The price of blocking China

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From Domainfax:

Australia just found out the price of blocking foreign investment.

The NSW state government announced on Thursday it had sold a 50.4 per cent stake in Ausgrid to two local superannuation funds in a deal valuing the entire company, including debt, at about $20.8 billion. Two months earlier, the federal government barred NSW from accepting an offer from State Grid Corp. of China that was said to value the power network at about $25.1 billion, citing national security concerns.

The difference shows the cost to the nation of limiting ownership of sensitive infrastructure to local buyers, amid public opposition to overseas investment, particularly by state-owned Chinese firms. The Ausgrid sale has also raised doubts about Australia’s openness to foreign investment and caused confusion about its regulatory regime.

AustralianSuper, the nation’s biggest super fund, and IFM Investors, the largest manager of infrastructure assets, agreed to pay about 1.4 times Ausgrid’s regulated asset base value, according to Brett Himbury, the chief executive officer of IFM. StateGrid offered a multiple of 1.7 times, according to people familiar with the bid. The power network’s regulated asset base stood at $14.75 billion in the 2016 financial year, according to the state government.

What’s the upside then? Simple. Not being swept further into the embrace of Chinese economic imperialism and compromising our ability to formulate independent policy, as well as jeopardising our democracy, such as appears to be happening in the Philippines.

Having said that, there is no doubt whatsoever that this decision was made on the run with little reference to any extant framework or understanding of how to manage the US-China economic-strategic tensions over time.

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For that we will need to see:

  • banning foreign political donations (where’s that gone?);
  • reducing immigration and reining the “citizenship exports” sector;
  • policing foreign buying of property properly;
  • a coherent investment regime that enables raw materials investment but curtails it elsewhere, and
  • re-engaging the US in the region.

Do-nothing Malcolm is happy to let everything drift towards whatever chaotic outcome we get sucked into so long as it protects property prices.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.