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China investment ruling opens up Aust markets -

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EMMA ALBERICI: One of the side benefits of the rapid transformation of China into a dominant global
economic player has been the massive growth in savings in the country.

The Chinese Government strictly controls how much and in which countries individuals can invest.
That list of foreign destinations includes the US, the UK, Hong Kong, Singapore, Japan, and now

The Australian financial services sector is hailing the decision as a landmark for the industry,
which will now have access to a share of about $50-billion of Chinese funds.

Ashley Hall reports.

ASHLEY HALL: It's an announcement the financial services sector has been waiting for the chance to
get a slice of the estimated $US 720-billion in Chinese investment funds.

RICHARD GILBERT: What this means is that Australian fund managers can go to China and do business,
in other words, they can actually go to China and say we will invest your money - this is to
professional investors whether they be large banks, pension funds, or large companies - and say we
can invest your money in the world and in Australia as well.

ASHLEY HALL: The chief executive of the Investment and Financial Services Association, Richard
Gilbert, says it's also a chance to substantially grow the export of financial services from

The local industry currently exports about 30 per cent of its funds under management, but receives
only about one per cent of inflows.

RICHARD GILBERT: We've long been saying that that number can be increased quite dramatically
because we have the expertise. And if you look around the region, the biggest country is China. Now
what you have to realise here is that 10 years ago, Chinese mutual funds had less than a million

They now have something like 100-million members, with $500-billion of funds under management, and
that is growing. It will double itself in the next five years probably.

ASHLEY HALL: And with every dollar of overseas money that's managed, the local industry takes a cut
of up to one per cent.

RICHARD GILBERT: They'll be looking at Australia's real estate investment trusts, particularly now
that we have a massive tax advantage over our Asian competitors, and what's in place there.

They'll be looking at fixed interest which it similarly has a very good advantage. They'll also be
looking at Australian equity funds - that's not direct investments and equities - but Australia
equity funds, and they'll be looking at international share funds, which I think you'll find
Australians will be offering more to people in Asia than they have before.

ASHLEY HALL: Chinese investors have little choice where to put their money.

But in 2006, the Government launched the Qualified Domestic Institutional Investment Scheme to
allow Chinese investors to diversify their investments and get access to overseas markets.

Noel Tracy is an Associate Professor in political and international studies at Adelaide's Flinders
University. He's been researching China's integration into the world economy for the past 15 years

NOEL TRACY: There's enormous amounts of surplus money in China, and particularly in household
savings, and there's very few products available to Chinese depositors to make use ... or effective
use of their money, so the development of financial products which will enable them to invest in
Australia and presumably beyond Australia is very good news and I would expect it to be very

ASHLEY HALL: It doesn't allow for reciprocal investment though ... you don't think that's such a bad

NOEL TRACY: No I think that's good news, that's good news.

ASHLEY HALL: Why is that?

NOEL TRACY: I wouldn't be encouraging particularly small Australian investors to be investing in


NOEL TRACY: It's a very unregulated market, the Shanghai stock exchange in particular, the majority
of companies listed there are ultimately state-owned. The majority of shares are not in
circulation, insofar as they're never traded.

The number of shares which can be traded are often quite small and it means that wild fluctuations
can occur as a result of relatively small trades. So I don't think it's a good idea.

ASHLEY HALL: The expansion of the Australian financial services industry overseas was one of the
Federal Government's election commitments. The industry association is paying tribute to the
Government's efforts in getting the deal done.

The Federal Treasurer Wayne Swan spoke to Lateline from Beijing, after announcing the deal with the
local finance minister.

WAYNE SWAN: In February this year, I published a set of guidelines which particularly applied to
investments by Government-owned enterprises or their entities and those guidelines stipulate that
for the investment to be in the national interest, it must be competitive in nature, and it must be

And those are the guidelines that apply whether the investment is from government entities in China
or any other country in the world.

ASHLEY HALL: Mr Swan says the Government has been considering about one application every fortnight
from a Chinese company wanting to invest in Australia.