Government reaps what it sowed on foreign asset sales

By Leith van Onselen

Treasurer Scott Morrison is coming under increasing pressure to review laws that have allowed the states to flog-off vital infrastructure assets to foreigners.

Amid controversy over the deal to offload the Port of Darwin to Chinese interests, along with the State Grid Corporation of China’s interest in purchasing the $8 billion Transgrid poles and wires from the New South Wales Government, Morrison has proposed reforms to the process for selling state government-owned assets. From The ABC:

“There are some consultations talking place at the moment with states and territories in relation to those matters,” he said.

“There are constitutional issues around the sovereignty around particular critical infrastructure assets which are held by states and territories, so it’s not something the Commonwealth Government can simply move on unilaterally.”

Meanwhile, Peter Jennings, executive director of the Australian Strategic Policy Institute, is urging the Government not to repeat the process that led to the leasing of Darwin’s port to a Chinese-owned company:

“There are a number of important critical infrastructure decisions that are coming up, including the privatisation of the electricity transmission infrastructure in New South Wales,” Mr Jennings told AM.

“We ought to make sure going forward these issues are given the appropriate consideration at every level of government.”

Mr Jennings was the author of an influential report highlighting national security concerns over the decision to grant Landbridge a 99-year lease over the port…

“For those who are watching China, well this is just another example of how it is looking to demonstrate its interests and its power on a much wider geographic sale,” he said.

Seriously, what did the Government expect? Since gaining office, it has encouraged the state governments to sell-off essential infrastructure without giving due regard to longer-term consequences. Heck, it has even provided federal government incentives to the states via its asset recycling program.

This is despite the Productivity Commission last year warning that asset recycling “could act to encourage privatisation in circumstances that are not fully justified and encourage the selection of new projects that do not have demonstrable net benefits”.

More generally, this latest episode once again highlights the inherent problems with Australia’s foreign investment regime: namely that it doesn’t properly distinguish between genuine investment and the transfer of ownership whereby no real investment (capital deepening) takes place.

Genuine foreign investment, such as the building of factories and infrastructure, adds to the nation’s productive capacity and employment, and should be encouraged. By contrast, merely transferring ownership of an existing asset to foreign interests is akin to “selling the family jewels”. It does nothing to improve the economy and living standards, and should be discouraged.

It also goes to the short-sighted nature of the Australian economic model of relying upon housing leverage and the population ponzi to drive growth. When the offshore debt for the former has to be guaranteed by the Budget it disqualifies it from fiscal expansion to build infrastructure for the growing population and forces us to flog assets as the only way to fund basic capacity expansions.

Unfortunately, too much “foreign investment” in Australia is really just “foreign ownership”. And much of it involves our established homes, our farms, and now our essential infrastructure assets.

We are selling-off our children’s future and if we are not careful, Australians risk becoming tenants and serfs in our own country.

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Unconventional Economist
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  1. so selling a critical infrastructure to a profit seeking hedge fund from somewhere other than China is OK?
    these people will not sell government secrets if offered a large sum of money because they are buying these assets to “help community and nation” not to make money?

  2. the more somebody uses the word ‘around’ when they mean regarding or about or simply of, the more they are trying to pull the wool over your eyes

  3. Aussie punters and the Pollies seem happy just to have jobs and an investment property aspiration…we’ll sell just about anything to have it, and cry about Serfdom later…

    The globalised free-market notion wouldn’t be so bad, if so much of the money wasn’t actually “funny” – corrupt and/or printed – and just seeking to be converted into a real asset before the money itself gets depreciated or destroyed.

    Add to that the Imperialistic tendencies of larger nations and their governments, and you’ve got a recipe whereby nations like Australia (short-sighted punters) will haplessly walk down a Road to Serfdom…


    • The guy that wrote the Road to Serfdom is a key architect of this reality, say one thing and do another imo…

  4. “merely transferring ownership of an existing asset to foreign interests is akin to “selling the family jewels”. It does nothing to improve the economy and living standards, and should be discouraged.”

    This is only true you assume that the money raised from selling assets is NOT used to invest. e.g. If the NSW government flogs off some electricity assets to foreigners, but uses the money raised to invest in infrastructure – the net effect is an increase in investment. What matters a lot is what they do with the money.

    • sojourner
      Without getting into ‘electricity wires’ the evidence is clear that what we do with the foreign money is turn it into the purchase of imported consumption items.. The chronic and severe CAD is evidence oif this.
      With regard to wires let’s take a likely scenario. Suppose this allows the government to not raise taxes that it would otherwise have to do. This leaves money in the private sector. It’s clear that we already have an unfavourable environment for investment and we have just, in this process, just driven the A$ higher. We are at the same time running negative RAT interest rates (by most logical measures). So we get what we get and that is consumption of imported goods!

  5. “We are selling-off our children’s future and if we are not careful, Australians risk becoming tenants and serfs in our own country.” – Well at least they will have practice in being an underclass prior to our Robot overlords assuming control of the world. I am sure they will appreciate the efforts of the grey nomads and show them due respect before turning them into Soylent green to feed the next generation of serfs.

  6. Well we are quickly becoming guests in our own home.

    Remember when the Government use to actively advertise and promote buying Australian? I still remember the Ads in the 80s when they used John Williamsons ‘True Blue’ song as the music. Over the last 30 years though we have concentrated on doing the opposite.

    • The Buy Australian campaign was a fraud and I like to think I had something to do with defunding it.

      Put simply, selling Aussie assets or borrowing from abroad CAUSES Australians to buy non-Australian via the mechanism of the dollar exchange rate. Buying Australian is like trying to stop a fire by putting out the smoke.

      The real solution is to deal with unproductive capital flows as our friend Pfh007 will tell you.

  7. I believe Turnbull said to Obama: “Look, mate, if it was about euthanasia or gay marriage we could have intervened, but national security is purely a matter for the Territory Governments.
    I was particularly amused that a Goverment spokesman said we could “take back” the port, if necessary, in a time of national emergency. Legally, that may be true. But, if it ever came to a point where the Government wanted to physically take back the port, and the lease holders were not inclined to hand it over, what do you think would really happen? Modern ports are full of autonomous vehicles and other technology. If a few boxes of military equipment happened a to fall off a Chinese ship somewhere along the way, and get stashed away in an underground store-room, do you think anyone would notice?
    The real mistake was Guillard allowing the U.S. marine base in Darwin. Because of that, if we turn away the Chinese now, it looks like we are taking sides.

  8. Yea that’s one way to see the problem
    An alternative read would be to say that the continuing growth of our CAD coupled with our near ZIRP interest rate policy drive foreigners into asset purchases that they would have never considered in normal times (when the function of providing liquidity (through savings) is properly rewarded).
    Sorry but you cant have your cake and eat it too…it’s Australia that needs to choose and the choice starts with the proper management of OUR CAD problem. Maybe it’s just me but If we cant fix our CAD problem isn’t it little weird to expect foreign corporations to fix it for us by somehow creating a situation where they supply us with capital but are not appropriately rewarded for this function.

    • The CAD problem is caused by the failure to control unproductive capital inflows.

      The whole objective when mercantalist trade rival’s export capital is to manipulate exchange rates and thereby make their goods and services exports more attractive.

      That results in a trade surplus for them and a trade deficit for those countries that are stupid enough to play the mercantalist game by accepting non-productive capital imports.

      (Productive capital imports are a different kettle of anchovies as Leith points out)

      I should also point out that it is not stupid from the perspective of a carpet bagger politician as it makes perfect sense for them to do as Mr Robb does (and large chunks of the ALP right wing do) and encourage Australians to believe that it is a viable and economic rational strategy to support current consumption and lifestyles with a program of selling off assets, claims on our future incomes and non-renewable mineral resources.

      Selling soft options is a way of life for our inbred mainstream political class.

      • Frankly I’d much rather simple controls targeted at balancing our Trade account over any misplaced belief that we can manage our Capital accounts. Capital flow just can’t differentiate between Productive and Un-Productive end use, if that;s desired than it’ll need to be rule driven and as such will be gamed the moment that the governing rules are either disclosed or determined….gaming is the very function of Arbitrage in financial markets, it only takes a well placed minus sign somewhere on the balance sheet and suddenly all your imports become exports, this game can be played for as long as the capital markets cooperate.

      • CB…”where they supply us with capital but are not appropriately rewarded for this function.”
        But…but…but they just send us the money because everyone loves us and we are such great knockabout people – they surely don’t want the money back – that would be unfair!!!

        CB- we CAN’t balance the trade account while the dollar is way overvalued as a result of an out of control capital account (US FED ZIRP being one of the dirvers) Sure you are right we really really need to look at our productivity and tax structures to provide a better investment and productive environment. But we also need to get control of this capital account.
        Just a note as to allowing any investment that adds to capital stock – why do we have to exploit everything in our nation now? Can’t we leave some good stuff for generations to follow. if we can’t afford to develop something now then it should stay in the ground. JMO!

      • CB,

        At the marginals picking the difference between unproductive and productive capital might be a challenge (in my view greatly overrated) but that is no reason not to restrict the obvious low hanging fruit.

        1. If the govt issues bonds the ownership is registered and must be local

        2. No off shore borrowing by private banks to support mortgage lending.

        Between these two we are talking over $500B $AUD. Huge impact.

        You are overlooking that mercantalists have NO difficulty blocking capital inflows – which they have to do otherwise their capital exports would be neutralised.

    • Bang on CB. We’ve already sold off most of the farm and most of our valuable businesses. What else is left besides our dog boxes and utilities.

  9. The problem is that there is NO policy other than to sell off the nation as quickly as possible so that we can consume as much as possible as quickly as possible so teh government can get re-elected.
    This current damned BS of making ad hoc decisions that basically just distort economic settings even further is not policy!

  10. Great article UE. “Infrastructure” Abbott and Hockey were truly moronic in their approach to privatising and re-investing in more infrastructure. Sloganeers – see it, privatise it, re-invest. No idea about cost-benefit analysis, national interest, social and environmental implications. They were career public servants, aspiring to be Captaiins of Industry, with no clue of what they were doing and buying the stories of any spiv in a business suit. Thank goodness they are gone.

  11. It could be worse. We could have signed on to ISDS agreements where foreign owners of our assets could take the government to court if we do something they don’t like. Dodged a bullet there.