Aussie jingoism jangles in the Chinese century by Henry Makeham and Gregory Ainsworth

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Anxieties about investment in Australia by Chinese state-owned enterprises continue to surface, often conflated with worries about an overarching (if nebulous) geostrategic strategy led from Beijing. “It’s the Communist People’s Republic of China, 100 per cent Communist-owned, buying up sections of the country and minerals in the ground which they will then sell to the Communist People’s Republic of China” claimed Senator Barnaby Joyce.

Even Kevin Rudd pandered to economic protectionism against Chinese SOE inbound investment in the lead-up to the election. “I'm not quite as free market as Tony on this stuff,” the prime minister said.

When thinking about Chinese SOE investment, the default position has often been to retreat from the unknown, and followed up with economic jingoism. The Australian foreign investment debate has demonstrated woefully unsophisticated discourse about the pros and cons of Chinese SOE investment.

In actual fact, the motivations of Chinese SOE managers are far from simple. Chinese SOE-outbound investment to Australia, and OECD economies more generally, faces an inherent tension: the execution of state industrial and political objectives versus self-interested profit maximisation.

What has been overlooked is that when this tension meets Australia’s ambivalence towards Chinese SOE investment, a favourable risk management environment is created. That is, the heightened political and media scrutiny Chinese SOEs face in Australia mitigates the danger that an SOE would brazenly sacrifice commercial self-interest in favour of industrial and/or political interests.

As part of the Chinese government’s concerted effort to improve its comprehensive national power – whereby an SOE is viewed as either a de facto or de jure extension of the state – national prestige and image throughout OECD economies increasingly matters to Beijing. As a result, the consequences of an SOE being perceived as acting for motives other than commercial interest are becoming increasingly dire, and not worth the risk.

So it is important for Australia to deal effectively with the challenge of economic jingoism. The alternative is to risk losing investment capital and enhanced access to Chinese markets.

Tempering the hysteria that occasionally surrounds inbound Chinese SOE investment will reduce the chances of Chinese geopolitical and economic backlash. Granted, investment and national security safeguards must never be ignored when dealing with inbound Chinese SOE investment. However, economic nationalism and protectionism must not trump balanced analysis.

The Brookings Institute’s Erica Downs has carried out extensive research on the behaviour of Chinese SOE outbound investment in pursuit of China’s energy security objectives. She concludes that the extent to which China’s cross-border energy acquisitions are the product of coordination between Chinese firms and the Chinese government is limited.

Outside observers have explicitly or implicitly assumed that China Development Bank’s deals, including a range of energy backed loans, are the work of China, Inc: China’s government, state-owned banks and SOEs operating as an aligned enterprise in a global pursuit of energy. The main finding of Downs’ study was that the China Development Bank's energy backed loans are the result of coordination between government and business, but the motive frequently attributed to these transactions – to secure oil and natural gas supplies for Chinese consumers – is just one of the multiple commercial and national interests that underpinned the transactions.

Downs’ research found no support for the notion that Chinese SOEs were “mere puppets of the state executing directives of their political masters”. Further, Downs’ findings suggest that where private and state interests have conflicted, private interests have trumped state industrial and political goals. This conclusion is reinforced by the Asia Society’s research that stated that “China’s [SOEs]… typically put self-interest and profitability above all else”.

The inflow of select Chinese capital into OECD markets like Australia presents a profusion of opportunities. But if Chinese SOEs perceive that Australia is thumbing its nose at their investment, Chinese capital will simply re-direct its investment flow to other resource-rich competitor nations. Perception matters. Australian economic jingoism must not trump reasoned analysis this Asian (read: Chinese) century.

Henry F Makeham is founder and director of the Australia-China Youth Dialogue (ACYD). Gregory Ainsworth is manager of Partnership Development for the ACYD and runs an early-stage healthcare technology company in Boston.

This article first appeared in the Business Spectator on the 12th of September 2013. You can find the original article here: