Treasurer Josh Frydenberg’s rejection of the sale of construction firm Probuild to a Chinese company is just the latest act of economic suicide by the Morrison government.
In the wake of Chinese attacks on Australian exports, here was an ideal chance to offer an olive branch, the basis for a resumption of dialogue. A small step perhaps, but a step in the right direction.
Instead Frydenberg shut the door firmly in China’s face.
Any investment banker wanting to sell assets will forget China without a formal FIRB pre-clearance.
That is just one consequence of denying vendors a competitive auction.
Trade and investment will suffer and the loss of opportunity will cost Australians.
If Frydenberg can’t explain why he is blocking the country’s economic potential then at the very least he could let us know the economic implications of his decisions.
If standing up to China is the goal, then just what is the consequence of this poorly-targeted policy.
Backing the US blindly is dumb, as a new Biden administration moves in with the same China concerns but a commitment to multilateral organisations not shared by the Trump administration.
Just what Australia gets by playing the tough guy role for the US should also be explained.
COVID-19 may be blamed on China but the response is a multilateral effort which should see better co-operation.
The government’s stance risks Australia being left on the sidelines.
Meanwhile the Biden administration will do what it thinks is best for the US.
Probuild was the sale of a South African owned company to a Chinese company, so it‘s not like an Australian is being robbed.
The same went for Frydenberg’s rejection last year of the Mengniu takeover of Lion Dairy, a decision taken against the advice of his officials, which underlined the lunacy is actually government policy.
Good governance says FIRB rejections should be publicly explained with clear statements of reason, as is done in New Zealand with its Overseas Investment regime.
In neither of the last two known Chinese rejections was any reason given.
Instead background briefings point to security reasons like Probuild’s work on the CSL headquarters, or the Victorian police headquarters.
We are supposed to believe the Chinese government would use Probuild to infiltrate Victorian police or steal secrets from biotech leader CSL.
If this was the plan there are other aims of doing this.
The government has taken several deliberate steps to inflame its most valuable and difficult trading partner. Maybe it can tell us what the end game is and what it means for Australia’s economic future.
Bringing it back home
Most of the big energy companies have a mix of call centres in places like the Philippines and dotted around Australia, but Alinta’s Jeff Dimery is bringing it all back home with a new base near his Loy Yang B power station in the Victoria town of Morwell.
This will create 230-plus jobs in the town and, while it will cost around $5m more a year to run, the commitment to the community and his 600,000 east coast customers will hopefully be returned in increased business.
Premier performance
Premier Investments’ retail boss Mark McInnes has leveraged to perfection the flood of cash circulating in the economy looking for a home, with discretionary retail picking up share from overseas travel and high-end dining.
The stock closed at an all time high of $25.47 a share on Wednesday, up some 4.4 times in the almost 10 years since Solly Lew hired McInnes to run his retail brands.
The profit upgrade sparked a rise in discretionary retail with Myer up 8.7 per cent, JB Hi-Fi up 2.4 per cent and Woolworths and Coles down on the day, as strangely was Wesfarmers which owns Bunnings.
In May last year as Melbourne was heading into a prolonged lockdown Lew and McInnes made the call to ensure that come the summer it would have a full warehouse of product to meet the extraordinary demands over the last quarter.
Others cut orders and the net result was some market share gains by Premier across its range.
Combine that with past decisions to establish its own distribution centre outside Melbourne to fill online and traditional orders, which has helped keep costs down and boost gross margins, with the end result being earnings up some 80 per cent to $227m, with sales up 5 per cent in the last quarter to $716.9m.
McInnes has again managed a rare feat in boosting profits even as online sales as a share of total sales rose from 13.4 to 20.4 per cent over the last year.
Normally profit margins fall as online sales increase, and the good news for McInnes is more online sales mean after cutting store numbers by 10 per cent over the last seven years this process can step up to save more money while maintaining his brand presence.
The numbers were even more impressive when you consider that roughly half of Smiggles’ normal sales have come from offshore stores throughout the UK and Asia, many of which were shut in the last half due to COVID shutdowns.
CBA economist Stephen Halmarick is looking for the economy to grow by 4.2 per cent this year after falling 2.8 per cent last calendar year, and the retail trends show consumers, flush with cash, are happy enough to spend money when lockdowns end.
The money is being spent around homes boosting Bunnings, Officeworks and JB Hi-Fi and discretionary retail like clothes which until recently have accounted for just 3 per cent of spending, down from 7 per cent in the 1960s.
This is partly due to price falls but in the last year at least with options like overseas travel and restaurants off the list consumers are paying for higher-end food at supermarkets and liquor stores and more on clothes.
Consumers are flush with cash despite saving up some $100bn last year on CBA’s numbers, buoyed by $30bn-plus in early superannuation releases and circa $100bn in government subsidies and record low interest rates.
Discretionary retail has recovered some market share and Premier more of that share, and while it can maintain this improvement just how long the macro trends continue is another issue.
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Australia’s relations with China are at rock bottom yet at each turn the federal government’s policy response is to throw more fuel on the fire, blocking the chance for any meaningful recovery.