By ForexNewsNow
Foreign Direct Investment in Australia is extremely diverse when we first take a look, but the moment we compare it to the FDI of a developing nation we quickly see a large disparity between active players.
Right now, according to research, the biggest investor in the Australian economy is the United States, pretty much like anywhere else. However, 2018 saw a significant decrease in the FDI of Australia after the trade war between China and the United States started to heat up a little bit.
The US was forced to decrease its FDI in Australia in order to allocate more in slightly closer jurisdictions to the Mainland. Countries such as Japan, South Korea, Taiwan and all of the South-East Asian countries received much more support from the US economy, which was a clear indication of the US’s efforts to increase their influence in the region.
When it comes to China though. They decided to double down on pretty much any country they could get their hands on. The FDI in Australia from China increase by $5 billion in 2018 alone and is set to increase even more in 2019.
Should the trend continue of the US decreasing FDI and China increasing it, by 2021 Australia will have a new largest investor of their local economy in the face of China.
This puts immense pressure on the local authorities as it’s quite hard to collaborate with a country that has different morals to a governing policy. Thus, Australia could find itself under pressure from forcing regulations or various other economic policies.
But that’s beside the point. What needs to be addressed is the economic implications that current Chinese economic policies could bring to Aussies.
Investment in Australia besides official FDI
One major variable we need to take into account is the unofficial FDI into the Australian economy coming from Mainland China. As unfortunate as it may be, most of the unofficial FDI comes in the form of money laundering from China.
Wealthy Chinese citizens usually get the desire to escape the Chinese economy once they’ve made their fortunes, which forces them to make significant investments in neighboring democracies to qualify for citizenship.
However, in order to qualify for their citizenship, the investment needs to be private rather than corporate. Considering that the Chinese government has strict regulations on private investments abroad, it’s getting harder and harder to qualify for other countries.
The slightly more lax regulation applies to countries like Australia and Canada, which is why we see so many Chinese nationals in these countries. Most of them used the opportunity to invest in things such as real-estate or local Aussie companies, which then gave them the opportunity to switch citizenship and move their wealth outside of China.
Another popular method is sending their children to Australia for university studies, after which the Australian law allows them to stay and work. After spending around 5 years in the country, these young Chinese nationals are prioritized as immigrants and thus, are granted citizenship much more easily, without requiring large investments.
The family members that still remain in the Mainland then start the process of transferring their wealth to their child in Australia and manage to legitimize their “de-funding” of the local economy.
Straight up illegal money laundering
Another part of FDI in the Australian economy, which the Aussie government may not have wanted to happen was through the transportation of wealthy Chinese gamblers.
One occasion with Crown Casino has already been unearthed and is being investigated if this activity was in direct violation of the Chinese gambling laws. Considering that several Crown employees have been arrested in the Mainland a year ago, it’s safe to say that it was.
The event didn’t necessarily damage the relations between China and Australia as it was a private venture. But the investigation could soon find out that the dealings were also guaranteed by Aussie lawmakers.
Because of such an event, Australian casino games for real money have started to be pressured by stricter surveillance, therefore adding a bit more costs to their compliance departments. Although the costs are not that high, it could add up significantly over the course of the following years.
Chinese economic policy that could tank FDI
A new economic policy in China could potentially limit the billions of dollars funneling towards the Australian economy illegally.
This policy was first announced by President Xi Jinping on Thursday last week, where he emphasized the importance of adopting the blockchain technology into the local economy.
This would have been amazing news for Aussie crypto companies, but the reality is not that bright.
The adoption of the blockchain does not necessitate the adoption of cryptocurrencies in China. It’s rather a creation of the groundwork for the adoption of the state digital currency that the People’s Bank of China is developing as we speak.
It’s basically a policy to advance the digital economy, thus limiting the flow of physical cash outside of the country.
This means that if the Chinese economy is largely digitized, it will become extremely hard to move cash outside of the country without the government taking notice.
Therefore, all of the “unregistered” investments that were coming into Australia may soon disappear, thus limiting cash inflow.
Will it take a toll on the economy?
It’s very unlikely for a couple of billion dollars in an economy as large as Australia take a huge toll. However, it’s likely that the AUD will be somehow affected considering the drop in demand.
Pair that up with the already serious issues due to the trade war, and we get a pretty bleak picture for the Australian economy in the coming years. Unless the USA resumes its past investment strategies in the region.
By ForexNewsNow
