25/02/2020

Partner Deborah Johns, was interviewed on the ‘Nightlfe’ program on ABC Radio on the subject of foreign investment in Australia. While the final decision to approve investments is made by the federal treasurer, it’s Australia’s Foreign Investment Review Board (FIRB), which provides advice on whether or not that investment is in the national interest. Deborah discusses the role of FIRB as an advisory body, exploring their role in recommending which acquisitions take place, what it weights up to arrive at that decision and concludes why the country needs it.

 


 

Speaker 1:

Nightlife, with Philip Clark, on ABC Radio.

Philip Clark:

Yes. Well, hello, and how are you? I hope you're well. For the plug with you, how have you guys been? Just fun. We've got plenty fun to talk about in this hour. We're on ABC Radio, right across the country, this is Nightlife. It's six past nine in Queens and six past seven in Western Australia. Wherever you are, I hope you can drop in and join us. The number to call if you'd like to join the program, 1 300 800 222, texts on 0467 922 702. Remember you can follow us on Facebook just by searching for ABC Nightlife, and you can also subscribe to our podcasts all.

Philip Clark:

And they listen back to previous programs including tonight's. A bit later on when we load it up, by going to our website, abc.net.au/nightlife. Hope you can stay with us, we've got some interesting things tonight. Coming up first, I wonder whether you've ever wondered on what basis are foreign companies allowed to buy Australian companies? It seems every week a foreign company is taking over an Australian one or is there plans afoot to make it happen? Foreign economies had a total of $3.5 billion, 3.5 trillion that is, invested in Australia at the end of 2018. The US and the UK are the biggest investors followed by Belgium, Japan and Hong Kong, which might surprise you as well. It started an Foreign Investment Review Board or FIRB, the body that provides advice on whether or not an investment's in the national interest. What is the national interest and how do they measure it?

Philip Clark:

We'll take a look at the role of the board and how it operates. If you've got a question about foreign investment in the country and why some people are allowed and others are not, the number to call, 1 300 800 222. Sounds to me as tonight, well we're talking with Joel [Warner] about some of the numbers coming out of the Bush fires. The billion animals killed. For example, the number of hectors burnt. How did we work it out? How did that work it out? You'd be surprised to know that there is a fair bit of science involved in some of these numbers too. [Sean Jayden] he's been to see the new adaptation of Jane Austen's classic novel, Emma.

Philip Clark:

It's been made as a film before or what's the new one like? You'll get to see there's take on that new offering a little later. Plus after the mighty challenge, our issue of the day, should older and wealthier Australians be paying more for aged care? It's a view that some have advanced given the size of the aged care bill, you might think absolutely not or you might have another view. We'll talk about that a bit later in the program. So I hope you can join us for some of all that.

Speaker 1:

Nightlife, with Philip Clark, on ABC Radio.

Philip Clark:

And for listeners in New South Wales, particularly in and around Sydney, there's a large thunderstorm complex headed your way, so heading down, I had to just make sure everything's closed up. And dogs and other pets of course, are safely inside or under cover with shelter. Feels like every week a foreign company is taking over an Australian one, or there are plans a foot for it to happen. You probably recall the first savvy infant formula group Bellamy's Australia, which last year was taken over by a Chinese dairy company in what was a $1.5 billion deal. Plenty of people said, "Why are we allowing that to happen? Or should have happened?" More recently we've seen Canada's Alimentation Couche-Tard, the bank pay $8.8 billion bid for Caltex Australia.

Philip Clark:

Japanese brewer, Asahi's came to make a $16 billion acquisition of Carlton and United Breweries. And then there was the first warrant year of the takeover of the Port of Darwin on a long term lease by Chinese interests as well. While the final decision as to whether these investments happen is made by the federal treasurer, it is Australia's Foreign Investment Review Board or FIRB, which provides advice on whether or not it's in the national interest. And its most recent annual report, 2017 and 18, the board approved around 11,000 proposed transactions worth around $163 billion.

Philip Clark:

The overwhelming majority of them were from China and in the real estate sector. There's concern there too, isn't there? FIRB is now run by David Irvine, he was the former boss of Australia spy agency ASIO. And there's a view that in recent years the organisation may have pivoted towards taking security interests when recommending takeovers, as more of a factor. Which includes issues such as protecting the private data for example, of Australian citizens. Anyway, how does the FIRB recommend what acquisition should take place and what does it weigh up and do we need it?

Philip Clark:

The process is already heavily regulated. Is it too regulated? Why do companies want to come here anyway? Tonight we're joined by a panel of experts to discuss the ins and outs of the FIRB, I'd love you to join that conversation, we're asking questions as well. Deborah Johns is with us, Deborah is a partner in Gilbert + Tobin's Corporate Advisory group, advising on corporate and commercial transactions. She's also something of an expert on matters relating to the FIRB. Deborah, good evening and welcome to Nightlife.

Deborah Johns:

Thank you. It's great to be here.

Philip Clark:

Terrific to have you with us. Hans Hendricks, is a professor of Chinese business and management of the University of Sydney's Business School. He speaks and writes fluent Chinese and he's a frequent commentator on China business, and Australia, China business relations in national and international media. He and KPMG put out an annual report on Chinese investment in Australia. Prof. Hans Hendricks, wonderful to have you with us as well.

Prof. Hans Hendricks:

Thank you so much Philip.

Philip Clark:

Good evening, and welcome to Nightlife. And also joining us is a journalist, David Uren. David was a economics in his review of the Australian for a period. He's also the author of Takeover, and The Kingdom, and the Quarry. And he joins us as well. David, good evening to you and welcome to Nightlife.

David Uren:

Good evening.

Philip Clark:

Terrific to have all of you with us. And as I said, if you've got questions, 1 300 800 222 is the number. Deborah, can we get down to basics? What is the Foreign Investment Review Board? What does it do?

Deborah Johns:

It's a very good question. The Foreign Investment Review Board is just an advisory body, and the secretary out within treasury collects applications and disseminates them to all the different government agencies that may have an interest in those applications. They solicit advice from all of those agencies, correlate it, assess it, and then provide a recommendation to the treasurer or the treasurer's delegate, on foreign investment applications.

Philip Clark:

Okay. So it's only a recommendation? It's not a binding decision?

Deborah Johns:

Correct.

Philip Clark:

Do the recommendations normally get followed?

Deborah Johns:

As far as we know, there's no visibility necessarily as to what the precise recommendation is, but most of the time our understanding is that the recommendation is followed.

Philip Clark:

That's interesting. So it's not even a transparent process?

Deborah Johns:

To some extent it is not a transparent process.

Philip Clark:

So you don't know whether the FIRB recommended in favour or not? Is that right?

Deborah Johns:

Well, when we get approval we assume that they did.

Philip Clark:

Yeah. But that's interesting. So the FIRB makes a what? A confidential recommendation to government. Is that right?

Deborah Johns:

Essentially, yes.

Philip Clark:

Yeah. Okay. Is there any reason for that or why shouldn't they be greater transparency and what a tax payer funded body recommends to government?

Deborah Johns:

I think that the information that they assess comes from a wide variety of government agencies that has varying degrees of confidentiality. And so the advice that goes to the treasurer is not necessarily a yes or no. It's a, "Here's all of the factors that you should consider in making your decision. And here's the way that we think the decision should be made." So it's not necessarily a yes or no piece of paper that's going to the treasurer.

Philip Clark:

But often, it's very difficult to work out why something happened or not.

Deborah Johns:

We can usually get a reasonable idea as what the concerns are that the government has before the recommendation goes to the treasurer, just based on the interaction that we have, the conditions that the government is thinking about imposing on the transaction. So we usually have some idea that there is or isn't an issue and an idea as to what that is, but we often don't know the specific information that's triggered some concern within the government.

Philip Clark:

What's the bar for the... So I mean if a foreign business wants to buy an Australian company, or wants to buy ups wades of prime agricultural land in Australia from an agribusiness point of view, what's the bar? Is it above a certain monetary value or?

Deborah Johns:

So the bar depends on what the transaction is and who the acquirer is. So if you're a foreign government investor or if you're deemed to be a foreign government investor, then the bar is usually zero and you have to get approval for virtually anything that you would do in Australia.

Philip Clark:

So if a government wants to by something here?

Deborah Johns:

A government or a private equity fund that has a lot of public pension fund money in it, those would all have to get approval for virtually anything that they do in Australia.

Philip Clark:

Even buying a house in

Deborah Johns:

Especially buying a house. Everybody has to get approval that is a foreign person to buy a house in Australia.

Philip Clark:

Is that right?

Deborah Johns:

Yes.

Philip Clark:

So anybody who wants to buy a house in Australia has to get Foreign Investment Review Board?

Deborah Johns:

Right. There's a

Philip Clark:

What even if it costs $200,000? Sorry.

Deborah Johns:

There's a couple of exceptions. So if you're buying something for diplomatic or consular purposes, there's an exception. But otherwise, any foreign person who's not a permanent resident or a citizen has to get approval.

Philip Clark:

Okay. That's interesting. That's-

Deborah Johns:

That's why there's 11,000 applications for residential. A huge number of applications for residential real estate.

Philip Clark:

Okay. But for businesses, if an American company, for example, wanted to come here and buy a small technology firm here because they've got an interesting piece of kit that they want, for example, that's common these days. Do they need FIRB approval?

Deborah Johns:

So in those cases, if it's a private investor, then it depends on the value of the business in Australia. And different countries have different value thresholds that are applied to them. So the standard threshold currently is 275 million, so anything below that level, a foreign investor could come in and buy. Certain investors from treaty countries like the US, would enjoy a much higher threshold. So it's over a billion dollars currently.

Philip Clark:

Is there any cultural protection? I mean, what about if companies want to come here and buy Australian film or book publishing companies for example, which you might think contributes to the cultural life of the country. Is there any high bar on that?

Deborah Johns:

So there are various different thresholds for different kinds of things. There are some things that are considered to be sensitive businesses like media businesses, which can be subject to a lower threshold. But generally speaking, not unless it falls into that sensitive business category.

Philip Clark:

Who's the biggest foreign investor in Australia?

Deborah Johns:

Well, it depends on the statistics. You have to remember when you're looking at the Foreign Investment Review Boards annual report, what that is reporting is the value of the approvals that they've given, which doesn't necessarily correlate to the value of the investment that's been made. People may get approvals for things and then the investment doesn't proceed.

Philip Clark:

I mean there's a common perception that China is busy buying up Australia. Is that actually true?

Deborah Johns:

There are certainly a lot of applications from Chinese investors. There's also lots of applications from other countries like the US as you mentioned.

Philip Clark:

Prof. Hans Hendricks, why are the Chinese interested in Australia? And buying Australian companies anyway?

Prof. Hans Hendricks:

Oh, for a whole range of reasons. In most general terms is because the Chinese economy really depends in a number of areas on Australia and that's largely resources. Where Australia provides up to a third of Chinese impulse on iron for example. So China for infrastructure building really depends on Australia. Same works for energy, coal, liquid natural gas, all of these areas where China really needs Australia to supply their demand. That's on a very basic side.

Prof. Hans Hendricks:

And then in a number of consumer industries, China simply relies on Australia for high quality food, for example, although agricultural produce wine and so on, are areas where China is very much interested. And then a number of new areas, you mentioned Bellamy before. These are in the healthcare sector where China, with all these health problems that it has really made-

Philip Clark:

Well, Bellamy’s was an infant formula, it's not really healthcare, is it?

Prof. Hans Hendricks:

No. All right. But you have vitamins, you have health care products.

Philip Clark:

Right. Okay. Black bottom

Prof. Hans Hendricks:

Yeah. And that's where there's strong Chinese interest as is in healthcare services. So If China provides a whole range of services which are quite crucial for the domestic market in China.

Philip Clark:

Deborah back to you, is there a greater bar with Chinese companies buying Australian companies? What are the things that the West is very sudden about, Donald Trump keeps telling us this is the China simply steals us to question technology. Is there a greater bar on the Chinese buying things?

Deborah Johns:

So I think that comes in, in a few different ways. One is, China does have a free trade treaty with Australia, and so the private investors from China would enjoy the higher thresholds on pure business acquisitions. The issue with China is that a huge number of companies are not private investors and so you see a large number of Chinese applicants having to get approval because they're actually stayed or don't have a significant.

Philip Clark:

Well, very large Chinese companies are almost variably connected

Deborah Johns:

Correct. So a lot of those would have to get approval for anything that they buy. On its face, the rules don't discriminate between investors from one country versus another country. So every application would be assessed essentially against similar criteria. I think it is certainly the case that when you go to Canberra and sit down and say, "Look, we've got a new application, it's a Chinese investor." You can feel the tension go up in the room a little bit.

Philip Clark:

Really?

Deborah Johns:

But the criteria are all the same. It's just the facts that trigger concerns or tend to be more prevalent with Chinese investors in the eyes of the government.

Philip Clark:

How interested are the Chinese in Australian residential real estate Hans?

Prof. Hans Hendricks:

Oh, they are. Well we don't really have very precise figures or didn't have until a while ago, but now it is controlled by the Australian tax office. They are interested. Chinese are our buyers, but they're not bigger than all other major buyers.

Philip Clark:

Sorry, what do you mean by that?

Prof. Hans Hendricks:

Oh, they're the-

Philip Clark:

They're not major foreign buyer, you mean? I mean, I imagine China is not bigger than all domestic buyers, for example. But in terms of the foreign buyers of Australian residential real estate, are they the largest group or not?

Prof. Hans Hendricks:

I wouldn't know offhand. I know we looked at figures some years ago when Chinese buyers of residential real estate roughly made 2% of total domestic market. So they were not as big as people thought, that they're really buying Australian real estate in very large numbers.

Philip Clark:

Okay. Let's bring David in here too. David, you're in economics writer of the Australian. Author of Takeover, and The Kingdom and the Quarry. David to you, the FIRB is... Well as Deborah says, is merely an advisory body. Does it have any more weight than that though? Does the treasurer decide to overrule it on his or her apparel? Or what?

David Uren:

Look, there are cases of the treasurer overruling it. I think that a classic case was when Joe Hockey ruled that an American company ADM, would not be allowed to buy GrainCorp. That was a decision that the FIRB had not recommended. So I think that was split Joe Cocky, said as much. And they've been a couple of other transactions where, in the one that Josh Frydenberg made to block Hong Kong purchase of a large gas pipeline company, APA. I think there was a split FIRB recommend they should own it.

David Uren:

But to answer your question directly, yes the FIRB has great wage, it's now shared by David Irvine, who was formerly the director general of ASIO and of ASIS, the Australian Secret Intelligence Service. So former Ambassador to China.

David Uren:

And the other members of the Foreign Investment Review Board are all people with a very significant reputation mostly from this stance. So their recommendations to the treasurer do carry very considerable weight. And I think that David Irvine has made his influence forged by bringing a much tighter focus on issues concerning national security which became until three or four years ago really didn't carry that much weight in foreign investment appraisals.

Philip Clark:

How on earth were the Chinese allowed to buy the Port of... Oh, sorry. No effectively buy it for 100 years anyway, the Port of Darwin. I mean many people are completely puzzled by this thinking. Was this against the recommendation of the FIRB?

David Uren:

Well, no. Because it was the lease of the State government asset, it actually didn't require FIRB approval, but the Northern territory government was aware that there could well be sensitivity over it. So we ran it past the FRIB that made sure that the defence department knew about it, made sure that intelligence services knew about it. I think the national security committee had some consideration about it. And the issue was that the port was for sale, it needed more investment.

David Uren:

The Commonwealth was not prepared to invest itself, so Northern territory government didn't have the money to upgrade it. So they put it on the market and this was the result. Everybody thought of it, "Oh well, buy one for who cares." And it was only once that the deal was done that really alarmed us to.

Philip Clark:

I'm amazed that alarm bells didn't ring before. I'm in the Port of Darwin is the major port of the North of Australia. It's clearly of national security interest. It's not I mean, famous. It's like, "What were these people in Canberra doing? Were they asleep?"

David Uren:

Well the matter was very deeply interrogated in parliamentary committees as you might have mentioned. And I think it was Binskin who was Chief of the Armed Forces at the time, made the comment that, he could more or less get a dictator and sit on the outside of the fish and chip shop at the end of the pier and track what boats were coming in and what boats were going out. So having the lease of the port really didn't make very much difference to anything.

David Uren:

So depends consistent with its view that it was quite relaxed about it and Dennis Richardson, the secretary of the department of defence and the former secretary of department of foreign affairs and a deeply experienced public service servant. He expressed great confidence that this was not an issue that would raise concern, and indeed the operators have... I think they are doing what they said. My understanding is in upgrading the port and investing in tourist facilities. So multiple ships and all that.

Philip Clark:

Okay. And there's nothing to say here. David-

David Uren:

But clearly the Americans and others didn't see

Philip Clark:

No. I think much of the Australian public doesn't see it that way either. David, you're economics editor for the Australian formerly. Also Prof. Hans Hendricks Henrik for this as well, Deborah Johns from Gibbon + Tobin's Corporate Advisory group or whether. So we're talking about foreign investment in Australia. Just before we go on, so I'd like to put that issue with the Darwin Port to hands. There was a detailed severe thunderstorm warning by the way, for people in parts of the Blue Mountains, Hawkesbury Sydney areas.

Philip Clark:

This warning applies to people in New South Wales. The Bureau of meteorology has warning that the effects will be from 10:30 right through to a little for an hour. So large hailstones, heavy rainfall, flash flooding and damaging winds. And like I said, just make sure that your property is well protected. Hands back on the Darwin Port. As I said, many Australians are quite puzzled by this and thinking what was the government doing? Were they asleep at the wheel? From your knowledge of what China is interested in, in Australia, Hans what's your take on the Darwin Port deal?

Prof. Hans Hendricks:

You do have two perspectives. One is what David just explained, the way in which the security services and clear strategic partners looked at that and said, "Well, that is going to interfere with our operation with the Marines being stationed in Darwin." You can also see it from a commercial perspective and then you would have the argument that ports actually are not necessarily a national asset that has to be in state ownership. So you would have ports in Europe, for example, which are private pools or try and venture all state owned.

Prof. Hans Hendricks:

But there's a degree of flexibility. So it's a commercial question on how you want to run a port. And at that time, of course, when the Chinese bought that 99-year lease of the Port of Darwin, we had just the developing Australia's Norse policy, as part of general considerations on what to do with the Australian North. And the idea was that it would become an agricultural basis. So the Chinese had motives to invest there because they essentially wanted to build up a transport infrastructure. They would have a logistics train that would run from the Pacific through Darwin, back into China or East Asia.

Prof. Hans Hendricks:

So, these were the commercial arguments and what they would put in favour, well what for example, we see in Greece with the Port of Patras, that in the last 10 years has 10 fold, increased their turnover, and had a billion dollars of investment into the port facilities. So the Chinese would have argued they were trying to build up the Port of Darwin in a similar way. Expanding it, making it part of a major transport route. But of course, my now the security considerations have taken precedence.

Philip Clark:

Yes. David, I mean, just back to you and then I want to go back to Deborah on the criteria that'd get applied here. But David can I ask you, if the application by the Chinese was made today, to do this, the decision would be completely different. Wouldn't it? I mean, there'd be zero chance that the Chinese will be allowed to do this.

David Uren:

Yeah, absolutely. So pretty much in response to both the Darwin Port and pretty significant embarrassment over the new moves to sell Ausgrid to possibly a Chinese. The government set up a critical infrastructure centre, which is built up an infantry of whole critical infrastructure in the nation. Each advisors, both government and the FIRB, and it has very significant power as it can intervene in the management of infrastructure if it believes there are security concerns.

David Uren:

So there's been a very strong response in the appointment of David Irvine to the board and ultimately to chair the Foreign Investment Review Board. Also I think is precipitated in part by the concerns that followed the Darwin Port lease.

Philip Clark:

Yes. Exactly. Deborah, just back to you, what are the criteria that the FIRB applying? I mean, is it that we don't like the colour of your gym or? I mean are there specific criteria? I mean, if you wanted to buy, for example, a piece of a company that makes military technology, I presume the answer would be no. Unless it was-

Deborah Johns:

Not necessarily.

Philip Clark:

...an ally. If you wanted to buy a tech company that was developing new military radar, for example, I imagine the answer would be no. But it seems okay to buy agricultural land. You can buy dairy farms, you can buy infant formula, you can buy residential real estate. There're some things you just can't buy.

Deborah Johns:

So there will certainly be some things that, there are specific assets that you might look at and say, it's highly unlikely the foreign person would be allowed to buy it off. Ausgrid is the perfect example. The governments essentially came out and said, "No foreign buyers." The concept of national interest is not actually defined in the legislation.

Philip Clark:

Really?

Deborah Johns:

And that's deliberate because any attempt to define it will ultimately leave something out. So not defining it, means the government is free to take into account whatever they want when they're assessing whether a transaction's contrary to the national interest. There is a policy which sets out the things that they would typically look at, so national security impact on competition, impact on the economy, the community, the character of the investor, et cetera.

Deborah Johns:

The concept of national security has definitely expanded, when I first moved to Australia in 2002 and started doing this, national security, at least from the outside looking in, appeared to be a very narrow military sense of what is national security. Whereas now there is much more expansive view.

Deborah Johns:

So when we lodge an application, we address all of those different kinds of criteria, we highlight the things that the foreign investor will do from a positive perspective, and to the extent there is anything negative about the application, we'll try to explain how the benefits will outweigh those negative aspects.

Philip Clark:

It seems remarkably opaque. So it's really just down to the way of the Treasurer.

Deborah Johns:

It's far more transparent than it used to be. We have much more interaction with FIRB and with the various counselled agencies than we would have five years ago. And so we do have some visibility of what's going on. But at the end of the day, it's the treasurer's decision.

Philip Clark:

How much can FIRB is going on Hans? I mean a Chinese corporate interests looked upon more negatively because they're Chinese as opposed to say Canadian interests? Or the UK's interests?

Prof. Hans Hendricks:

Sometimes a view that Chinese investors might hold, but I think what you were just discussing is quite crucial in the sense that what the Foreign Investment Review Board does, is not just look at application and say yes or no. But they have a process in place which has increased and has become much more elaborate in recent years that they guide investors. So the approval process, probably the very last bit of a process that goes before hand. And that would include people like Deborah negotiating with Foreign Investment Review Board on behalf of Chinese clients.

Prof. Hans Hendricks:

In regards to, for example, ownership, should there be Australian ownership, should they have Australian management, to what degree do they have to localize, to what degree can they sell, products in their off-take back to China without control of transfer pricing. So there's a very elaborate process around all that, which essentially is guiding Chinese investors. And quite clearly in the case of Chinese investors, what they have learned in the recent years, is that they have to become much more local than what used to be the case a few years back.

Prof. Hans Hendricks:

So for example, in agricultural investment, in the end, nearly all investors by now have Australian either partners or Australian management to run their operations. And that is partly simply the learning process. You can't just operate things here as you can in China, but also it's part of the guidance that for Foreign Investment Review Board gives to those investors.

Philip Clark:

Well, in other words, it's doing exactly what China does to foreign investors, that is impossible to invest in China unless you engage with Chinese pack, to invest with you. Saying what is trying to apply similar criteria here?

Prof. Hans Hendricks:

Well, there's a legal side to it and there's an applied commercial side to it. The legal side in China actually is not that you cannot invest without a Chinese partner. There are some areas where you need the Chinese partners, but generally most areas which are open for investment, you can invest as a wholly owned foreign enterprise. But I think what the Foreign Investment Review Board does, which is different from what happens in China, is the guidance they give. So it's not so much that you have to be controlled, but really how you have to structure your investment if you want to get agreement from the Foreign Investment Review Board.

Philip Clark:

1 300 800 222, My guest tonight, Deborah Johns, is a partner in Gilbert + Tobin, they're a big law firm, they're a corporate advisory group. She's an expert on FIRB, the Foreign Investment Review Board. and Hans Hendricks is just with the University of Sydney Business School, and David Uren, author of Takeover and The Kingdom and Quarry, and a well known Australian economics writer. We're talking about foreign investment in Australia, something that often has a bit of a red button topic for people who are concerned about national sovereignty and all sorts of things. David, just back to you on the... If you have questions, by the way, 1 300 800 222, lines are open 1 300 800 222.

Philip Clark:

David, back to you. I mean there's often popular concern about, for example, the Chinese interest in Victorian dairy farms for example, because if you look at Australia, there are some areas of Australia these are prime areas and the Chinese investment and there's been, of concern to some people. Then mind you, others say, "Well thank heaven for the Chinese. Because who else is going to invest in Australia?" Do you think some of this concern that the Chinese might be wanting to invest in prime agriculturalist real estate for example, is warranted?

David Uren:

Well, it was something that Barnaby Joyce, made quite a significant song and dance about. I think he used to say that, "We'd be better off selling Sydney off selling the Sydney Opera House to the Chinese than prime agriculture land." This was one of his lines. I remember that when Xi Jinping came to Australia and he spoke to parliament, this was in 2014. He took a huge trade delegation to Tasmania and it was quite a significant level of Chinese investment went into Tasmania into its agriculture and to various tourism industries as a direct result of this.

David Uren:

And it's caused a human cry. I think Alan Jones on radio and Sydney thought that this was a terrible thing. And Chinese investment in Tasmania building tourists... So they just have an ultimately foreign investment as a good thing. It's creating jobs at some expanding opportunities. We have China's most important trading partner, investment linked sub. A good marriage to trade agriculture wants to sell. So, I think there is xenophobia that I think runs a bit riot in this area but it has ever been that. When the Japanese started investing in the tourism industry in Australia in the 1980s, there's a lot of nationalist objections, particularly in Queensland, all these terrible Japanese honeymooners who were coming to Queensland and spending lots of money.

Philip Clark:

Yeah. Look, I'm glad you made that point because that is true. I mean a foreign investment's always been important for Australia. We never had the capacity to raise all the capital needed for investment in Australia. And also we can't have it both ways can we? We can't close off parts of foreign investment here and yet want it for Australian companies wishing to invest elsewhere either. I suppose it's the scope and type of it. 1 300 800 222. How many loop holes are there, Deborah? I mean, why can't a foreign company simply set up a two dollar shelf company in Australia and buy it that way?

Deborah Johns:

Well because an Australian company that's owned by foreigners would still be deemed to be foreign. So there's still going to be subject to the laws even if they're incorporated here.

Philip Clark:

Okay. So it's not that-

Deborah Johns:

It's not that easy.

Philip Clark:

It's not that easy. Let's take a call or two. Steve's on the line. Hi Steve?

Steve:

Yeh good day Phil, distinguished guests. Hope you’re all well and happy.

Philip Clark:

We are.

Steve:

This foreign investment, look I think it's fine, but there's going to be regulations in price to protect Australian national security and protect Australian citizens. Since this whole thing started, I'm seeing the massive rise of inequality, the sell off of the electricity grids, the sell off of water. Electricity is sky rocketing, rents are sky rocketing, Prof. Hans Hendricks-

Philip Clark:

What you were saying this is a direct result of foreign investment?

Steve:

And I'll give you a classic. The other night on SBS, Mr John Pilger, the Australia author film maker did a documentary called, The Secret war on the National Health Service. It's done in Britain and now they've a under why here in Australia.

Steve:

When was this Foreign Investment Review Board going to ensure the security of ordinary hard working moms and dads and nuns and paps, that they're going to have job security once again? We're saying all the major industries gone off shore. And I think I mentioned to you a book, unfairly tried, how to kill a country but professional in the waste which everyone wants to ignore. I hear a lot of this big multinationals don't even pay proper tax in Australia.

Philip Clark:

Yeah. Okay. Let's put some of that back to the panel as well. I mean that's always been a concern, hasn't it David? Foreign companies come here, and through transfer pricing arrangements, et cetera, arrange their affairs so that all the bills get paid somewhere else. People have seen it with companies like Uber for example, where the billing seems to be in Dublin for that. Is that a legitimate concern or not?

David Uren:

Look, I think how you tax local companies has been a concern going back to the 1920s. Really, that's since the birth of global companies. So yes. There are issues, the Australian tax office and the government have been passing an awful lot of legislation to force. For example, because you mentioned digital companies to structure their operations in Australia, to book their sales through Australia.

David Uren:

So there's an awful lot of legislative work going on in that area. There's a lot of work going on at the OECD as well, trying to coordinate international efforts. And to some extent the race and the Trump administration's tax package that came into effect at the beginning of 2018. That makes it a bit of a difference to the way in which multinationals operate because they no longer have incentives to try and minimize the US tax they are paying because US no longer taxes what they earn around the world. So companies are really going to be much more focused on the individual tax regimes of the individual countries in which they operate.

Philip Clark:

Okay. Let's take another call. Eric, hello?

Eric:

Hello, Philip.

Philip Clark:

Hi Eric.

Eric:

How are you?

Philip Clark:

Well, thank you.

Eric:

To the board, I have no issue with foreign investment at all. And are always invited. And I like the idea of the Foreign Investment Review Board looked at certain national security picks and balances, but there's been a lot of scam on going from politicians on various sides of the bar that seem to think that if people come to this country as a foreign investor, they're going take the good up and take it out in a suitcase. And that is, I believe, scam irony. Now the word that we're missing here in the whole proximate is investment.

Eric:

These companies coming in from overseas or from outside Australia to make a profit and a return. And with that money, they are leaving a legacy of advancement. And coming from an agricultural background, I've seen this a lot in agriculture, it's even over the last 150, there wasn't the certain nationalities in certain regions of Australia. Quite possibly, we could still be a dessert, as Prince -

Philip Clark:

Correct. If it wasn't for UK investment in the Northern half of Australia, then nothing much might have happened.

Eric:

One of the superannuation company, that bought out CPC. They've advanced that company to another level as well. And that's where I think that it's wrong. So I'm quite for it. Yes. To fixing the cheques and the balances. Yes. And we'll just go back as a child, when I was a kid growing up in Rockhampton, in central Queensland. Look at [Hirosaki] he bought that country north of Yeppoon. My God. It was mud flats.

Eric:

And look at the money he threw into, look what he did in that part of Australia. There is advancement and I don't have an issue with it. If we're going to apply on the global the market where their agricultural products expect the vice versa. So let's not expect other countries to purchase their products, but then we're not going to rely on the too. So yeah.

Philip Clark:

Fair point Eric, thank you. Thank you for that. So it's a fair point. Deborah how does Australia's foreign investment scheme, stack up against up countries. More comparable countries. Are we more rigorous? Are we less rigorous? Whereas it fits.

Deborah Johns:

Yeah. So it depends on the country, but in general a lot of the other regimes look strictly a national security. So the US for example, used to look strictly at national security, although quite an extensive definition of what national security was. Other countries would look at more of a national benefit test, so looking more at a positive, are you actually going to improve something or is it just as in Australia? Is it contrary to the national interest? Generally speaking, the concerns that every country is dealing with are quite similar right now.

Deborah Johns:

I was speaking at our conference last year in London and just listening to people from different jurisdictions and we were all furiously agreeing and saying the same things about the increase investment in agriculture. People worried about Chinese people worried about data protection and all of the different national interest and national security regimes evolving to address all of those concerns in quite similar ways. In many cases.

Philip Clark:

Well Deborah Johns is a partner law partner in Gilbert + Tobin's, corporate advisory group advising and corporate and commercial transactions and expert on FIRB. We're talking about foreign investment, if you got questions, 1 300 800 222, is the number. Well, when of my texts hands, does the FIRB advocate for a national properly register and it's actually, the number of residential properties owned or controlled by overseas entities is understated. You said there were no really mediocracies for Chinese property investment. Is there a need for such a thing?

Prof. Hans Hendricks:

Yes, there's a need because there's very strong popular demand. In terms of actual figures, what we do have is the figures that the Foreign Investment Review Board gets for applications. And for those, actually China is by far the largest group of applicants. But that doesn't necessarily mean that they are the strongest buyers. But on the question, to what extent are we protected? In the sense that, is there someone who controls investment and who keeps a tag on it? That's happening by the ATO. And that was introduced a few years back in response to popular concern. So the ATO has has a full stand and controls who buys what residential real estate.

Philip Clark:

And you say it's about 2%. Is it?

Prof. Hans Hendricks:

That was the total volume of Chinese real estate, residential real estate purchases. Apart from that, China is a player in the commercial real estate sector. But that's a commercial sector. So there's not so much concern if they buy building sites or if they buy factory sites.

Philip Clark:

So we're not going to sell our electricity grid to the Chinese. We're not going to allow them to build the five G network in Australia either David. a big ones like that seem to be no brainers. What's creating an infrastructure and what's not though? What about, allowing the Chinese, for example, to own another harbor crossing in Sydney, for example.

David Uren:

Look, it's a decision that would be made. I think that China has been allowed to buy quite a number of very significant of Chinese interests and certainly Hong Kong interests and quite number of very since then show infrastructure interest in Australia, gas pipelines, electricity distribution companies. I think there's quite a bit of investment in solar and wind farms as well. So into energy.... I think Deborah was saying earlier that each case is considered on its own, and that is true. Deborah, I think also mentioned one of the things the FIRB does is go around the different agencies and get their reactions.

David Uren:

And although Australia's Foreign Investment Reviews system is a sensibly nationality blind, we don't favour one nation over another. When it comes to the reactions of the security agencies, well that's certainly not the case. So saying most I guess obviously in the decision to ban [Weiwei's] participation in the next generation of internet infrastructure. That's a very clear discriminatory views that basically grilled at any Chinese view that.

David Uren:

And it's not strictly through the FIRB, and it gives you an insight as the security agencies take when the FIRB asks them their opinion.

Philip Clark:

Sure. All right. So let's get some more calls. Stella hello?

Stella:

Hello.

Philip Clark:

Hi Stella.

Stella:

Yes.

Philip Clark:

Hi.

Stella:

Yes. Hello?

Philip Clark:

Hello. You are on.

Stella:

Can't you hear me?

Philip Clark:

Yeah, we can hear you loud and clear. Stella what's your question?

Stella:

So I'll turn my radio off.

Philip Clark:

That's a good idea.

Stella:

Yes. Okay. I've got a couple of points. One, when superannuation was set up in Australia, when the company's mandated to invest in Australian companies. Why are all those billions and billions of dollars, at superannuation money, not finding these companies and in a way then we say there's not enough money in Australia to buy these companies. We sold them to overseas companies.

Philip Clark:

David, do you want to have a crack at this? Why-

David Uren:

Well,

Philip Clark:

I mean, Australia is super fun to try and get returns for their members. I suppose that's one of the prime reasons, I guess. Yeah. So-

David Uren:

On that point, I think the United States share market since the global financial crisis compared to the peak before the financial crisis, the US share market has doubled in value. The Australian share market is up about 15%. So if you're someone with superannuation savings, you want them to have some money in the US map? Thank you very much. It's just part of a prudent diversified portfolio.

David Uren:

Australian superannuation funds have a lot of money coming into them and they are increasingly interested in funding infrastructure projects. For example... And if you look at the share registers of any of our major companies, they top 20 on pretty much all of them you'll find or be dominated by Australian super funds.

David Uren:

So your super money is going into Australian companies, but it's also going offshore too and that's as someone who looks forward to superannuation earnings. I'm very glad at that.

Philip Clark:

That's a fair point. Is there some of

Stella:

Okay. I want to ask another question.

Philip Clark:
quickly

Stella:

How can Canada own water rights in Australia  and how many other countries many other countries own our water rights through the privatization of water.

Philip Clark:

We could ask him, just tell us I so much suppose, but I don't know. Does anyone want to have a crack at this? Perhaps Deborah? Back to you, David, is it, you're the best port of call for this.

Deborah Johns:

Because acquisition of water rights itself is not regulated under the foreign investment legislation.

Philip Clark:

Is that right?

Deborah Johns:

So it could be caught because it constitutes an interest in land or because it's part of a business-

Philip Clark:

That's a very interesting there. You saying-

Deborah Johns:

By itself, water is not regulated by

Philip Clark:

Is that right? So a foreign company can buy water bats in Australia because under the Mary darling scheme, as we know, these things are bought, sold as assets and traded for many, many tens of millions of dollars. But they're not they require FIRB approval.

Deborah Johns:

Not in, and of themselves. Yeah.

Philip Clark:

Should we be surprised by that?

Deborah Johns:

There has been some discussion about changing the legislation.

Philip Clark:

Sorry. Stella?

Stella:

Well, I'm saying that the foreign companies are investing in Australian water right? And they're driving the prices up and the bankrupting our farmers.

Philip Clark:

Yeah. Well, thanks for making the point. I think that's something I think probably not everyone was aware of that. That was the case. Is there a compelling case, Deborah, for more transparency in this whole process? Who's on the FIRB anyway? David Irvine is the boss of it, who's on it?

Deborah Johns:

I actually had scribbled out the list of names and didn't bring it with me.

Philip Clark:

Yes okay. But typically who's on it? What sort of thing?

Deborah Johns:

Typically there's going to be people who, there'll be a smattering of people who have a strong business background. There's always one bureaucrat. So whoever is the head of the foreign investment division within treasury will sit on the board. They do look for people within the business community, who have specific industry sector expertise, so there's usually people from the mining sector. I don't think there is currently, but there used to be somebody from the agricultural sector.

Deborah Johns:

They'll look for people with strong government backgrounds as well. So that brings in an understanding of the public policy issues. So they do try to have a broad smattering of expertise within the board itself.

Philip Clark:

Yes it does sounds and does it come out and compelling a case for more open and transparent process or given it does affect, it's all 1 300 800 222. We're talking about foreign investment in Australia. Just before we go on, just a further warning about these thunderstorms. By the way, this is only for people in New South Wales for people in Gosford while in Sydney, parts of your Blue Mountains, Hawkesbury, Cessnock and the greater Newcastle areas. There are some quite major thunderstorm activity which is active in the area. So if you're around, if you're traveling, if you're going to your property, please telephone ahead and get people to Batten down and take care of your property. Large, very large hailstones and some very heavy rainfall which are leading to flash flooding as well. What a good question was just asked to crazy we to wait an hour. Australia's his says my texter, uh, hands. What do you think that the level of foreign interest from China in Australia is going to continue to increase or is it going

Prof. Hans Hendricks:

No, it's decreasing at the moment and has decreased since 2017.

Philip Clark:

Why?

Prof. Hans Hendricks:

Two reasons one is on the time you signed, there are restrictions on capital transfer and it started 2016, 2017 that the Chinese put regulations in place that companies wanting to invest. Either they have foreign currency in their accounts. Then they can invest, if they need to acquire US dollars, for example, against their holdings in renminbi, then they need approval and that they will only get within limits and under certain circumstances. So they would, for example, have to justify their project. Uh, that's, that's one reason, uh, the other reason is, uh, that on the, on the Chinese side, there is a perception that Australia is not necessarily as welcoming as it was, and that is as a result of the, of the whole, not, not why so much by itself, but the whole range of measures we've just been talking about from controlling real estate investment through the ATO, from having a land register in each state, to the whole question of critical infrastructure.

Prof. Hans Hendricks:

So there's much more supervision and much more controlled. the cases are not necessarily clear cut. So there's a degree of interpretation that you can have is something now critical infrastructure or maybe not. and there's, there's the feeling that the overall political atmosphere is not as supportive as it used to be in the heydays. Uh, 2000, 15, 16, that's, that's one thing. And then of course I think we have to look at the, at the, the general global situation, uh, where else trade is actually still doing relatively well. Uh, investment from China in the US has plummeted and has gone negative now in, in, in the sense that Chinese companies are investing in the United States and same in Canada, not as severe as with the United States and in the major European countries. We also see a decline of Chinese investments. So generally Chinese investment is going down globally at the moment.

Philip Clark:

Matt says, "Phil, question for you, Laura, in the panel, as an irrigator, we're surrounded by Chinese private corporate investment listed companies in US and Canadian pension funds. Do you think a foreign investment board cracked down on these huge investors that hide behind and all the front anyway, it's all, I won't use that language on here, Matt. A Ponzi scheme where everything's great, as long as the capital gain keeps going up, that's the only profit these guys will ever make. Well, yes, I can have a discussion about water rights, Deborah, but it's probably outside of the scope of the remaining 30 seconds we have.

Philip Clark:

But it's interesting that you've told us that water rights are not something that the FBI should investigate, but maybe they should. Maybe they should Look. Thank you for your... Always were moved into an interesting topic. Time of app price on us, but it's been terrific. Thank you for the time. Deborah Johns is from Gilbert + Tobin. Thank you, Deborah. Hans Hendricks, from Sydney Business School. Thank you. Hans and that'd be your economic commentator as well. Have been our guests. Thanks to all of you and also to our callers and texters as well. On ABC Radio, time for the latest ABC Radio News.

 

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