Credit Suisse Asian Investment Conference

  • Speech, check against delivery
Hong Kong

It's always inspiring to visit Hong Kong, one of the world's freest and most competitive economies.

This is a city of remarkable achievements.

Economic output has almost doubled in the last two decades, helped along by Australia's largest business base in Asia.

The people of Hong Kong have the highest life expectancy in the world.

The city's great infrastructure projects, with their high cultural ambitions, will impress the world.

And the Heritage Foundation ranks it as the world's freest economy.

Australian business is at the forefront of cooperation with Hong Kong as it moves forward with Guangdong and Macau to make the Greater Bay Area initiative a reality.

With opportunities such as these, it is easy to see why Hong Kong attracts such a high calibre of people, well represented here today.

So it's a great pleasure to be here.

I am glad to have this opportunity to talk to the investor community about an issue I know has been on your minds, and that's Australia's announcements over the last year about new regulation of critical infrastructure.

Australia has one of the world's most open economies when it comes to international investment, and we've benefitted mightily from it.

We've been a leader in harnessing private capital to achieve strong public outcomes.

One of the emerging challenges for public policy arises from advances in technology, which are raising new questions, all around the world, about the control and operation of critical infrastructure.

The good news is Australia has developed an approach that will, over time, increase clarity and certainty for investors in Australia.

We'll achieve this by working with the private sector to deliver the security that Australian citizens expect.

The end result will be a regulatory process that works better for all investors, and helps them to deliver resilient and cost effective services for all Australians.

Australia has a remarkable record of welcoming foreign investment.

Foreign investment spurs economic growth, creates jobs and raises our standard of living.

Our country has been built with successive waves of foreign investment: First from Britain, then the United States, Japan and now, increasingly – although off a low base – from China.

We specifically encouraged Chinese investment through the China Australia Free Trade Agreement, by liberalising the screening threshold.

Previously, all Chinese investment of more than $250 million dollars had to go through the Foreign Investment Review Board, or 'FIRB' approval processes.

Now, private Chinese investments in non-sensitive sectors of under $1 billion do not require FIRB approval.

The stock of foreign investment in Australia mirrors the history: in 2016, the UK and Europe together accounted for 34 per cent of total investment stock, then the United States, 27 per cent, then Japan, with 7 per cent.

Chinese investment has grown rapidly to now be ranked seventh, with total investment of $87 billion.

In addition, Hong Kong is the fifth largest source of foreign investment, with the stock of investment growing by 17.5 per cent in 2016 to be valued at more than $100 billion.

And we aim to boost this substantial investment relationship even further.

As part of the ongoing Australia-Hong Kong Free Trade Agreement negotiations, launched in May 2017, we are seeking to modernise the investment rules in place between Australia and Hong Kong.

This will create long-term certainty and stability to investors from both economies, and provide the conditions needed for investors to make large commitments of capital across borders.

We aim to increase opportunities for Hong Kong investors in Australia in tourism infrastructure, major infrastructure, agriculture and food, resources and energy and more.

Successive waves of investment have contributed to Australia's economic success.

Our decades-old approach to regulating foreign investment has maintained, in the main, the confidence of the Australian people.

Foreign investors have become part of our economy, part of our city's skylines, household names.

Just as Australian companies have also done overseas.

We have made productive use of foreign investment, generating jobs for Australians, building skills, and gaining access into lucrative and growing markets overseas for Australian exports.

International investment has also been part of the bigger story of Australia's world-leading partnerships between governments and business, which have delivered profound benefits for our economy.

Australia has long recognised that competition drives down costs and improves outcomes in essential services, just as it does in other sectors.

We have been at the cutting edge in harnessing private capital to deliver essential services.

Australian governments have worked with business to privatise roads, ports, water utilities, electricity grids and telecom providers.

In 2016, the State Government of Victoria leased our largest container port, the Port of Melbourne, to a consortium of domestic and international investors: pension funds, fund managers, and banks from North America and Asia, including China Investment Corporation.

Proceeds from the lease of the Port supported new investment in transport infrastructure projects – Melbourne's metro and a motorway, as well as regional projects.

The Government of Australia has incentivised this kind of asset recycling by our state and territory governments.

Our nation-building project, 'Snowy Hydro 2.0',will generate more reliable ­energy, cheaper electricity, better infrastructure and more jobs for NSW and Victoria, in an arrangement that also provides $6.2 billion to the governments of New South Wales and Victoria to invest in other infrastructure projects.

The Australian Capital Territory responded to the asset recycling incentive by selling its gambling agency, commercial property and public housing, to fund the construction of light rail in Canberra.

Investors, from China, Japan, the UK and Germany are leading the development of the $707 million project.

We welcome the contest and the competition that the market brings to essential services.

The result has been public goods provided with world-class, private-sector efficiency.

Public-private partnerships have delivered infrastructure financed by the direct beneficiaries, the consumers, reducing our reliance on the blunt instrument of taxation.

High quality international investment has been crucial to our success.

Last year, for example, we welcomed Chow Tai Fook Enterprises's purchase of Alinta Energy and the 1000 megawatt Loy Yang B power station in Victoria.

Our National Electricity Market is characterised by high levels of international investment, including many investors from this region such as State Grid, Singapore Power, Marubeni, Osaka Gas, CLP Group and YTL Power Investments.

So, if you take one message away from this speech, let it be this: Australia welcomes foreign investment.

For my money, the best indicator of Australia's positive attitude to foreign investment is our proud record of attracting re-investment into our economy.

Major players like CKI and Hong Kong's MTR Corporation find Australia a reliable and profitable place to invest, so they keep coming back.

In the past year, CKI purchased power provider Duet Group, further diversifying its Australian portfolio of electricity and gas assets, agribusiness, water supply and its philanthropy.

The Li Ka Shing Foundation's donations to cancer research, remote and indigenous health and education, through the Endeavour Awards, demonstrate its commitment to Australia.

MTR is delivering a series of vital transport solutions in Melbourne and Sydney.

We expect MTR's latest project, the Sydney Metro Northwest, to reduce car trips by 14 million a year, and to halve commuting times along one of Sydney's most congested routes.

We know that without foreign investment like this, Australian production, employment and incomes would all be lower.

We also know that competition for the international investment dollar will continue to be fierce.

That's the main reason why the Australian Government will reduce the corporate tax rate progressively to 25 per cent out to 2026.

We will continue to give investors commercial certainty, to ensure Australia remains an attractive place to invest.

Our laws and regulations clearly establish the Government's purposes and processes for reviewing foreign investment.

This is especially important for our essential services and critical infrastructure, much of which is already in private hands.

Ladies and gentlemen, the Australian Government has been thinking hard about how to safeguard our open investment settings, and the economic advantages they bring, during the fourth industrial revolution.

Technological advances are defining our age, and have driven a huge amount of wealth creation.

Networks of communication and automation have made both government and business more efficient, and the gains will continue.

However, there's no denying that networked technologies pose new security challenges.

There's an important distinction here:

Security challenges are not an issue specific to foreign investment, but can arise from foreign involvement more generally, whether it be through outsourcing even within wholly-Australian owned businesses, participation in global supply chains, or ownership.

Traditional industries and services that used to be invulnerable at a distance can now be compromised by remote access.

This is an obvious risk in telecommunications but now it's impacting other areas, like energy utilities.

The investment community knows better than most that to benefit from international capital, we have to get a handle on the risks, and manage them.

Business has had to develop its governance and security protocols to reduce risks from networked technologies.

So must governments.

It's natural that a government should take a close look at who is owning, operating and controlling the assets that underpin our economy and quality of life.

Our approach is non-discriminatory: it applies equally to all owners and operators of critical infrastructure – both Australians and foreign investors.

The Australian Government has taken prudent action to ensure we do not open ourselves to future vulnerabilities in this age of heightened connectedness and strategic uncertainty.

To achieve this, we need international investment that brings in best practice, and helps us to build a resilient ecosystem of essential services.

Let's be very clear about this: strong private sector involvement, including through international investment, is part of the solution to our security concerns.

We look to the private sector for the capital and the expertise to build and develop excellent infrastructure.

That is how we will ensure our critical infrastructure is world class and secure.

The community at home expects no less.

For all these reasons, in January 2017, Australia established our Critical Infrastructure Centre.

The Centre is a Federal Government agency that provides clear, consolidated and early national security advice to inform Australia's decisions on investment proposals, be they foreign or domestic, for critical infrastructure.

It will help Australia to continue to benefit from international investment, while strengthening national security.

It will help international investors plan, explore and commit.

Of course, not all assets – even within the same sector – have the same national significance or risk profile.

So Australia takes a careful and case by case approach to these questions, with the aim of allowing as much private sector involvement as is prudently possible.

The Critical Infrastructure Centre will provide clarity to business about the kind of assets that are likely to be subject to national security review.

I encourage asset owners and investors to engage with the Foreign Investment Review Board directly. Austrade and our embassies and consulates can help investors make that connection.

Where relevant, the Critical Infrastructure Centre will help in that process, so that investors get early advice on Australia's position.

We have recently set out new conditions on the sale of electricity sector assets to foreign investors.

These codify the conditions already applied, on a case-by-case basis, to previous transactions.

There will be no retrospective impacts on existing investors.

This is about future applications for the sale of electricity transmission and distribution assets, and some generation assets.

We see security benefits in diversity of ownership and control of our electricity distribution and transmission infrastructure.

Government will assess each investment application on its merits, taking into account a range of factors such as the asset's importance and the cumulative level of ownership within a sector.

In time, the CIC will build a comprehensive view of Australia's sensitive assets, integrating advice from all government agencies.

When the FIRB assesses an investment proposal, it will have the benefit of the CIC's advice on sensitivities and ways to mitigate them

For investors, that means clear, timely and precise guidance on the conditions for any particular transaction.

It means earlier decisions, and fewer surprises.

We intend no surprises.

The changes we have introduced are inevitable given the world we live in.

Australia has taken a proactive approach.

Building on our record of effective public-private partnerships in critical infrastructure, we are staying ahead of the game.

Because, of course, we are not alone in grappling with this issue.

All governments take very seriously their responsibility to consider the national security of critical infrastructure.

Many simply refuse to allow foreigners to invest in sensitive sectors.

This is not the way to world-class outcomes.

Australia wants the capital, know-how and productivity-enhancing technology that comes with foreign investment.

In quite separate processes, several countries have recently initiated their own reviews of investment in their critical infrastructure.

Last September, the European Union announced a new framework for screening investments in assets critical for security and public order.

Last October, the UK initiated a public review of infrastructure investment, to manage its impact on national security, with initial proposals for both short term and longer term reforms.

The United States Congress is currently looking at several proposals to review the way the U.S. screens foreign investment.

While China continues to liberalise its foreign investment rules, it also makes clear that its national security interests will always be safeguarded.

Ladies and gentlemen, Australia knows a strong competitive economy will be fundamental to our future prosperity and security.

Productive international investment makes our economy stronger, and lowers the cost of delivery for essential services.

These facts have been front of mind as we have developed our regulatory framework for foreign investment in critical infrastructure.

It is the latest chapter in Australia's history of good public policy that has made us a favoured destination for investment that is stable, reliable and profitable.

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