Sent: 27-06-2012 11:49:03
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Chinese Criticise Australia's Central Planners
Nationalisation has been a talking point at gatherings of resource sector investors in Europe and Asia in recent weeks. But people are not talking about some bolshie south American populist. Australia is in the firing line.
Around the world governments are eyeing off cyclically high profits in the mining industry as they contemplate their own straightened budgetary circumstances. The mining industry is a conspicuous source of funding to replenish the fiscal coffers.
Unfortunately for Australia, it was one of the first movers in seeking to extract more tax revenue from the mining industry than it had been used to paying historically.
Governments elsewhere had been tempted but the introduction of a super profit tax by an otherwise upstanding member of the international community with a long history of involvement in the industry sparked widespread interest in following suit among other countries.
There would be no loss of competitive advantage or standing among its peers if Ghana, for example, also followed this path after the precedent was set by Australia. Only resources sector stalwart Canada, having sensed some advantage in distancing itself from Australia's actions, opted explicitly not to follow.
The gathering forces targeting industry profitability have prompted widespread unease about how governments are treating the industry to the extent that the term nationalisation is being bandied about to describe what is happening.
A serious observer of the Australian scene should easily conclude that the resources super profit tax, even in its most extreme form, was hardly nationalisation and nor is the watered down variant now enacted. Stupid, unnecessary, counterproductive, poorly implemented and unlikely to achieve its revenue goals, perhaps, but not nationalisation.
But Australia's moves were termed nationalisation at a recent gathering of resource sector investors in London. And in Beijing in the past week at a gathering of over 800 miners and investors, Australia's preparedness to play with fire over the resources rent tax arrangements was widely discussed.
The Australian resources industry had been a primary target for Chinese outbound investment. This was changing. Speakers referred to Australia's likely loss of share of outbound investment. Its tax policies were not the only reason but were clearly the most substantial negative influence to which the Chinese locals referred. The other reasons were more about the emergence of competing locations.
Australia's approach to reviewing applications for foreign investment was also criticised as lacking transparency when compared with the approval processes in other countries.
Paradoxically, given China's institutional arrangements and political history, several Chinese industry representatives lamented a lack of decision making simplicity and an appearance of anti-competitive tendencies among western governments and companies. Many of their decisions were taken behind closed doors disadvantaging the Asian participants trying to gain a foothold in the industry, according to several speakers.
One Chinese executive described in highly colourful language, but quite seriously, how executives from Canadian potash companies fixed prices over games of golf as a matter of course to avoid scrutiny. He wanted more freedom for markets to set prices. Times are changing.
At one level, the negative reaction to Australia's tax policies is unjustified and constructed on a misunderstanding about what has happened. Unfortunately, however, many in the resources industry have been prepared to fan anxieties among investors about Australia's positioning, misguidedly thinking that they could gain some advantage.
One cannot expect governments to avoid decisions they would otherwise deem important simply because they risked being misunderstood.
Nonetheless, there are lessons in these reactions. Firstly, policy misunderstandings are easy to spawn. They can come at a serious cost to the Australian economy. Subsequently, recapturing lost ground becomes all but impossible in the near term because only time assuages feelings of uncertainty while opportunities are foregone.
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