A more coordinated and strategic approach to Asia-Australia trade and investment is becoming apparent. INTHEBLACK's China correspondent analyses the emerging patterns.
By Clifford Coonan
Asia investing in Australia
It's all a question of approach. On the surface, Asian investments in Australia look like a scattering of piecemeal purchases aimed at snapping up a few choice companies in a strong regional player. But there is a much bigger picture emerging of an investment wave that is gradually becoming more coordinated and strategic within the region. The potential returns that this offers is something the Australian government is very keen to exploit.
China's resource companies and steelmakers look at Australia's mines and see ways of securing supplies of raw materials such as coal and iron ore to fuel the unprecedented construction boom that shows no sign of flagging for years to come. Singapore's stake in the Australian utilities sector rivals that of the Australian government. India, Hong Kong, Japan and South Korea all see Australia as a great place to spend their money.
Australian prime minister Kevin Rudd has made upping Australia's international focus a key plank of his government policy, and a big chunk of that involves boosting investment from Asia.
Increasingly, when people talk about wooing new regional investment they mean China. It has attracted all the headlines, even though the region's traditional big players remain vital markets for Australian goods. Rudd's time spent working in the embassy in Beijing and his Mandarin language skills have informed his assessment of China's growing importance. They've also won him friends in China, the world's fastest-growing major economy. It's probably fair to say the Australian government is bullish on China.
China overtook Japan and became Australia's largest two-way trading partner in 2007, according to trade figures. During 2007, Australia's total trade with China grew 15 per cent to $58 billion. 'These figures show there is much potential for our trade to grow even further, which is why we are working hard to negotiate a free trade agreement with China,' says minister for trade Simon Crean.
As the first port of call for many Chinese companies looking to Australia, the government's trade facilitation body, Austrade, is seeking to build on these opportunities. 'There is huge potential here in China for investment in Australia, and a great need,' says Henry Wang, senior investment commissioner for Greater China at Austrade. 'Lots of work has to be done here to create an understanding of how to do business in a foreign environment, creating joint ventures and evaluating projects.'
China is the world's third-largest trading nation after the US and Germany, with foreign exchange holdings in excess of US$1.6 trillion, while Australia's trade with China has almost become the stuff of legend. In 2007 China became Australia's largest merchandise trading partner, and over the past decade the value of Australian merchandise exports has grown by 20 per cent every year. 'There is plenty of money around in China, and people in China want to do business,' Wang says.
'To resolve these issues, Austrade can help them to understand the environment and business opportunities, help them understand the best way to do it.'
Naturally enough, there is monster demand at the moment in resources, and Australia is in a position to supply many of China's needs. But Wang says the fact that the resources sector is growing in China makes for a balanced, complementary picture. And, it's not just about commodities. This was the message from Australian treasurer Wayne Swan in June when he spoke to a roomful of Communist Party cadres, giving a speech that sought to underline the importance of Australia's links with China.
Coal and iron ore are the prominent exports, and important ones, too, but Australian companies supply everything from subway-fare machines to Astroturf for Beijing's sporting fields of dreams, and the government is more than willing to have that kind of investment coming back the other way. 'We welcome foreign investment, not just as additional capital for Australian growth but also as a source of additional competition, of new technologies, management and marketing techniques, and of skills development,' says Swan. With this statement Swan is pushing all the right buttons, because China is obsessed with upgrading its production to more high-tech, skilled work as it needs to develop better clean industries as production costs rise in what is increasingly a high-inflation environment.
Potential is the word on everyone's lips. At the start of 2007, Chinese investment in Australia comprised just a fifth of one per cent of all foreign investment in the country. Since then, however, Australia approved around $10bn in proposed investments during the 200506 and 200607 fiscal years, which could hit a record $30bn this year.
It's generally accepted that there is a high awareness of Australia in China, and it's going to grow. Chinese investment proposals are being approved at the rate of around one per fortnight since the advent of the Rudd administration, says Swan.
In June the Australian government signed a landmark investment deal with China that makes Australia an 'approved' destination for Chinese investment and paves the way for a whole host of new investments.
A sticking point has been Chinese sovereign wealth funds taking a stake in Australian industry, but the Australian government is trying to stay as politically neutral on this issue as possible.
It's not an uncontroversial relationship, as shown by state-owned Chinalco's cheeky $14bn bid to buy into Rio Tinto, which had some parliamentarians worried about the Chinese government owning part of an iconic Australian company. Swan soothed Chinese fears with promises that Australia's Foreign Investment Review Board is non-discriminatory and aims to ensure market forces, not external strategic or political considerations, drive decisions.
Chinese companies are increasingly looking at Australia as a market for technology. 'There are lots of Chinese companies setting up in Australia to learn if there is an opportunity for Chinese high-tech products in foreign markets products like televisions,' says Wang. 'The companies can test their products in Australia and then export globally. Australia has high standards for electronics and medicine, say, and it's a good market to test if you can meet Australian standards. Also, Australia is a relatively small market, so if it doesn't work, the damage is relatively small.' Other technologies on the sought-after list include agricultural and water systems, pharmaceuticals and even educational services.
'Australia is on the radar screen. People know it's a good place to invest in food and agribusiness. Less well-known is the IT and high-tech sector, and the government can play a role in creating an awareness of that. Also, sectors like green energy and clean coal have huge potential.
'We are actively promoting those sectors. It's difficult to assess how many Chinese companies are investing in Australia, as much of it takes place through subsidiaries. Investment is growing. It's still relatively small but it's got huge potential,' says Wang.
While China dominates the headlines in terms of investment, it is not alone in splashing the cash around in Australia, because the trend of increased investment is Asia-wide. As Rudd pointed out in a recent speech, Australian trade ties are closest to the Asia-Pacific region, and over 70 per cent of the country's trade is with APEC members. The top three merchandise export markets are Japan, China and South Korea. India is Australia's fastest-growing major export market, while two-way trade with Indonesia, Malaysia and Singapore is worth over $40bn.
In June, Australia was named as one of a group of nations including the US, Japan, Britain, Singapore and Hong Kong that are eligible for direct investment from Chinese entities regulated by the China Banking Regulatory Commission.
This is expected to create new opportunities for Australia's fund managers to provide their services to Chinese investors seeking Australian investment opportunities.
China might get the headlines, but Japan, the world's second-largest economy, with a GDP of around US$4.5 trillion, remains Australia's largest export market. That's why Australia has placed so much emphasis on negotiating a free-trade agreement with Japan.
Minister for trade Simon Crean was keen to make sure the Japanese did not feel unloved just because China was occupying an expanded role in Australian affections. 'Japan continues to have a special significance as an Australian trading partner, reflecting the importance of the political, strategic, trade and economic links our two countries have developed over 50 years,' Crean says.
Malaysia is Australia's third-largest trading partner in ASEAN and the country's 11th-largest trading partner overall. Two-way trade between the two countries for 20062007 stood at nearly $12bn, largely because of the synergies between the two economies. As well as exporting energy products, electronic goods and components, Malaysian companies are examining areas like property development, building and construction as well as hospitality.
By the end of 2005, Malaysian investment in Australia reached $6bn. Bilateral programs are looking at ways to expand collaboration in the services sector, including financial services, professional services, education and telecommunications.
Australia is sold around the region as an efficient place to start a business, and Malaysian and other Asian investors who are interested in heading to Australia are told of the flexibility of different ways of conducting business there.
In Australia, the government works hand-in-hand with businesses to respond effectively to global and domestic economic trends. The emphasis of government policy has chiefly been on making Australia more internationally competitive and globally integrated.
Australia is in the top 10 countries for having business-friendly regulations and rules, something that resonates with Malaysian investors. Singapore's investment in Australia was $26.9bn in 2006. And while most investment has traditionally been in real estate, energy infrastructure is a growing area, with Temasek buying a piece of childcare giant ABC Learning and Singapore Investment Corporation buying a stake in various shopping centres in eastern Australia.
Taiwan and China are similar markets in many ways. Taiwan has been looking at Australia for years but many leading companies are coming to China rather than Australia. Now that many of these companies are relatively mature, they are starting to look at Australia, particularly in sectors such as high-tech and design.
Hong Kong is China's bridge to the world. Chinese companies have been using Hong Kong as a way to invest in Australia for decades because they know how to do it that way; it's familiar.
Relations with India have been complicated by the ban on uranium sales, but Rudd has been playing the diplomat in encouraging closer ties with Australia's 10th-largest trading partner.
The Rudd government has cut the withholding tax rate that applies to non-resident investors in Australian managed funds from 30 per cent to 7.5 per cent over a three-year period in order to attract more foreign investment. 'People doing business in Australia already are aware of the reduction in withholding taxes and we've also done much to publicise tax rebates for R&D,' says Wang. 'These things need to be widely publicised. Overall there is going to be huge potential and it all needs to be publicised.'
