email hacking story came to light.</p>
<p>There is no suggestion at the moment that News Limited staff ever engaged in phone-hacking or other illegal behaviour in Australia and so far there has been no real damage to Murdoch’s assets here.</p>
<p>The Independent Media Inquiry (the Finkelstein inquiry) was convened to examine issues of standards and accountability in the Australian news media, but its terms of reference did not mention News Limited in particular. The inquiry’s report is largely forgotten and the <a href="http://www.dbcde.gov.au/digital_economy/convergence_review">Convergence Review recommendations</a> are unlikely to have much impact over the next 18 months.</p>
<p>However, in the last two weeks, speculation about James Packer’s possible sale of his company’s stake in Foxtel has in turn led to further questions about whether an embattled Rupert Murdoch would be in a position to pick up the shares and <a href="http://www.heraldsun.com.au/business/terry-mccranns-column/james-packer-to-sell-25-per-cent-of-foxtel-stake/story-e6frfig6-1226345213361">increase News Limited’s holding in Foxtel</a>.</p>
<p>Currently telecommunications provider Telstra holds 50% of Foxtel, with James Packer’s Consolidated Media Holdings and Murdoch’s News Corporation holding the balance in their joint-venture Sky Cable.</p>
<p>Media industry analysts are so far suggesting that there <a href="http://www.theaustralian.com.au/media/convergence-review/analysts-say-no-merger-frenzy-is-expected-as-a-result-of-freer-media-ownership/story-fndfobdt-1226348203715">won’t be a round of mergers or sales in the short term</a>; partly because of uncertainty about the fate of Convergence Review reforms, but also because no one is particularly cashed-up at the moment.</p>
<p>The main bidders for Packer’s stake in Sky Cable are likely to be News Corp or Telstra and the sale could attract some interest from various business and media regulators – particularly in regard to competition and media diversity. At some point too, a suitability test could be applied – but perhaps not directly to Rupert Murdoch himself.</p>
<p>But unravelling the regulatory strings is not easy as the transaction would be covered by several pieces of legislation, each administered by a separate arm of the bureaucracy.</p>
<p><strong>Foreign Investment Review Board</strong></p>
<p>The Broadcasting Services Act of 1992 does not place any restrictions on foreign ownership of media assets – this is covered under the Foreign Acquisitions and Takeovers Act of 1975 and government policy. </p>
<p>Ultimately the Foreign Investment Review Board might take a view on any sale or merger involving Foxtel as Murdoch himself is now a “foreigner” in Australia having taken out US citizenship in the 1980s.</p>
<p><strong>Australian Communications and Media Authority</strong></p>
<p>The Broadcasting Services Act does have a section allowing ACMA to administer a “suitability” test for licence holders. This test is not the same as the “fit and proper” person test that the British regulator <a href="http://www.ofcom.org.uk/">Ofcom</a> is currently considering in the BSkyB case.</p>
<p>The suitability test would apply to the licensee company – in the Australian case Foxtel – and would only be triggered if the ACMA believed there was a “significant risk” that provisions of the Broadcasting Services Act might be breached by Murdoch or anyone else buying the CMH shares.</p>
<p>In the context of a sale of some or all of Packer’s shares to Foxtel, the provisions of section 98(3) of the Broadcasting Services Act could deal directly with questions about Rupert Murdoch as it requires the regulator to take into account the “business record” of anyone in a position to “exercise control” over the subscription service licence.
At this stage all that ACMA will say is that it is monitoring the British situation but making no further comment.</p>
<p><strong>Australian Competition and Consumer Commission</strong></p>
<p>The ACCC deals with issues of competition, oligopoly and monopoly and recently decided not to stand in the way of Foxtel’s acquisition of ailing subscription TV competitor Austar. Foxtel gave some guarantees that it would not monopolise content (particularly in sports, drama and movies) which satisfied the Commission.</p>
<p>Under current boss Rod Sims, the ACCC is taking a <a href="http://afr.com/p/national/accc_flags_lighter_touch_on_mergers_UoUyR4nZFqM472HggDYelK">“light touch”</a>) approach to regulation and the ACCC is really only interested in ensuring there is competition in the delivery of content. If there is no lessening of diversity in terms of content, then the ACCC has no role in preventing News Limited from increasing its control over Foxtel. </p>
<p><strong>So what next?</strong></p>
<p>For the time being Rupert Murdoch’s Australian empire – the birthplace of his wealth, ambition and influence – seems safe and intact. He is not personally under attack here and neither Foxtel nor News Limited appear in any immediate or medium term danger of attracting any adverse interest from regulators.</p>
<p>Over the longer term, however, the danger could be a domino-effect if shares in the various arms of the News Corporation octopus start to suffer a value decline as a result of more bad news in the UK – such as Ofcom refusing to allow the BSkyB acquisition to proceed – or a ramping up of any US investigations into alleged phone-hacking or other potential criminal activity in that jurisdiction.</p>
<p>One American investment adviser has already downgraded News Corp and has written that the company may be in <a href="http://www.businessspectator.com.au/bs.nsf/Article/Rupert-Murdoch-News-Corp-hacking-BSkyB-shares-pd20120502-TVSKV?OpenDocument&src=sph">danger of losing faith with important institutional investors</a>.</p>
<p>Late last year both Rupert and James copped an angry serve from investors at News Corp’s AGM and four months later James stepped down as head of BSkyB in the UK.</p>
<p>It is not likely that the Murdochs will lose control of News Corp – they own nearly 40% of voting stock – but the company could be damaged if the share price falls or long-term institutional investors walk away. Just last month Murdoch’s stranglehold on the voting stock in News was further weakened when one of his major shareholder allies, Prince Alwaleed bin Talal lost voting rights temporarily, but perhaps indefinitely. It appears there has been a <a href="http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/9212598/Rupert-Murdochs-News-Corp-breaches-US-foreign-investor-law.html">technical breach of US law</a> and some Class B voting stock has been suspended until the breach is overcome.</p>
<p>Prince Alwaleed bin Talal is a member of the Saudi royal family and News Corp’s second biggest shareholder with around 7% of voting rights. The loss of his support could affect Murdoch’s ability to hang on in a tight shareholder tussle.</p>
<p>It is indeed a tangled web that the 81-year-old has spun around himself and the News Corporation empire. Now it seems some threads are perhaps choking Murdoch while, at the same time, others are unravelling around him.</p><img src="https://counter.theconversation.com/content/6875/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martin Hirst is a member of the Media, Entertainment and Arts Alliance. He is the conference director for the Journalism Education Association of Australia's 2012 conference later this year.</span></em></p>Problems facing media moguls Rupert and James Murdoch in the United Kingdom and the United States have yet to have an impact in Australia. But if recent speculation is true that News Limited might be a…Martin Hirst, Associate Professor Journalism & Media, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.