Australia needs to avoid the appearance of protectionism suggests a leader in Tuesday’s FT.
Recent news that Australia is planning “to raise scrutiny of foreign investors” is timed uncomfortably close to $14bn dawn raid by the Chinese state-owned mining company, Chinalco, on shares in Rio Tinto, the Anglo-Australian mining group.
The proposed screening programme will look at whether a sovereign fund investing in an Australian company operates at arm’s length from its government. Financing and governance arrangements will be examined too.
The FT makes the point that this call for transparency is all well and good, perfectly understandable really, but you don’t want to bite the hand that feeds you too hard. Let us not forget that Australia’s economic boom is founded on strong Asian demand for its natural resources. China is in fact one of Rio’s biggest customers. In addition, SWFs in general can be a stabilising influence, acting as long term investors less sensitive to market volatility.
In drawing up individual rules for dealing with sovereign funds, the risk for recipient nations is that they lose the goodwill of investing countries. A much better course is to draw up a global code of conduct.
The IMF has already asked Singapore, Norway and Abu Dhabi to come up with disclosure benchmarks for sovereign wealth funds. The Norwegian approach has exemplary disclosure standards and if adopted could eliminate the need for national regulation.