Expect more gymnastics
| John Roskam
Australian Financial Review 15th June, 2007
The Dalai Lama's Australian visit has revealed the diplomatic gymnastics our politicians perform when they deal with China. "Checking the diary" has now become an art form.
While we like selling things to the Chinese, we don't like being told by them what to do. When the Australian government was accused of supporting the Dalai Lama's "splittist activities", Alexander Downer politely but firmly pointed out the self-evident. He said "China has a very different political system from Australia". The Minister for Foreign Affairs went on to say 'While he [the Dalai Lama] is in our country we'll make up our own minds who meets him".
Before too long, there's something else about China that Australians might have to make up their minds on. It will make the subject of whether the Prime Minister should meet the Dalai Lama look as easy as deciding what colour shirts everyone should wear at the Asia-Pacific Economic Co-operation summit in Sydney.
If the Chinese government wanted to buy BHP Billiton, Rio Tinto or Woodside, what would be the answer from Canberra? A bid wouldn't be put as simply as this, but regardless of how it were structured it would boil down to such a basic question. Under existing law the Treasurer would undertake the bureaucratic equivalent of "checking the diary" and send the bid to the Foreign
Investment Review Board for consideration. Ultimately, however, the Australian government won't be able to avoid a decision.
The reasons why China would want to do such a thing are obvious and compelling. (Although in saying this, there are many "compelling" deals that never see the light of day.)
Australia has the energy and mineral resources China needs. Often it is less expensive to buy the company that produces the goods you want than it is to continue purchasing the goods themselves. Crucial to the Chinese is the security of supply that comes with ownership. The soldiers of the People's Liberation Army guarding China's oil wells in Sudan are a testament to this.
Of course, Australians are not unfamiliar with foreign direct investment. As much as some sectors of the community might not like to acknowledge it, we couldn't live without it.
Western Australia's development in the 1960s and 1970s was funded by the Japanese. Today, the Chinese are financing the boom. China has $US1.2 trillion ($1.4 trillion) in foreign reserves, and the potential investment of more than $2.5 billion by one of its state-owned steelmakers in a single project in Western Australia demonstrates the scale at which it can operate.
The takeover of one of the global resources behemoths would be an altogether different proposition from what has gone before, both emotionally, and in fact. When in 2005 the US House of Representatives passed a motion opposing the purchase of US oil company Unocal by a Chinese state-owned enterprise, the reaction in this country was to regard the gesture as typical US "protectionism". However, there's no reason to think that if something similar occurred here the response from Australian MPS would be any different from that of their American counterparts.
If ever such a takeover did eventuate, the first argument against Chinese ownership of a major resource company would be that the company's assets are "strategic". This might be true, but our iron ore and coal is not of much use if we don't possess the domestic capacity to process and use those resources.
More interesting are the various paradoxes that arise. These days it would be unthinkable for the Australian government to own a majority share in, say, BHP Billiton. Beginning in the 1980s, successive governments have gone to great lengths to remove the dead hand of state ownership over the nation's productive assets. Is this process now to be reversed? In the name of free markets should the Australian government restrict the right of Australian shareholders to sell their shares to whoever they choose? Should different rules apply to foreign governments according to whether those governments are democratically elected?
By the time Australia concludes a free-trade agreement with China, if ever it does, none of these questions will be answered. At the moment, neither Australia nor China is particularly keen on answering them. While the FTA with China is consuming a great deal of energy, in all likelihood the benefits it brings to either country will be marginal.
The seemingly endless FTA negotiations do, however, provide one benefit. They allow both sides to ignore the giant panda silting in the corner of the room.