The move by Chinese interests to purchase 1.3% of Australia (the Kidman properties) for $300m is against Australia’s economic and political interests. The land will be used by the Chinese to pursue pastoral activities in Australia using imported Chinese capital resources and, at least down the line, Chinese workers. In fact the land – apart from taxes paid to the Australian Government – will effectively become part of China. Moreover, the taxes paid will be minimized by transfer pricing of the meat and other products produced so that the transfer of ownership will be effectively complete with Australia gaining little if anything. The only possible economic benefit to Australia will be the pathetically small contribution of $300m to the Australian land owners.
Gains-from-trade and from trade in factor flows rely on increasing the value of non-traded goods and factors. Foreign investment will drive up the value of the wages of non-imported labour and land. Foreign labour flows will drive up the value of non-traded capital and equipment and land. International trade increases the return to non-traded inputs and to locally-owned land. All these changes from gains to Australia. But if all inputs are foreign owned then all gains go to the foreign owner except perhaps for those small profit tax receipts that cannot be transfer priced away. The difficulty here is that the underlying land asset does not exchange at its value – the Australian vendors of the asset cannot benefit from cheap Chinese labour and cannot transfer price as the Chinese will do. The land value reflects the value that the Australian vendors can realize. The economic losses are the difference between the gains that accrue to Australia from having Australian-owned land and from the resulting profits being taxed and accruing to the Australian Government.
The measure goes through because although there is a benefit to the private vendor Australia loses.
Politically this type of move is disastrous for Australia since it sets up a totally Chinese enclave in Australia. Australia loses autonomy with respect to land management policies such as environmental policy. Indeed what incentives do the Chinese face to observe Australian environmental standards on the fragile landscapes they have purchased? I have focused on this particular sale because of its scale. But the analysis applies to any fixed land asset. We should welcome Chinese trade and investment but not their ownership of our primary factors. This is Australia not China.
This land sale if it proceeds will be a really poor policy decision. I would base the 2016 election campaign based on o. Who supports it and who opposes it opposing this terrible move? The deal is anything but complete. Indeed the position has not really changed since last November when it was announced that Kidman had been sold – the Foreign Investment Review Board (FIRB) still have to approve the sale and they have said this will not occur until after the federal election, which is tipped to be held on 2nd July. Furthermore, the Kidman offer is scheduled to close on 5th August