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Bondai ambition

19 September 2014 By Una Galani

The most surprising thing about a walk through central Sydney is China. Its influence is everywhere. Activists protest 1989’s Tiananmen Square massacre near the Sydney Opera House. A bilingual Mandarin school is under construction in the affluent Chatswood district. And the effect of Chinese money on the property market has become a dinner party favorite.

A relationship dominated by iron ore and coal has evolved to include everything from agriculture to education. Some 36 percent of the island nation’s exports currently go to China and that will rise to 40 percent by 2020, estimates HSBC. Australia got 7.4 percent of China’s outbound investment in the first half of 2014, according to PricewaterhouseCoopers.

Australia has been here before, with the wave of Japanese investment in the 1980s. But this time there’s a big movement of people too. The number of Chinese tourists has almost tripled in the past five years, and that’s not factoring in those who come to stay. Like it or not, Australia is on the front line of China’s rise.

Fateful shore

Financially, the relationship has been pretty smooth. China has been one of the largest sources of inbound acquisitions into the country in recent years. Mining assets remain top of the shopping list but State Grid Corporation of China’s acquisition of infrastructure assets worth as much as A$5 billion ($4.4 billion) shows the Middle Kingdom’s broadening focus.

Australia has kept its doors relatively open, which helps. Nor has China really tested the relationship, steering clear of large iconic companies. The block on a planned merger of Australia’s stock exchange with its Singaporean counterpart in 2011 on national interest grounds sent a clear signal.

As part of negotiations over a free trade agreement, though, China is seeking a relaxation of the rules governing its investments into the country. Lawyers say one proposal is that Chinese buyers will only have to obtain approval for investments of more than around $1 billion, giving China the same freedom as the New Zealand, the United States, Japan, and South Korea.

China wants the rules to also apply to its state-owned enterprises. That might be a hard sell politically. In a policy widely seen as aimed at the Chinese, Australia currently requires foreign investment approval for investments by all state-backed entities, regardless of country or size.

That gets to the biggest potential source of friction: that China and its companies aren’t seen as distinct. In a rant on national television on Aug. 18, politician and tycoon Clive Palmer rallied against “Chinese mongrels” and accused the government of trying to take over the country’s ports and resources. The tirade was prompted by a business dispute. An apology followed but his comments feed into Australian anxiety over Chinese investment.

Back yard politics

Australians have generally stayed cool while China shopped for minerals, but coveting their properties is proving a different matter. Amid concerns that wealthy Chinese are pricing out locals in Sydney and Melbourne, Australia is having a parliamentary enquiry into foreign ownership of residential real estate.

Brokerage CLSA says Australia is the number two preferred country for emigration of rich Chinese. In actuality there’s little evidence that China really is influencing the price of mass-market housing, but there’s enough perceived demand that developers now incorporate Chinese feng shui design principles into new projects.

The government has mostly been supportive. In a scheme offering residency to overseas individuals that invest more than A$5 million into Australia, more than 90 percent of applicants have come from China. The fact that one of the visas is called 888, a lucky number in Chinese culture, suggests shrewd marketing.

Australians may not always love their new benefactors, but pragmatism is still the best policy. With iron ore and coking coal prices weak, Australia has run trade deficits for the past four months. How it handles China’s rise could set a template for other countries reliant on foreign capital that will eventually find themselves in similar positions.

In the meantime, Beijing could help itself. Chinese state-owned entities could do worse than sponsor Australia’s beloved sporting events, as Japanese companies have for years, if they want to be liked. Carmaker Toyota has backed the Australian Football League since 2004. China’s arrival is inevitable, but some soft power could make it welcome too.

 

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