Why Australia needs foreign ownership

ScreenHunter_05 Apr. 11 09.00

Cross-posted from Paul Wallbank

Such are the vagaries of radio that I’ve been asked to comment on ABC Radio South Australia about foreign ownership based on an article that was picked up by The Drum 14 months ago.

That article was written shortly after Dick Smith came out grumbling about the prospect of Woolworths selling the electronics store chain named after him to foreign interests.

My point at the time was that foreign owners would be preferable to some poorly managed, undercapitalised local buyer as the Australian retail industry – even in a declining market like consumer electronics – needs more innovation and original thinking.

As it turned out, Dick Smith Electronics was sold to Anchorage Capital, a private equity turn around fund with an interesting portfolio of businesses.

In the meantime, the argument about foreign ownership of property and businesses, particularly farms, has ratcheted up as opportunistic politicians and the shock jock peanut gallery that sets much of Australia’s media agenda have found a cheap, jingoistic issue to score points from.

So why is foreign ownership of businesses like farms, mines and factories important for Australia?

A fair price for hard work

The main reason for supporting foreign buyers for Aussie businesses is it gives entrepreneurs a chance to get a fair price for their hard work.

A farmer or factory owner who builds their business shouldn’t have to accept a lower price because Australians don’t want to pay for the asset.

It’s not a matter of being able to pay Australians as have plenty of money to invest – a trillion dollars in superannuation funds and three billion dollars claimed for negative losses in 2009-10 show there’s plenty of money around – it’s just that Aussies don’t want to invest in farming, mining or other productive sectors.

We’re already seeing this play out in the small business sector as baby boomer proprietors find they aren’t going to sell their ventures for what they need to fund their retirement.

Access to capital

Should the protectionists get their way then the businesses and farms will eventually be sold to undercapitalised Australian investors at knock down prices.

This is the worse possible thing that could happen as not only do the entrepreneurs miss out, but also the factories and farms decline as they are starved of capital investment.

Cubby Station

A good example of both the lack of capital affecting investment and finding a fair price for ventures is Queensland’s Cubby Station.

While I personally think Cubby Station is an example of the economic bastardry and environmental vandalism that are the hallmarks of the droolingly incompetent National Party and its corrupt cronies, the venture itself is a good example of why the agriculture sector needs foreign investment.

Having been converted from cattle to cotton in the 1970s, Cubbie grew as successive owners acquired water licenses from surrounding properties.

Eventually the company collapsed under the weight of its debts in 2009 and the property was allowed to run down by the administrators until it was bought by Chinese backed interests at the beginning of 2013.

At the time of the acquisition, the company’s former chairman told The Australian, “on reflection, I would go into those things with an even stronger balance sheet — in other words, with less gearing.”

In other words, the company was under-capitalised.

Competition concerns

Another reason for encouraging foreign ownership is that Australia has become the Noah’s Ark of business with duopolies dominating most key sectors.

Bringing in foreign owners at least offers the prospect of having alternatives to the comfortable two horse races that dominate most industries.

The property market

An aspect that has excited the peanut shock jocks has been the prospect of Chinese buyers purchasing all the country’s property.

For those of us with memories longer than goldfish, today’s Chinese mania is almost identical to the Japanese buying frenzy of the late 1980s.

Much of what we read about the Chinese buying homes is self serving tosh from property developers and real estate agents and what mania there is will peter out in a similar way to how the Japanese slowly withdrew.

This isn’t to say there shouldn’t be concerns about foreign ownership – tax avoidance, loss of sovereignty and Australia’s small domestic market are all valid questions that should be raised about overseas buyers, but overall much of the hysteria about foreign ownership is misplaced.

What Australians should be asking is why the locals aren’t investing in productive industries or buying mining and farming assets.

The answer almost certainly is that we’d rather stick with the ‘safety’ of the ASX 200 or the residential property market.

We’ve made our choices and we shouldn’t complain when Johnny Foreigner sees opportunities that go beyond negative geared investment units or an tax advantaged superannuation fund.

Comments

    • Sorry, should have added; the last 3 sentences are particularly relevant and are not raised often enough when arguing against xenophobia.

      • It is not xenophobic to not want to see your country sold off wholesale to foriegners. These arguments don’t mention the national interest, which the government is pledged to protect, which should trump all arguments by capitalist pigs who would sell their own mother for a dollar. The article alsa doesn’t mention that “Johnny Foreigner” is increasingly foriegn state owned enterprises that can sit on a loss for a long time if it is the underlying asset they wish to secure (might be surprising to capitalist pigs that they want to secure the asset for the future welfare of THEIR people). And not only that, the foriegn state owned enterprises are from countries where we do not have reciprical rights i.e. go and try to buy some land in China. If a Chinese politician even suggested selling Chinese land to foriegn nationals justice would be swift and harsh.

        The disloyalty displayed toward this country is really getting breathtaking. From the top down – present and past politicians are falling over themselves to sell this country down the river and anyone who stands to make a few bob cheers them on.

        • I’ve seen a good example of this where large parts of the privatised UK electricity system have been bought up by a corporation belonging to the French government.

          • Bali is another example. The Indonesian government opened up land for sale to foreigners and the place is now full of Aussie retiree’s with little yappy white dogs.

            The rice paddy’s of Canggu are now full of McMansions. Local Balinese people can not afford to buy farms as the foreigners (us) have pushed the price up out of the locals reach.

            There is an undercurrent of distress and resentment forming in the younger generation and I don’t blame them one bit. Their future is being sold off.

        • Don’t worry, I am slowly putting a website together and I will have names and addresses of business lobby group members who do this behind closed doors. I have found that most of them are silent in the background because they know the average person will be very angry. You are also right about China, it’s a military dictatorship. There is a bar on burke st owned by an ex Chinese military official for example, these people give no human rights to their own people yet expect it here and our government allows it.

          It’s the business lobby groups who are the real issue here.

          Foreign ownership also does not benefit the average Australian. If it did why is there a wealth gap occurring, and why are there an estimated 2 million in poverty in Australia now and over 100,000 homeless.

        • Many who have issues with foreign ownership seem more concerned about the nationality of the foreigners….. No one has complained after generations of Australian business being bought and sold by British and Americans? Australians buying abroad?

          Even if based on national socialist economics, arguments don’t stack up, open economies compare, compete and innovate.

          • Trust you to see racism where it is not. We have reciprocal arrangements with UK and USA where Australians can participate equally in their economies, not so with China where (wisely, I might add) foriegners are forbidden to own Chinese land. We also do not see the partipation by state owned enterprises from USA and UK. The danger of foriegn governments securing Australian assets wholesale is self evident and surely doesn’t need explaining even to you.

  1. Agree with everything mentioned except the heading “fair price for hard work”. Nothing to do with fairness, “market price for hard work” would be better.

  2. Those of us with long enough memories also remember the spectacular losses many of the Japanese investors of the 1980s endured.

    • It always puzzles me that people are so insistent that Australians must continue to own “productive” assets that are making an ongoing loss. Overseas investors are a good idea, period, in these cases, whether they are the ones absorbing an ongoing loss, or whether they turn the losses around into profits.

      In the business world, grand old family businesses have been destroyed by hanging onto loss-making departments for far too long because the owners of the business had warm fuzzy sentimental feelings for that department.

      Nations are no different.

      Furthermore, “profits taken offshore” have still had local taxes paid on them. (Close the loopholes if this is a problem). Give me an overseas owner making a profit and paying taxes any day, over a local owner making losses and not paying taxes; or worse, getting public subsidies.

      I agree with Davo22au above, that the last 3 sentences of the essay are absolutely the crux of the issue:

      “….What Australians should be asking is why the locals aren’t investing in productive industries or buying mining and farming assets.

      The answer almost certainly is that we’d rather stick with the ‘safety’ of the ASX 200 or the residential property market.

      We’ve made our choices and we shouldn’t complain when Johnny Foreigner sees opportunities that go beyond negative geared investment units or an tax advantaged superannuation fund……”

      If the fiscal and regulatory realities are such that Aussies are scared off productive investing and hiring and firing and actually making stuff, either overseas owners are not making much out of their investments thanks to the fiscal and regulatory distortions, and the fiscal and regulatory structures need to be changed; or overseas owners are succeeding in turning a profit on their investments in spite of the fiscal and regulatory distortions, and Aussies need to change.

      Jobs are jobs, local income is local income, local income tax revenue is local income tax revenue, and local unemployment benefit costs are local unemployment benefit costs.

      There isn’t a negative word about overseas investors in THIS article:

      http://www.forbes.com/sites/joelkotkin/2012/03/06/foreign-industrial-investment-is-reshaping-america/

      • What a ridiculous, short sighted, narrow minded point of view. “Johnny Foreigner” is increasingly foriegn state owned enterprises that can sit on a loss for a long time if it is the underlying asset they wish to secure i.e. land, minerals and water. And not only that, the foriegn state owned enterprises are from countries where we do not have reciprical rights i.e. go and try to buy some land in China. Tax is easily avoided by multinational companies let alone foriegn state owned companies that can sell to other state owned companies at a loss and we will probably even end up subsidising the deliberate losses. The jobs will not end up with the locals. People as stupid as Australians with idiot ideas like yours don’t deserve a Soveriegn Nation anyway.

        • There is a massive problem here with people whose minds are closed to the existence of fiscal and regulatory distortions that make it “not worthwhile” for anyone but a loss-absorbing overseas consortium to continue to operate certain sectors of the Australian economy.

          There is also a massive problem with people who do not understand the difference between national sovereignty and the ownership of assets. Just because a Chinese consortium “owns” a physical asset in Australia does not mean that that asset has become part of China and subject to Chinese laws and garrisonable by the Chinese military. It remains part of Australia. Abuse of the physical asset by any owner, whether Chinese or Australian, will bring the Australian State down upon the asset owner: fines, injunctions, even confiscations.

          There is no evidence anywhere that assets in a sovereign first world nation are manipulated by foreign owners in service of some grand geopolitical plan to “take over” and supplant the nation’s culture by a commercial form of “invasion”. It is a cultural form of invasion that we want to be on guard against. It is changing a western nation’s culture that is truly changing the nation and making it no longer recognisable to its people as “their” nation.

          By the way, I have great respect for Asian immigrants. Their third-generation descendants are mostly among the most productive Australians. They are also among the most clear about the worth of western civilisational values. It is immigrants who refuse to integrate and respect our values, that are a problem.

          • Then what is the deal with China asking that it be allowed make investments worth up to $1 billion in Australia without needing to pass the Foreign Investment Review Board’s ‘national interest’ criteria? What is the deal with China demanding reducing scrutiny of investments by its state-owned enterprises as nonnegotiable in the quest to reach a free-trade deal? What is the deal with the Astaralian government being forced by China to defend it’s immigration policy, including its crackdown on 457 visas? What is the deal with Chinese media only news conference held today by Gillard where the Australian media were kicked out? At this news conference Gillard sought to reassure the Chinese that the FIRB is a facade. Emmerson admitted as much the other week when he confirmed the FIRB was established simply to mollify the masses. The coalition also hides behind this whore FIRB who has never knocked back anyone.
            If you think these types of demands will decrease as they own more of Australia you are naive in the extreme. Check out what is happening with Chinese investment in Africa to see what to expect when the gloves come off.
            The cultural invasion that goes hand in hand with the same undemocratic globalist ideology that allows the wholesale sell off of a nations assets is a discussion for another day. Needless to say that no government has the right to change the ethnic makeup of a country without the expressed will of the people of that nation.

  3. “A fair (sic) price for hard work”

    Which is in effect globalisation removing competitive advanatge.

    The squatocracy picking up Australian wealth for nix, flogging it off so future Austraians can’t generate as much wealth isn’t always sound for the national interest.

    • +1.

      What is exactly a fair price for hard work? I don’t think knocking down houses, sticking up unit blocks, selling them for $600k, and adding even more strain to publically funded infrastructure is particularly hard, and $600k for a dogbox in a second rate suburb is not a fair price.

      • +1 to you too. Spot on. If “creating wealth” is really as easy as Property Ponzi, why should anyone bother with the stress of mental and physical exertion and risk of hiring and firing and physical capital and competing in markets?

  4. So if I was to summarise this argument:

    1) Assume Australians are too stupid to invest in things that have real value.

    2) Accepting foreign buyers is better than the alternative of losing the industries/businesses altogether.

    I don’t think I can fault that logic, although it seems like accepting an amputation rather than dying altogether. Far better to find a cure to the underlying disease, but until then…

  5. This article is ridiculous, the author clearly has no concept or understanding of capital, debt, or international currency markets

    • Rumplestatskin

      Pretty much my view.

      I was at a conference once where someone tried to explain the trade balance between the US and China as a product of some kind of productivity gap.

      When pointed out that the trade and financial balances are mostly the result of Chinese authority’s habit of buying US treasuries to ensure their currency stays low they didn’t know what to say. Hadn’t realised that this situation can continue indefinitely as long as China maintains its strategy.

      A few questions are raised by the article

      1. Why aren’t these foreigners capital constrained as well? How do they seem to have money to burn buying Australian assets, but Australians don’t?

      2. This phrase – “factories and farms decline as they are starved of capital investment” , implies that somehow a farm would disappear – evaporate into the ether if a foreigner didn’t buy it. Ye the reality is that the land and farm will still be there and the market for farms will simply be facing fewer buyers, and probably cheaper prices.

      3. A whole bunch of research shows that foreign direct capital investment leads to higher asst prices, making us less competitive. In fact if you wanted to lower the value of your currency you would buy foreign assets, in the same way a sovereign wealth fund would in an endeavour to stablise the currency when investment flows are high in the opposite direction (meaning when foreigns are buying a lot of Aussie capital, we buy a lot of foreign capital to balance out the national capital account and keep the currency down).

      Sorry, but I get a bit sick of these simplistic “we are stupid investors” explanations of our lack of international competitiveness in high value-add industries. Maybe I naively thought this way once, but when you actually do a little research into this rather opaque topic you find that instituional structures and policies really do make the difference.

      • GunnamattaMEMBER

        I disagree with some parts of the piece, but others here have largely covered them.

        But the point you are making is very important and completely separate.

        Nobody ever checks the morality or provenance of funds being accrued somewhere else which are used to fund purchases inside Australia. The baseline government/FIRB position is that if the law in another country hasnt picked it up then the Australian government is not in the business of passing judgment on it.

        When we are talking about foreign investment you could be a drug dealer in another country and making money -the moment you go to invest that money in Australia absolutely nobody will ask a question about the provenance of the money.

        The ways people make money OS can be fairly full on.

        • Rumplestatskin

          I wasn’t really talking about the morality of individuals. But more so of countries themselves – they way each country uses their monetary institutions for its own agenda.

          For example, should we decide, we could print AUD via the reserve bank and buy foreign assets with it, as they did when they defended the currency level when it first floated.

          Or we could use tax revenues to start a sovereign wealth fund, which would buy foreign assets.

          Once the heat was taken off our currency, we might find foreign investments in relatively stronger currencies attractive.

          And other countries would be quite legitimately concerned about the impact of our domestic policies on their currency, and the foreign ownership of some of their critical infrastructure, including farm land, resources, and utilities.

          And they would probably be foolish to think that we are somehow ‘rescuing them’ – from failing farms, etc.

          Back when the Commonwealth was both Australia’s reserve bank and a retail bank, the governor noted that he had the tools at his disposal to fund any investment in this country that could possibly be conceived.

          To deflect the arguments towards individual investment decisions is to dismiss the whole power-play of international monetary politics of the past half century.

      • You’re right Rumple, foreign ownership of assets is hot button issue where most comments are clearly half thought through “knee jerk” responses.

        Having said this, there can be major differences in the long term goals of a foreign factory owner vs a domestic owner.

        Take for instance Holden (the Aussie car), IF a foreign maker (maybe Chinese or Indian) wanted to establish an Aussie presence quickly, they would logically buy an existing brand and ramp down local production replacing it with their own production. They are rewarding Holden’s capital owners but shafting its workers and other domestic stakeholders. They would also typically accrue their profits in a low tax country and use various forms of “transfer pricing” to insure that no Aussie taxes were paid.

        Transfer Pricing is not really an option for an Aussie owned and operated factory and it muddies the waters on where real value was added during a products manufacture.

        The same transfer pricing games can be played (in reverse) with certain farm assets so that all profits accrue in low tax regimes, although I see this as more benign then foreign factory ownership. WRT to Chinese ownership of say wheat farms in Australia, I can see ownership as a way to bypass Australia “one-desk” primary produce commodities trading policies. Many Chinese investors are absolutely convinced that Chinese growth will continue forever, as such, they foresee a time in the near future where control of food production will be a vital profit center. Most Aussies speculators dont have the same investment time horizons.

  6. I have seen my Japanese neighbor for the last 12 years just twice. If they had bought their property during the 80s obviously they didn’t withdraw and still have it, but EMPTY, which will maybe the case with the Chinese too. Meanwhile our children will wait until retirement to save for a house. Good luck to them.

  7. As I wrote in a post earlier today, this is simply the inevitable end game, our reward for over 30 years of persistent CAD.

    What more can one say, Foreign manufacturers are sick of our worthless IOU’s, they want real assets in return for the real goods they are supplying.

    Of course we dont like it, were not suppose to like it, it’s a punishment for the indulgence of a 30 year CAD. Trouble is people are waking up to the fact that we are painted into a corner.

    We cant manufacture our costs are simply too high and btw we’ve forgotten how to actually make things. So what choices are left….

    Dont know how else to say it, this is the logical end game: If Australia didn’t want this you would have fixed the problem CAD 10 years ago. Maybe there is still a slim chance that the profits from the mining boom……oh what rubbish, I’m talking, these profits were needed for pink batts and the NBN…

    • Exactly ChinaBob…except that CAD has now been running for 50 years…bar 1971!

      The peoblem has been generations in teh making and even if we started now it will be generations in the fixing.

      There’s no need to start fixing it yet. We’ve still got SOME more assets to flog off to foreigners. Mind you if things go the way HnH, you and a few of us see it the remaining assets won’t last long.
      A declining A$ will exacerbate the problems of borrowing and make our assets that much cheaper to foreigners. There is no way out.

      The answers lie back in time.

    • China Bob, I think that if our Ious(AAA) were so worthless, the world wouldn’t be so obsessed with buying the $A. If things are so bad then why does it keep going up?

      • Great question BobT. I have my own ideas about why the AUD is flying high despite all the mining and ToT negativity. Personally I think we are seeing the beginnings of the creation of SDR’s, I’d suggest that many CB’s are now assembling synthetic SDR’s ahead of some IMF formalization of the process and mix.

        If I’m correct, than the market for the AUD has been permanently altered. As a reserve currency we will have absolutely no problems attracting capital. As a matter of fact, our problem will be quite the opposite, we will attract much more capital than can be productively deployed (especially within a country that makes nothing). It is this capital base that is somehow supported by Australia’s asset base, meaning logically the asset base must inflate in value if the capital base inflates(or more assets must be created). This makes foreign ownership of our fixed assets a very logical step, for them.

        If the above hypothesis is correct, then all Australian’s really need to understand the Triffin Paradox, because it’s going to be our turn to see the benefits and costs this international liquidity dilemma creates.

        The best treatment of this problem, that I have seen is by Zhou Xiaochuan in his 2009 Foreign Affairs article. Within China there are a lot of academic papers that exam the logical international currency changes needed for China to surpass the US, but these are mainly in Mandarin (and very formalized academic Mandarin) making them almost impossible to read.

  8. That was a laboratory grade specimen of economic cultural cringe. and a huge dose of naivety.

    Reducing the reasons for foreign investment to character failure is about as shallow as it gets.

    No surprise that it attracted a lot of moralising support in the comments.

    In the absence of local policy failure (regulatory, fiscal, monetary you name it) there would be little objection to allowing foreigners the freedom to convert their currency into $AUS and direct that money into investment in plant, land and other capital stock.

    Afterall, if they build a factory, create an agricultural asset or build a transport system and those enterprises succeed then the locals gain a lot.

    China has used this exact method to acquire an advanced capital stock and skill set in less than 40 years.

    However, the problem downunder is that what the foreigners are often buying downunder is the right to take over some cosy rent seeking opportunity – that some shiny suited lobbyist and donor has created to increase the value of the ‘enterprise’. The result is that we are often stuck with the same extorting duopoly but the only difference is it is partly or fully foreign owned.

    By all means allow foreign investors to create new businneses and enterprises and create genuine value – Aldi being an excellent value. But please cut the moralising rubbish about foreigners giving poor local wealth creators an ‘exit’ strategy.

    If we want locals to invest in risk yield generating enterprises we need stop tilting the tax system towards brain dead asset value speculation.

    Of course ‘strategic’ foreign investments do not always work out and produce fat profits for overseas investors.

    A case in point has been the huge losses by Kirin and Parmalat following the opening of direct diary to coles/woolies milk sales. The foreign owned processors ( who paid locals a major quid) are losing sales hand over fist. This is the sort of shafting of overseas investors by a local duopoly that would make Beijing smile.

  9. China-Bob posts “..We can’t manufacture, our costs are simply too high, and btw we’ve forgotten how to actually make things.” and that’s spot-on. At some stage Australia and New Zealand need to ‘do something’ about the problem other than talk about it. Today is as good a day as any – as was Bob’s day, 10 years back…Do we have to wait until there is no hope left, and like a failed bushiness sell-out to the first vulture fund that sees profit in what’s left of the steaming wreckage that used to be our vibrant economies? But at least when the vultures do come – whoever they may be, they will have nice, big houses to live in…..

    • I loved this letter in one of the National Dailies this morning

      “I taught maths and science for more than 20 years in Queensland high schools.

      It’s not about resources, it’s about whether kids want to learn and whether their parents value education. In my experience, in state schools, respect for education by parents was further diminished as former troublesome students became parents themselves. These parents tended to encourage their children to disrespect teachers.”

      So how do we reverse this process. We somehow have to get some kids who respect education to parent some kids who want to learn.

      Then if we teach them maths and science where are they going to be employed in our economy? Serving in restaurants while they wait generations for the political process to make investment in production worthwhile?

      What a bloody mess!

      • Indeed messy.

        Ultimately the only thing that will make investment, saving, real skills, hard work diligence worthwhile will be necessity.

        The country is a rich girl relying on the old man’s money.

        In the 80s sugar daddy looked he was going to cut us off and we started to grow up. The dollar crashed and cut the wages we had not been able to cut and then we started talking about new concepts like productivity, competitiveness etc.

        Just when we started to act a bit like grown up Sugar Daddy upped our income and gave us a huge new limit on our credit cards.

        Now we are back where we started but Sugar Daddy is not looking happy.

        You’re a rich girl, and you’ve gone too far
        Cause you know it don’t matter anyway
        You can rely on the old man’s money
        You can rely on the old man’s money
        It’s a bitch girl, but it’s gone too far
        Cause you know it don’t matter anyway
        Say money, money won’t get you too far, get you too far

        Thanks Hall and Oats

        • The rich girl has not aged well and the old mans trust fund has dried up.

          Not much work around for aging rich girls with no experience, skills or qualifications.

    • Janet, there are certainly places where Australia can start to regain skills and rebuild its industrial base BUT make no mistake about it, time is running out.

      There are three basic problems
      – Engineers (with master degrees)require at least 5 years training working within a vibrant competitive wining environment, before they can possibly understand the best most cost effective approaches to solve any given problem. Honestly ask yourself, How many of Australia’s existing engineers are truly world class? It is this small base that must be built upon.

      – Highly automated (Capital intensive) manufacture is the future. This requires highly skilled workers at all levels unfortunately most of today’s high school graduates are not even studying math or science at any level. Making most of the “entry level” jobs population incapable of even doing the lowest level factory floor jobs in a modern factory.

      – Capital intensive manufacture requires very fast cycles “turns” as it is called. If it takes me 1 day to manufacture a product then I could theoretically run a just-in-time production line with
      1 days goods inwards,
      1 days work in progress
      1 days inventory

      This would equate to ballpark 100 turns of capital for a low margin business. If the business cost me $10M to establish/build then at least $10K / turn is required to service the loan.

      Consider how much capital is required when your customer and supplier are physically close to you vs the same product but where your suppliers are based in China (say 4 to 6 weeks import) and the next stage of production / distribution is in say Singapore (2 weeks export). JIT with physically close customers creates “capital efficiency” and is a vital parameter to understand in any modern manufacturing environment. If you need a real world example look at what DELL achieved in the mid 90’s, study their product turns and compare this with their competitors operations (Compaq, IBM, HP…)

      There is a 4th problem which overrides all the previous, namely that Australia’s best and brightest are not attracted to manufacturing. They all end up in shiny suits working as “quants” laboring for the finance sector. Our computer scientist all end up as IT administrators running computer networks, tell me what percentage of our CS graduates even studied “control theory” believe me it is low (single digits would be my guess)

      • I completely agree Bob. As I’ve said before, I visit a significant number of manufacturers all around this country and I see the good, the bad, and the ugly all the time.

        We could make changes right now which would start to improve the situation but there appears to be no will to do so. Far too many of our ruling class have bought in to the idealogical drivel espoused in the above article.

        Remarkably we have some very talented individuals and organisations who could achieve far better outcomes in the manufacturing space if the board weren’t tilted against them from the outset. Just imagine where we could be in one single generation if we supported our kids to develop the required skills, attitudes and experience to do such a thing.

        Alas, it’s a long road back…we’ve manipulated our policy settings so far out of whack to what is required to support productive endeavours that there simply must be pain before we can reset the board.

  10. “What Australians should be asking is why the locals aren’t investing in productive industries or buying mining and farming assets.”

    +10

    Also, why aren’t we using our strong Aussie dollar to buy great (and relatively cheap!!) foreign assets?!?!?! What is wrong with us??

    A bit of foreign ownership is OK, but as for sovereignty being highlighted as a potential issue, I would first bring up Serfdom as an issue – that is, “own them, give them a job, get them to work, get them to spend on what we (the foreigners) own, make them thankful for at least having a job, keep making decisions in the interest of ‘elsewhere’, and take the profit ‘elsewhere'”….

    That’s an even more pressing issue, IMHO.

    • Also, why aren’t we using our strong Aussie dollar to buy great (and relatively cheap!!) foreign assets?!?!?! What is wrong with us??

      Burb
      In teh situation we are in we basically have to sell some of our own assets to buy the foreign assets.
      We can run mines and farms and indeed. as per Aaron’s post some manufacturing. I think we ought buy some of that back.

      Just one notion that seems to be lost.
      We should have pride in ourselves as a strong independent nation. Nobody seems to care anymore.

  11. Foreign investment is not a problem but should we be so stupid as not to choose who those investors are, you can kiss it all goodbye short of a war.
    We should never be selling to a communist government dictatorship and, like it or not, that’s what China is.
    I wouldn’t go so far as to call genuine concern hysteria.
    The greedy business heads and the stupid can’t see the obvious differences between Japanese investment in the 80’s and the current wave of Chinese investment.

  12. Too many excellent comments above here, to put comments on them all. Big pluses to China-bob and Flawse and Pfh007 and Janet and TheBurbWatcher.

  13. Why is Germany’s economy standing strong? Because they are “Manufactures”! I experienced this backpacking as a 21 year old, way back in 1994. But why has Australia failed to adopt this model?!

    Mark McInnes said:
    individuals could bring up to $1000 in goods into Australia without paying GST.

    ”They are almost laughing at us as a country to say that our government will allow this to go on when the GST threshold in Britain is £15 ($22).”

    http://www.theage.com.au/business/mcinnes-slams-gst-threshold-20130419-2i5q2.html

  14. My biggest concern with foreign ownership is food security.

    The United Arab Emirates has been buying up big swathes of arable land to secure the food security for the U.A.E. The downside of this is that the poor in Pakistan get to work on these farms and watch their food get sent overseas and the cost of it go up in the local market to unaffordable levels.

    A country should be able to feed its own people. If it can’t it leads to civil unrest and disorder. An example of this is happened in New Delhi in the late 1990’s. The price of onions rocketed up and there were literally riots in the streets as this staple food became unaffordable.

    My concern is that if we “sell the farm” and all our food is exported we wont be able to feed our own people.

    The world population is expected to reach 10 billion by 2050, that’s only a little over 35 years away. It’s going to take a lot of food to feed all those mouths.

    • GunnamattaMEMBER

      Interesting you say that. After the Chodley Wontok event of a few weeks ago I was told that the far bigger issue is not residential real estate, but agricultural real estate.

      If the vetting/approval purchases for agricultural land are anywhere near as fraudulent as those used for residential real estate there then you can understand the Xenophobe element raising issues.

      • I do not believe all Chinese want to buy up all Australian agricultural land. Relatives (and other farmers) in southern NSW have been trying to sell their farm for 2 years, with interest from Chinese…… but no longer…..

        Many of these farmers, although with better years of late, have significant debt in form of overdrafts etc., but according to many Australians they have no right to sell to “foreigners” and must also assure our “food security”….. meanwhile they are at risk of going bankrupt, and having their lives’ work ruined.

        • Oh boo the F hoo. There is such a thing as the national interest. I don’t believe you give a crap about the plight of the farmers. All you care about is lining your pockets selling PR to international students and you are willing to call anyone who stands between you and the trough a racist.

          • So many people do not understand the difference between national sovereignty and the ownership of assets. Just because a Chinese consortium “owns” a physical asset in Australia does not mean that that asset has become part of China and subject to Chinese laws and garrisonable by the Chinese military. It remains part of Australia.

            Abuse of the physical asset by any owner, whether Chinese or Australian, will bring the Australian State down upon the asset owner: fines, injunctions, even confiscations.

            There is no evidence anywhere that assets in a sovereign first world nation are manipulated by foreign owners in service of some grand geopolitical plan to “take over” and supplant the nation’s culture by a commercial form of “invasion”.

            It is a cultural form of invasion that we want to be on guard against. It is changing a western nation’s culture that is truly changing the nation and making it no longer recognisable to its people as “their” nation.

          • Then what is the deal with China asking that it be allowed make investments worth up to $1 billion in Australia without needing to pass the Foreign Investment Review Board’s ‘national interest’ criteria? What is the deal with China demanding reducing scrutiny of investments by its state-owned enterprises as nonnegotiable in the quest to reach a free-trade deal? What is the deal with the Astaralian government being forced by China to defend it’s immigration policy, including its crackdown on 457 visas? What is the deal with Chinese media only news conference held today by Gillard where the Australian media were kicked out? At this news conference Gillard sought to reassure the Chinese that the FIRB is a facade. Emmerson admitted as much the other week when he confirmed the FIRB was established simply to mollify the masses. The coalition also hides behind this whore FIRB who has never knocked back anyone.
            If you think these types of demands will decrease as they own more of Australia you are naive in the extreme. Check out what is happening with Chinese investment in Africa to see what to expect when the gloves come off.
            The cultural invasion that goes hand in hand with the same undemocratic globalist ideology that allows the wholesale sell off of a nations assets is a discussion for another day. Needless to say that no government has the right to change the ethnic makeup of a country without the expressed will of the people of that nation.

  15. Regarding foreign ownership of Australian assets.

    Is it possible for China (for example) to “create” new currency and then use that currency to purchase Australian assets?

    If so, does this process effectively convert “worthless” currency into hard assets?

    I admit to being poorly schooled in the nature of fiat currencies, so a lay explanation would be most appreciated (if it is possible).

  16. I don’t know much about the manufacturing side of things, but I am a little more familiar with farming.

    The argument that restricting foreign ownership of farming thereby stops the current generation of farmers from obtaining a fair price is rubbish. The reason that the average age of farmers is growing is that it is extremely difficult to get a start in farming unless you have a lot of money to begin with. If you borrow money to invest in a farm you will be very lucky not to go bankrupt as the return from the farm will barely cover costs and interest payments. This is because most farmland is overpriced relative to the return it generates and in Australia you also have the fickle weather to contend with meaning it you get a bad run of seasons you will be wiped out before you begin.
    The fair price these farmers would be receiving from foreign buyers is not the fair price at which a young farmer could buy the land and hope to get a reasonable return for his often extremely hard work. No instead it often considerably above that as the foreign investor can either borrow money at considerably lower rate or is only concerned with securing food supply for their country and not getting a return on their investment.

    • I have raised the question before on this forum; once a nation has food security, what the —– is the point in continued “marginal” operation of huge areas of farmland, especially when subsidies and bailouts are taken into account, the sector is a net drag on the economy.

      Creating the right fiscal and regulatory framework for a healthy URBAN economy and tradables sector is far more intelligent. All the growth in wealth in the world economy for the last 6 decades has been in the cities; the terms of trade for farming commodities have fallen around fourfold in this time. Yet Aussie cities are starved of infrastructure spending and denied land for growth, by urban planners (when they only occupy 0.4% of it in the first place).

      The world is frequently awash with agricultural surpluses. Every nation in the world wants to NOT have to have to import food on net, so food-exporting nations are on a hiding to nothing. That is not stopping Brazil and other nations from ramping up their food surpluses for export. If Africa sorted its political shite out and went back to being a net food exporter as in the colonial era, it would be all over for Aussie farmers.

      • That is quite right but I understood Jarrod’s point was that the price of farmland is higher than the return it can generate from farming activities.

        Accordingly, borrowing some or most of the purchase price is not viable.

        That suggests that people investing in farmland are willing to accept a return on their capital that is not attractive.

        Hmmm that sounds familiar.

        Negatively geared farmland ? speculation on capital gain? speculation on selling land to foreign purchasers desperate to acquire assets in a jurisdiction that protects property rights?

        Attractive tax treatments and cheap money?

        At least we know they are not investing to develop new housing, suburbs and cities as the town planners don’t approve of farmland being converted willy nilly. 🙂

        While my preference remains towards free markets and enterprise we need to be alert that we are living in a pool hall full of hustlers playing dirty pool.

        • Jarrod makes a good point which ironically is a similar point that bloggers have made while discussing housing affordability.

          Pfh007 since we are quoting old songs Phil may like this one from Joni Mitchell

          Don’t it always seem to go
          That you don’t know what you’ve got
          ‘Til it’s gone
          They paved paradise
          And put up a parking lot

          Whatever the true effects of foreign investment are we clearly do not value our assets in the same way foreigners do. Who is making the correct valuation?

          • Yes – if farming produces such a poor return – and it many cases it does for the reasons Phil gives – and farmland cannot be converted to other uses like housing due to zoning and Urban Growth boundaries etc, the value of the land should be quite low.

            When people are prepared to pay more than the land is worth some scrutiny is required. If they have some brilliant way of farming the land that increases the return that is excellent – and without doubt the locals will watch and copy very quickly as farmers have done for generations.

            But if they are doing nothing new and appear to be just accepting a sub-optimal return then there may be some cause for concern.

            One common and fairly harmless scenario are farms bought by wealthy city folks as ‘hobby farms’ where the return from farming is irrelevant and they have no interest in doing so. While it is irritating that productive land is unused it is in the same league as empty bedrooms in large suburban houses with only a widow or single person living there. Not much can be done without creating some nutty spare bedroom detector van.

            A less harmless scenario is a foreign government or foreign enterprise. Sure they cannot take the land back home but they can certainly at some future point export all of the agricultural product back to the home country.

            With capital intensive agriculture there may be little need for local labour – so little employment benefit (hmm how long before labour started arriving under 457 etc)- and with the product sold to a ‘home company’ in a foreign currency at a convenient transfer price possibly no income to be taxed on the sale either.

            Certainly, a future govt could impose some form of land tax to ensure that the nation received some income from foreign owned soil that was used to grow agricultural goods and ship them off shore but I would not want to hold my breath as they have not done so to date.

            Let’s assume the Chinese company who bought Cubby starts running it badly (environmentally) in our opinion but not in their opinion or the opinion of the Chinese government. Would our pollies have the spine to do something if the Chinese made threats about our dirt exports?

            The so called ‘benefits’ of selling agricultural land to foreign interests require careful examination. They may be quite illusory.

            What we may find is that the only benefit is to speculators seeking to make capital gains at expense of the long term interest of the nation.

      • Phil, the land required for food security is variable, dependant on the weather, soils, population growth etc, so it is impossible to say we need x and the rest can happily be sold off. BTW, Brazil has destroyed vast swathes of the finest rainforests on Earth with unsustainable farming practices.

        Your comments made me think of an old Indian saying:

        When the last tree is cut, the last fish is caught, and the last river is polluted; when to breathe the air is sickening, you will realize, too late, that wealth is not in bank accounts and that you can’t eat money.

      • “especially when subsidies and bailouts are taken into account, the sector is a net drag on the economy.”

        Whoa there boyo! That’s only the case if you assume, as we have done for 50 years, that there is no need to actually produce anything for export. We can always borrow whatever we need or alternatively ‘sell another paddock’

        Re price of farmland. It’s nuts and the easy credit no repayment needed world of the last three decades has not helped. The problem is that it gets tied up with the fact that it is your home as well as the production factor in your life.
        So to sell your home you have a major change of lifestyle and most of us hate cities anyway! If you just want to sell your production factor then you have to sell your home…with teh same attitude to living in uncivilised places like cities.
        Then there is the old family thing. Somehow the land is not really yours. You are just a custodian holding it for a period of time on behalf of your family. You stand on previous generations’ shoulders as your children will stand on yours.
        I’m not sure whether people who are not of the land can grasp the gravity of responsibility but there it is.

        So as long as you can ‘make do’ you don’t sell. You aren’t really needing to get a ‘return’.

  17. You’d think that with all the money that the Aussie govt made from the mining tax they’d be able to put together a decent sovereign wealth fund to invest in strategic assets in Aust and overseas. oh wait….

  18. Agree with you except when it comes foreign govts acquiring ownership and control of Aust assets, especially dictatorships. Whatever happened to the principles underlying decades of privatisation?