Article – The Coalition faces its own China syndrome

August 3, 2013
Geoff Kitney
The Australian Financial Review
Dreams of an export food bowl in the north depend on foreign investment. But many in the Coalition can’t stomach the idea of Chinese ownership.
China got a lot of mentions in the Rudd government’s pre-election economic statement but not the issue that is simmering in the political background, set to boil over.
While the statement talks at length about the problems posed by slowing Chinese demand for our resources, in many parts of Australia a more palpable fear factor is spreading. It is the fear of Chinese money.
Chinese investment is looming as a dangerous issue for both sides of politics in the coming election campaign.
And if Tony Abbott wins the election, it’s going to be one of the most problematic issues on his agenda, with the potential to split the Coalition.
What many might see as a fringe political issue is stirring increasingly strong passions and feeding a potentially dangerous protectionist backlash, with implications far more profound for Australia’s economic future than the hot-button political issue of protecting the motor vehicle industry.
And while much political and media attention is being given to the public’s exaggerated fear of asylum seekers, much more dangerous to the long-term national interest is a fear campaign being stirred about the threat of what is being called the “Chinese takeover” of Australia’s farm industries.
Top of Rudd’s agenda
The key political point about this issue is that Kevin Rudd has put at the top of his international economic agenda breaking the long deadlock in negotiations with China over a free trade agreement.
Rudd elevated the issue immediately he returned to the Labor leadership, complaining that the FTA talks were progressing at “the speed of a lame camel across the Sahara desert”.
One of the first assignments that Rudd handed out was to his new trade minister, Richard Marles, who was quickly on a plane to China with a new Australian offer.
Marles has kept the details of this offer secret but officials say it includes significant concessions on Chinese direct investment in Australia.
The FTA negotiations, launched long ago by John Howard and going nowhere after 19 painstaking rounds of talks, have been stuck on the issue of economic access by each country to the other.
China wants the same rules for its investment in Australia as Australia generously granted the United States in the FTA agreed between Howard and George Bush – a $1 billion threshold below which US investments in Australia did not require Foreign Investment Review Board approval.
China also wants generous access to Australian investment for Chinese state-owned enterprises.
For its part, Australia wants liberal access for Australian agricultural products to Chinese markets, currently heavily regulated to protect China’s low-productivity farms. Australia is seeking the same access as China allowed New Zealand, which cleared the way for successful FTA negotiations.
Both sides have refused to budge.
The issue occupied a significant amount of the Gillard government’s cabinet discussions, but not because it was considering making deadlock-breaking concessions. There was deep concern among senior ministers about growing political heat being generated by the anti- Chinese investment lobby, which had as one of its most prominent and persuasive advocates National Party SenatorBarnaby Joyce.Fears about food supply Joyce has been instrumental in giving political force to the fears in rural and regional areas that Australia is jeopardising its long-term national security by allowing too much of its prime farm land and its big agribusinesses to be purchased by foreigners.
Chinese investment has been the lightning rod for these fears.
In the public debate on the issue – which has been as hot on metropolitan talkback radio as in the bush – the bogey that Australia will lose control of its food production industries and that the Australian people will become beggars to foreigners for their food supply has taken hold.
Despite the fact that Chinese direct investment accounted for less than 3 per cent of total annual foreign direct investment in Australia, the Coalition’s move to leverage the China fear factor for political gain rang alarm bells in the Labor Party.
Proposals to impose new, much lower limits on foreign investment in Australian farmland were hotly debated in Julia Gillard’s cabinet. However, Gillard refused to cave in to what she saw as a change which would be economically damaging and pose significant problems for the Australia-China relationship.
The Gillard government instead opted for a beefed-up process of registering foreign investment in farmland and businesses as a means of countering the increasing hysteria being generated, especially by the so-called “Chinese threat”.
Opposition tensions
But any tensions that the issue generated in the Gillard cabinet have been more than mirrored on the opposition side.
While the National Party has taken up the fight in defence of Australian ownership and tapped into the anti-China sentiment behind it, key Liberal anti-protectionists have been warning of the economic danger of trying to severely restrict foreign investment in the agricultural sector.
The anti-investment campaign runs utterly contrary to one of the big policy ideas that the Coalition is trying to promote – large-scale agricultural development in northern Australia.
Andrew Robb, chief proponent of the idea, knows that his plan cannot work without foreign investment.
Robb has an important ally in former Gillard trade minister Craig Emerson, who argues that Australia’s potential to become what has been called “the food bowl of Asia” can only be realised by large-scale foreign investment.
But the politically explosive potential of the issue of foreign investment in the rural sector was highlighted this week by an angry reaction to comments by Rudd government minister Joel Fitzgibbon indicating that he saw no problem with the proposed takeover of Australia’s largest agribusiness, GrainCorp Ltd, by the US agri-giant Archer Daniels Midland (ADM).
Warren Truss, possibly soon-to-be deputy prime minister, warned that this was a dire threat to Australia’s national interest. He committed the National Party to fighting to keep farms and agribusiness in Australian hands.
The opposition has not yet twigged to what Richard Marles has been doing in Beijing. But when they see him open the door a bit wider to the Chinese threat to Australian farmers, a very big fight with powerful significance for Australia’s economic future is certain.