Terry McCrann: Australia must learn to live with China

Two weeks ago Treasurer Scott Morrison personally rejected the bids from China and what might be called China-lite — Hong Kong — to buy control of the New South Wales power network, writes Terry McCrann.

Our economic relationship with China should not be taken for granted.

TWO weeks ago Treasurer Scott Morrison personally rejected the bids from China and what might be called China-lite — Hong Kong — to buy control of the New South Wales power network.

He did so either because acquisition by the two companies would pose an “unacceptable security risk” — the official reason — or because we have become increasingly xenophobic about Chinese investment in Australia, whether it’s going into power grids, agricultural land or Melbourne and Sydney residential property.

Now, that direct quote came from the head of the Foreign Investment Review Board, investment banker Brian Wilson, who unusually — in my experience over four decades, uniquely — went public with considerable detail of the specific FIRB advice to the treasurer in ‘the heat of the moment.’

Wilson said that the seven-member Board had concluded unanimously — after itself taking detailed advice from all the security agencies — to advise the treasurer to reject on those security grounds.

Now, the reason for the emphasis on the word in the opening paragraph is that, while it is not well known, these foreign investment decisions are made personally by the treasurer (or in his absence, by whoever is the acting treasurer).

Yes, the treasurer is obliged to get formal advice from FIRB, but no, he is not bound to take it. He can also get — or, be ‘given’ — advice by other people or groups.

And further, the treasurer is not obliged to even give a reason for his decision, far less justify his logic. He can simply say yea or nay on whatever basis — or indeed, no basis at all — and the decision is totally unchallengeable.

In practice almost 100 per cent of the thousands of foreign investment decisions which have made over the decades have followed the letter of FIRB advice. But there have been exceptions, and on occasions FIRB has become ‘aware’ of what advice is ‘acceptable’ before proffering it.

One of the most controversial decisions was made by former treasurer Peter Costello when he rejected the attempt by global oil giant Shell to take over our biggest oil and gas group Woodside.

In essence, that decision was made on the basis that Shell would develop Woodside gas fields to a schedule which suited it rather than Australia’s best interests.

One could see this decision in the same category. That would be a huge mistake; we have entered a totally new world: Chinese foreign investment — and more potently, future investment — is totally unlike any other investment we have ever seen.

Yes, the treasurer is ‘obliged’ to look at each proposal individually on its own merits. But he better also start looking at them in the context of the totality of relationship with China; and the government overall (which means, the prime minister) better start damn quick thinking about that totality.

For the rejection brings into sharp relief the entire issue of our relationship with what is right now easily the biggest elephant in our living room; and an elephant that is only going to keep getting bigger and bigger over coming years and decades.

THE challenge is captured in the old rhetorical question: where does the elephant sleep? Anywhere it wants, goes the seemingly unavoidable answer. Yet, we’ve just provided a very different answer.

Now this particular elephant might — will — ‘sleep’ where we’ve directed it; I’m not so sure that its dozens or hundreds, or indeed, thousands of ‘siblings’ will be so docile.

The public intervention by the FIRB chairman Wilson and Morrison’s own comments were not simply unhelpful but naive and destructively partial. They were at the same time too transparent and not transparent enough.

Too transparent: in flagging ‘China Inc’ as a, to put it bluntly, national public enemy. Not transparent enough: in failing to then remove that flag and the offence by detailing the risk.

As neither treasurer nor FIRB could really go public with that detail, they should not have gone partially — and offensively — public in the first place.

But this only points to the much bigger, far more corrosive and continuing, escalating failure by political government and the bureaucracy.

This is a failure to even comprehend the complexity and challenges of our relationship with China over the next, say three decades — far less the actual construction of a (preferably bipartisan) strategy for getting the best outcome for Australia and at least minimising the potential for, quite simply, bad outcomes.

For the past 20 years or so — the first 10 or so, essentially uncomprehendingly — we’ve only thought of China as an economic Santa Claus. That 1.3 billion Chinese have been placed on this planet with the sole purpose of enabling 24 million Australians bask in the good — heck, the fantastic — life.

That on the one hand, we got to buy all those consumer goods so cheaply; and that on the other, we got to sell them great lumps of Australian dirt at the highest possible price. And that surely, both would continue forever.

YES, the policy elites had a sense of the challenges of geopolitical relationships around the China-Australia-US triangle. But nowhere has there been any sense of a holistic all-encompassing approach to all this.

The increasing desire by Chinese interests to buy assets in Australia — a combination of a willingness to take lower returns in the short-to-medium term than Australian and other foreign investors, and an appreciation that Australian assets are fundamentally undervalued in a secular sense in the global context — has increased dramatically the points of intersection friction.

In response we really need to take a big step back; to fundamentally reassess the totality and development of our relationship with China over 10, 20 and indeed 30 years — of course, in the global context and the specifics both of the US in that context and our bilateral relationship.

We need to very aggressively and very open-mindedly think about the entire spectrum of our interface with China; what elements we can control or even just influence, what elements will be imposed on us, elephant-sleeping style.

The attempt to buy the power network and, one has to accept, its inevitable rejection really highlights the way the relationship has started to run way ahead of policymakers. It also demonstrates precisely the disastrous consequences of not being proactive and comprehensive.

Originally published as Terry McCrann: Australia must learn to live with China