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Beware! The Asians Are Coming! Tidal wave of Asian money rushing into Oz cities!; Asian banks lend at low interest rates and do not have Australian bank lending restrictions
Topic Started: 19 Jun 2014, 11:54 PM (4,744 Views)
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Why Chinese investment matters to Australia

Callam Pickering

Will there be a more important driver of Australian growth over the next decade than Chinese investment? The near-term prognosis for investment is reasonably good but iron-ore producers must be getting nervous as prices decline and demand shows tentative signs of slowing and Chinese authorities look to curb excess capacity.

Investment has been a major driver of China’s economic success story. Real gross fixed capital formation has increased by an average annual rate of 11 per cent since 2000, although this has declined a little in the past couple of years.

Investment accounts for almost half of total Chinese GDP; by comparison, investment in Australia accounts for almost a quarter of economic activity. In fact much of our recent investment has been in response to rising demand for iron ore, which has been necessary to facilitate Chinese infrastructure investment.

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As a result, the outlook for Chinese investment is of central concern to not only Australian miners but also the broader Australian economy. Resource export growth will be a key determinant in whether our economy returns to trend growth and whether we can successfully transition away from a growth model that relied disproportionately on mining investment.

It should then be no surprise that the Reserve Bank of Australia published a recent piece on the outlook for Chinese investment in their quarterly bulletin. It presents a fairly bullish picture of investment, noting that “there is still some way to go before China achieves convergence with the provision of infrastructure seen in advanced economies”, including some other developing Asian economies.

The rural-city migration in China will continue to push the demand for greater and improved infrastructure. The government’s urbanisation plan targets an urbanisation rate of 60 per cent by 2020, which is an increase of 6 percentage points on its current level.

According to Chinese Vice Foreign Minister Wang Bao’an, a further 100 million people will migrate from agricultural and rural areas toward the cities by 2020, resulting in investment worth around 74 per cent of Chinese GDP divided over the next six years.

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Those estimates only include the investment necessary to facilitate further infrastructure -- just one component of total investment. But it helps to highlight one risk to the investment outlook in China: the pace of urbanisation is beginning to slow.

For investment to contribute to growth, activity must increase year-after-year. If the pace of urbanisation slows, then this will weigh on the contribution investment makes to growth, even if by developed standards investment growth remains quite high.

Further weighing on demand is China’s anaemic population growth, which may begin declining over the next 10 to 15 years, as well as excess capacity through over-investment.

As Peter Cai noted last week, the Chinese economy is showing signs that it is determined to rein in excess capacity (Curbing China’s excess capacity, June 10). In May, the Ministry of Industry and Information Technology, which oversees the steel industry, said the country would need to cut an extra 1.7m tonnes of steel and 8.5m tonnes of cement in 2014.

In an ideal world, curbing excess capacity would be offset by greater household spending and higher productivity as a result of earlier investment. Unfortunately, this would be to the near-term detriment of Australian growth, since we produce very little that the household sector consumes.

Another concern for infrastructure investment is project selection and evaluation. According to the RBA, about 85 per cent of infrastructure investment in China is undertaken by the government -- a much higher share than is typical in other countries.

With the lack of price signals available, this gives rise to poor project selection and inadequate evaluation of alternatives. This is currently an issue in Australia and given the sheer level of investment in China, the likely costs must be far greater (The great infrastructure drain must be plugged, March 17).

There is also growing concern regarding the financing of infrastructure in China. This mostly relates to local governments, which sometimes lack the capacity to finance investment through revenue or via debt issuances. Chinese authorities are looking at a range of reforms to address this issue, which are discussed in detail in the RBA’s article.

For the Australian resource sector, the risk relates not just to Chinese demand but also to commodity prices. Obviously the two are related in a sense; high commodity prices and our elevated terms-of-trade were a direct result of high Chinese demand. But with greater supply coming online recently -- mostly from Australia -- iron ore prices have declined by over 30 per cent, presenting an existential risk for some domestic iron ore producers.

This is already weighing on margins across Australia’s resource sector and as The Australian reported yesterday, it has already claimed its first victim: the Cairn Hill iron ore project in South Australia. Fortescue remains at risk, with high levels of debt and a relatively high break-even of $72 per tonne (Fortescue gets another wake-up call, June 17).

Urbanisation will continue to drive demand for infrastructure investment in China but we shouldn't ignore the effects of population growth and the declining rate of urbanisation. Both will weigh on growth in the medium-term.

Of more immediate concern, however, is the excess capacity resulting from past investment. This points to softer demand for iron ore and coking coal and may result in commodity prices falling even further. This presents a near-term risk for the Australian economy, not just in the broadest sense but with regards to individual iron ore producers.

Read more: http://www.businessspectator.com.au/article/2014/6/20/australian-news/why-chinese-investment-matters-australia
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GloomBoomDoom
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Sweetdish
20 Jun 2014, 03:50 PM
I cannot find a single good reason to allow this to happen.
This guy can...

http://www.news.com.au/finance/business/foreign-investors-critical-to-housing/story-e6frfkur-1226961165759
MSE
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doubleview
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GloomBoomDoom
20 Jun 2014, 09:39 PM
That is just sick, may god have mercy on us!
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Blondie girl
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doubleview
20 Jun 2014, 11:56 PM
That is just sick, may god have mercy on us!
You are soooo full of it this god shit
Go stick up ur arse

Listen to the Callum piccky in small doese and make ur own shit...

It's all to challenge the neurons......
They have payments to their speaks...

He is a puppet.

But just realize there's truth to some who get paid to talk the walk.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$
It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged
Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do.
Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
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vdmruss
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GloomBoomDoom
20 Jun 2014, 09:39 PM
I don't think restricting foreign investment is the way to go either.

If Chinese wish to purchase shoddy apartments - let them. We should make the most of their money while it's still around. Otherwise, they will just spend it somewhere else.

What we need to do is to inject some capitalism into our property market: remove intervention and all the artificial incentives that built up over the years.

I.e. Fix NIMBYism, fix development restrictions, remove sweeteners such as FHB, negative gearing, CGT exemptions. Get some cranes in every direction.

We should have developers going door to door and begging people to purchase into their cheapest development - as it is in the free market with any other industry.

Let the free market do it's work and it would sort itself out. :re:

It's not going to work to impose globalism onto business, while keeping a whole segment in the economy under a warm blanket. :) Send the property industry out into the real world, and we won't have people using houses as storage of wealth and we won't need to be thinking about MP either.
Edited by vdmruss, 21 Jun 2014, 12:31 PM.
Let me assure you that this isn't one of those shady pyramid schemes that you've been hearing about. No sir, our model is the Trapezoid which guarantees each investor an 800% return within hours.
Those who can, do. Those who can't, teach.
"It's an itchy blanket, it's designed to remind you how lucky you are"
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Chris
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vdmruss
21 Jun 2014, 12:29 PM
I don't think restricting foreign investment is the way to go either.

If Chinese wish to purchase shoddy apartments - let them. We should make the most of their money while it's still around. Otherwise, they will just spend it somewhere else.

What we need to do is to inject some capitalism into our property market: remove intervention and all the artificial incentives that built up over the years.

I.e. Fix NIMBYism, fix development restrictions, remove sweeteners such as FHB, negative gearing, CGT exemptions. Get some cranes in every direction.

We should have developers going door to door and begging people to purchase into their cheapest development - as it is in the free market with any other industry.

Let the free market do it's work and it would sort itself out. :re:

It's not going to work to impose globalism onto business, while keeping a whole segment in the economy under a warm blanket. :) Send the property industry out into the real world, and we won't have people using houses as storage of wealth and we won't need to be thinking about MP either.
There are so many contradictions in your post I don't even know where to start.

The reason why Chinese investors are buying pigeon hole apartments in the city is because of rampant free market activity, there is no regulation so developers do as they wish. The fact that these poor quality/standard apartments are being built on mass is a case in point. You argue that free market (aka no regulation) is the key, did it work in the banks??

You also argue that letting foreign investors but here is fine and should be embraced. In theory I would agree with you but on the previso that the developer is Australian, the funds are sourced in Australia and there are strict regulations on what is built.

At the moment we have organisations like Far East Constructions buying up massive inner city projects and developing high rise blocks consisting of hundreds (as an accumulative thousands) of apartments that are at best described as studio. They are then selling them to investors they have sourced overseas who couldn't care about the long term social impact these developments will have. It also means that every cent earner from these projects go back to China, we are essentially selling off our country and any associated benefit for extremely short term gains.

I think you trivialise what is an extremely concerning situation when looked at in a wholistic approach.

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Billy Jack
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The Duke of Brisbane Town

Black Panther
20 Jun 2014, 10:20 AM
Transmutation in action.
Friend that aint no transmutation.

Them fine folks are more retarded than you with yer one line sayings and such, with their buying at the top of the market and such.

And it makes me sad friend.
Tell Billy Jack the Truth
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Curious Non-Economist
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vdmruss
21 Jun 2014, 12:29 PM
I don't think restricting foreign investment is the way to go either.

If Chinese wish to purchase shoddy apartments - let them. We should make the most of their money while it's still around. Otherwise, they will just spend it somewhere else.

What we need to do is to inject some capitalism into our property market: remove intervention and all the artificial incentives that built up over the years.

I.e. Fix NIMBYism, fix development restrictions, remove sweeteners such as FHB, negative gearing, CGT exemptions. Get some cranes in every direction.

We should have developers going door to door and begging people to purchase into their cheapest development - as it is in the free market with any other industry.

Let the free market do it's work and it would sort itself out. :re:

It's not going to work to impose globalism onto business, while keeping a whole segment in the economy under a warm blanket. :) Send the property industry out into the real world, and we won't have people using houses as storage of wealth and we won't need to be thinking about MP either.
Excellent post, I agree with all of your recommendations except negative gearing. Interest is expensable in every other business, so there is no reason for property to have an exemption. I don't believe it has that much effect regardless. If property was a free market, with unlimited supply capacity, a property's price would go into decline as soon as it was built. There are only two ways to create a boom in property prices. The first is to restrict supply, and the second is financial repression (like China) where the investment options are limited. Both of these methods are the sole province of government, because governments around the world control land use. Where-ever land use is highly restricted by a central authority, you get property booms (and their attendant busts).

I think we should open the floodgates to Chinese investment. Better them holding the bag than us when it all goes pear shaped, and it would do wonders for our current and capital accounts as well. Invest a trillion, take home 500 billion.
Chris
21 Jun 2014, 02:01 PM
There are so many contradictions in your post I don't even know where to start.

The reason why Chinese investors are buying pigeon hole apartments in the city is because of rampant free market activity, there is no regulation so developers do as they wish. The fact that these poor quality/standard apartments are being built on mass is a case in point. You argue that free market (aka no regulation) is the key, did it work in the banks??

You also argue that letting foreign investors but here is fine and should be embraced. In theory I would agree with you but on the previso that the developer is Australian, the funds are sourced in Australia and there are strict regulations on what is built.

At the moment we have organisations like Far East Constructions buying up massive inner city projects and developing high rise blocks consisting of hundreds (as an accumulative thousands) of apartments that are at best described as studio. They are then selling them to investors they have sourced overseas who couldn't care about the long term social impact these developments will have. It also means that every cent earner from these projects go back to China, we are essentially selling off our country and any associated benefit for extremely short term gains.

I think you trivialise what is an extremely concerning situation when looked at in a wholistic approach.
Your post is basically wrong. There is no rampant free market activity in the city. There is rampant corruption in government that sells access to public land (public good, private profit). There is no free market in banking in Australia either, it is the most highly regulated banking markets in the developed world.

As for overseas investors who couldn't care about the long term social impact of increased housing density with no corresponding infrastructure to support it, I got news for you mate, local investors couldn't care less either. It's all about profit. Nobody involved in the property industry gives a flying fuck about the social or economic impact of their actions, they just want to get theirs, regardless of who they fuck over.

As for every cent earned going back to China, well, if you have a way to attract investors with the promise they will never get their capital or profits returned to them, I am sure the property industry would love to hear your ideas.
Edited by Curious Non-Economist, 22 Jun 2014, 04:20 PM.
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jesusjones
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It doesn't say the percentage of Asian buyers,
But it would be high? $650m sales in one morning!! Bonkers I tell thee!!
Anyone know the sqm size of a one bedder? $700k!

http://smh.domain.com.au/real-estate-news/darling-square-sells-out-off-the-plan-20140621-zsha6.html
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doubleview
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Blondie girl
21 Jun 2014, 12:29 AM
You are soooo full of it this god shit
Go stick up ur arse

Listen to the Callum piccky in small doese and make ur own shit...

It's all to challenge the neurons......
They have payments to their speaks...

He is a puppet.

But just realize there's truth to some who get paid to talk the walk.
Huh ! makes no sense as very obv you where intoxicated fool !
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