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Australia urged to back Chinese investment in -

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ELEANOR HALL: While the Federal Government grapples with this politically divisive issue, a report on Chinese investment in Australian agriculture today issued a warning to our politicians and businesses that time is running out for Australia to capitalise on the rapid changes in China.

A study released today by the University of Sydney and KPMG attempts to inject some facts into the debate about whether we are selling off the farm to the Chinese.

One of the authors is Professor of Chinese Business and Management at the University of Sydney, Hans Hendrischke. He says their research reveals that Chinese investment in Australian agriculture has so far been quite small.

HANS HENDRISCHKE: The major point is that China in fact is a small investor, smaller than Singapore and likewise on the agricultural side, China sits there with around 2 per cent over the last few years, of investment in the agricultural area. Compared to 24 United States, 14 UK, 10 Japan and I think 4 per cent for Singapore.

So China really comes after all those countries as a relatively small investor.

ELEANOR HALL: So why do you think there is such a fear about it. Is it that people fear the bulk of Chinese investment is by government-owned enterprises?

HANS HENDRISCHKE: That is a concern. But in fact, Chinese agriculture investment is different from investment in the very big areas like mining, in the sense that there are more private investors. But where state investors would come in, and where they're actually quite important, is as investors who have access to value chains and who our integrated in the Chinese markets and could help Australian agriculture to integrate in the Chinese market. That's really the point we are pushing.

ELEANOR HALL: What opportunities could Australians lose if we don't get all the facts and make the right decisions now?

HANS HENDRISCHKE: In a way what we could lose is that we don't move from where we are now. Australia is a very solid and very well-established supplier for Chinese food security - that is securing basic food items like grain and barley. But Australia is not a major player yet in the areas of food safety.

That is food that is perceived as environmentally sound and so for which Chinese consumers, especially the urban consumers have huge demand. But where they have problems trusting their own food sources in China. And that's where Australia could come in and of course there's competition. There's New Zealand, there's other countries.

ELEANOR HALL: So your report finds that it is food safety rather than food security that's the main driver of agriculture investment here. But what's the significance of that in terms of the sorts of investments that the Chinese want to make?

HANS HENDRISCHKE: Well, at the moment, Chinese investment is at an exploratory stage. They are looking at the Australian market, they haven't settled down on this is the way we invest in Australia. And there's an opportunity to invest in value chains. That is, that Australia doesn't only sit at the lower end of the value chain as a producer, but moves up into processing and even into logistics. And that's where the market really is growing and where we will in the end have a much bigger market than we have with just resources.

ELEANOR HALL: We are used to selling agricultural products to the Chinese. But when they want to turn that from a trading to an investor relationship, that does change the power balance. Aren't Australians right to fear the shift here?

HANS HENDRISCHKE: Well that is a very legitimate concern and it's one that we picked up. But the point is it's up to the Australian side really to structure Chinese investment. And the point with Chinese investment, from what we can so far see, is not that it's actually trying to buy land, but rather that it's buying into value chains. That is, getting Australian partners to work with Chinese partners from the producer, up to the logistics or to the e-commerce supplier inside China.

ELEANOR HALL: How important is the approach of the Federal Government in positioning Australia to benefit from changes in China?

HANS HENDRISCHKE: Oh, very important. The Federal Government can set guidelines and can set frameworks, like with a free trade agreement, that would make a big difference for the farming sector in general. But it's not only the Federal governments, it's even state government can play a role with interim measures, like memoranda of understanding that would help the farming sector, for example to export or circumvent some tarrifs that they need.

ELEANOR HALL: Well the Federal Attorney-General confirmed today that the Government will continue the ban on the Chinese telecommunications company Huawei from participating in the NBN. What sort of a message does that send to Chinese investors across all sectors?

HANS HENDRISCHKE: In the first line of course that is a message where Chinese investors work so well here, is there a degree of discrimination, because that is not the same across all countries. So I think that is a debate to be had.

And if those restrictions on Huawei are going to stay, then it will be a matter of communicating the reasons for that and also to make clear that those reasons don't apply to other areas where in fact we do want Chinese investors to come in.

ELEANOR HALL: How damaging is it to appear to be discriminatory if that is the way they see it?

HANS HENDRISCHKE: Well, appearing to be discriminatory and not being predictable, that is of course a major concern that there is, what you sometimes hear, that there is a political risk by investing in certain countries because you cannot predict what is going to happen. If that can be overcome, then I think it's perfectly fine for a country to say, well, certain projects we do not want, for whatever specific reasons we have that do not apply to other projects.

ELEANOR HALL: Now your report makes it clear that there is some urgency in Australia positioning itself in this market. How long do Australian governments and businesses have to get this right?

HANS HENDRISCHKE: Well it's a competitive market and it's, it's, if you look at food safety, that is a more competitive market than food security. Food security is kind of stable, you know what people want, you do research on that, you have a very limited range of products. But if you move into other areas, if you move in closer to the consumer, where you have all kind of fresh foods, where you have an issue with branding, do you have the image that sells in China, then of course there's competition, there's much more competition.

So it's a question of being in the market at an early stage. And we have competitors like New Zealand and other countries on various areas where it's simply important to be in the market all the time and not to wait too long to get into these markets and to be an early participant.

ELEANOR HALL: Hans Hendrischke, thanks very much for speaking to us.

HANS HENDRISCHKE: Thank you. My pleasure.

ELEANOR HALL: That's Professor of Chinese Business and Management at the University of Sydney, Hans Hendrischke, one of the authors of that report. And you can listen to the full interview with him on our website.