30 Nov 2017
China’s “Belt And Road Initiative” And Its Implications For Australia
By Saul Eslake, Independent Economist, and Vice-Chancellor’s Fellow, University of Tasmania
What does the ‘Belt and Road Initiative’ mean for Australia?
As is readily apparent from any of the maps depicting the ‘Belt and Road’, Australia isn’t on it. Nonetheless, as President Xi Jinping said in his address to the Australian Parliament in November 2014, “Oceania is a natural extension of the ancient maritime Silk Road, and China welcomes Australia's participation in the 21st century maritime Silk Road”.
The ‘Belt and Road Initiative’ is thus of considerable potential interest to Australia, from a number of perspectives, including opportunities for Australian businesses arising from infrastructure and other projects in countries which are formally on the ‘Belt’ or the ‘Road’, and Chinese involvement in infrastructure projects in Australia which may complement various aspects of the ‘Belt and Road’ initiative.
Australian firms have considerable expertise in areas such as the design, construction, financing, and management of infrastructure projects and operations for which there are likely to be profitable opportunities arising from ‘Belt and Road’ projects in Asia and Europe. Education and training in the skills required for these areas may be another area of opportunities for Australian institutions and businesses.
Opportunities for Australian firms to participate in ‘Belt and Road’ related projects in China itself should in some cases be enhanced by the market-opening provisions of the China-Australia Free Trade Agreement. However, both within China and especially in other ‘Belt and Road’ countries where Australian firms do not have any significant established presence, opportunities for Australian firms are more likely to be enhanced by more formal collaboration with Chinese firms.
The other important dimension of the ‘Belt and Road Initiative’ from an Australian perspective is the extent to which it may incorporate infrastructure projects within Australia. Australia needs to invest a lot in infrastructure, both to make up for past under-investment, especially in urban transport, or mis-directed investment, especially in energy; to capitalize on emerging new technologies; and to facilitate new opportunities for international trade, including with China.
As a capital-intensive economy with a relatively small population spread across a very large geographical area, Australia has been partially reliant on foreign capital to meet its investment requirements ever since the commencement of European settlement. What has changed over time is the origin of that capital – from Britain and other European countries until the 1960s, then from the United States and Japan, and more recently from other Asian countries, including China, and the Middle East. According to the Australian Bureau of Statistics, Chinese investment into Australia totalled A$87.3bn at the end of 2016, of which almost $42bn was direct investment (as opposed to portfolio investment in shares and bonds)17. Data compiled by KPMG and the University of Sydney puts the cumulative value of Chinese direct investment between 2007 and 2016 into Australia at US$89bn18 – equivalent to almost A$120bn at current exchange rates. An increasing proportion of this investment – 28% in 2016 – has been in infrastructure (in particular, seaports).
Infrastructure investment raises particular political sensitivities in Australia because, although Australia has always been a predominantly capitalist economy, the provision of transport and energy infrastructure has historically been undertaken by government departments or state owned enterprises (as is also the case in China). The movement towards greater involvement of private enterprises and investors, whether Australian or foreign, in the provision and operation of infrastructure assets, has not been without numerous difficulties: many Australians feel, rightly or wrongly, that the result of ‘privatization’ has been higher prices and inferior standards of service, the opposite of what had been promised19. Many Australians resent the fact that investors from countries which don’t permit foreigners to purchase land, businesses or other assets are nonetheless allowed to do so in Australia20. The fact that these differences in foreign investment policy may reflect different political systems, or a polar opposite balance between domestic saving and investment, does not usually persuade Australians who hold these views to a different opinion.
These and other sensitivities have to be borne in mind when evaluating Australia’s response to the ‘Belt and Road Initiative’ – just as Australia has had to be mindful of, for example, Chinese sensitivities when pursuing greater access to Chinese markets during negotiations over the China-Australia Free Trade Agreement.
In particular, Australia’s response should not be influenced by fear – either of China’s purposes in promoting the ‘Belt and Road’ Initiative, or ‘fear of missing out’ (FOMO) on business opportunities in China, and Chinese investment in Australia.
There would seem to be little reason for concern if Australia were to sign a ‘memorandum of understanding’ similar to the one agreed between China and New Zealand earlier this year.
That Memorandum provides for both sides to “respect each other’s interests and major concerns to deepen mutual trust”, to “maintain and enhance existing bilateral co-operation and multilateral mechanisms”, and to “promote practical co-operation in areas of mutual concern”.
It provides that China and New Zealand will “carry out senior-level dialogue and promote communication” on macro policies and development strategies”, including as to “how they will best support the Belt and Road Initiative in line with [their] comparative advantages”; it includes a numerical target for the value of two-way trade by 2020 and a commitment to “conduct mutually beneficial co-operation” in a number of fields, including infrastructure, agricultural technologies and clean energy; it provides for “cultural exchanges”, including specifically in film and television”; and it commits both countries to “enhanced cooperation” in various multilateral fora including APEC, the AIIB and the Pacific Islands Forum”. The agreement is effective for five years, and will be renewable automatically every five years thereafter, subject to three months’ notice of termination by either country.
A similar understanding between Australia and China would likely be beneficial for both countries. From the standpoint of Australian businesses, it would serve to indicate that their participation in ‘Belt and Road’ projects has the formal endorsement of the Australian Government, and it would be a signal to Chinese businesses that participation by Australian partners in such projects is welcomed by the Chinese Government. That is likely to be helpful in pursuing business and investment opportunities.
However, more specific commitments – in particular, the designation of any specific projects in Australia as part of the ‘Belt and Road’ – would need to demonstrate ‘win-win’ characteristics that would be readily evident to both sides. They should be negotiated on a case-by-case basis, with sufficient time for the claimed benefits to be properly evaluated and any costs to be assessed.
In that context, it would probably assist in enhancing mutual understanding if Australia were to make clearer the criteria by which decisions regarding foreign investment are made – both in advance, and in explaining the reasons for particular decisions. As an Australian citizen, I am not satisfied by a mere declaration that a particular foreign investment proposal is ‘contrary to the national interest’, without at least some attempt being made to explain why – and I would imagine that foreign investors would feel much the same.
The ‘Belt and Road’ Initiative has the potential to be a major influence on the economic, political, social and cultural evolution of not just Asia, but a large part of the world, over at least the next three decades. Australia should want to be part of it – but for that to be sustainable it needs to be on terms that recognize and advance Australia’s own interests, and which resonate with the Australian people.
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