Chinese investment and extradition
In this story
Philip Ruddock’s answer was a small masterpiece of the Yes Minister variety: “I wouldn’t want to comment on whether or not any agreement that I may or may not have been party to was left in abeyance.”
The Saturday Paper had gone to him to resolve some confusion about the status of extradition arrangements between Australia and China. Eight years ago, when Ruddock was attorney-general, and responsible for such matters, and Chinese president Hu Jintao was in Australia to talk trade, it was reported an agreement had been signed.
Yet for the past year there have been sporadic reports in the media and elsewhere that Australia is considering entering into an extradition agreement to allow the handing over of corrupt Chinese expatriates living in Australia.
Foreign Minister Julie Bishop helped set the ball rolling in a press conference at the Asia-Pacific Economic Co-operation (APEC) meeting in Beijing last November.
“Well, we don’t have an extradition treaty with China at present,” she said, adding that it was being contemplated.
It makes you wonder: were those earlier reports wrong about the existence of such a treaty? If not, why would Bishop deny we have one? And why would we set about trying to agree on another? Why does Ruddock go all Humphrey Appleby when asked about it? Why might it have been “left in abeyance”?
On the face of it, it seems mystifying. Sam Dastyari, Labor’s self-appointed scourge of illicit international money movements, is puzzled, too.
“We know there are people doing illegal things and taking money out of China and laundering it into Australia, and we can’t extradite them,” he says. “Yet sitting somewhere in the bowels of the Department of Foreign Affairs and Trade is a document that’s been signed.”
Dastyari is quite right, except that it may be gathering dust somewhere else in the bureaucracy.
A senior official of the Attorney-General’s Department, appearing before a senate estimates committee earlier this year, confirmed that an extradition agreement had indeed been signed in 2007 and ratified by the Chinese in 2008.
But at this end, she said, it remained a matter of “ongoing consideration within governments between the Attorney-General’s Department and the Department of Foreign Affairs in terms of the correct process for taking forward the final ratification of the treaty. It is a matter that has been under constant discussion for quite some time now.”
As to when there might be a conclusion, she offered no clue.
The likelihood is, though, that the matter of extradition will continue to be contemplated, but not acted on, into the indefinite future, so long as Ruddock and other politicians of conscience have anything to do with it.
It comes up sporadically when Australia is trying to soften up the Chinese on matters of trade – as when Hu was here in 2007, or during Bishop’s Beijing visit last year – or when the media get excited about the undeniable but unquantified problem of corrupt money flows entering Australia from China.
The reason is simple: we don’t trust the Chinese political and legal system. In particular, we don’t trust them not to use an extradition agreement to kill people, whether they are crooks or simply politically inconvenient.
Ruddock, punctilious in his use of language, does not put it so bluntly, of course.
“Am I aware of people who make money in China in questionable ways? Yes, I am,” he says. “I know China has made it known they are more concerned now than they have been in the past, and efforts have been made to address corruption issues. Sometimes it is thought that is in the context of some being pursued more than others.
“But our approach usually is not to agree to an extradition unless we are satisfied that a convicted party will not be executed. Now, how you satisfy yourself of that can be quite demanding. People have been known to give assurances in the past and then walk away from them.
“So I wouldn’t want to comment on whether or not any agreement that I may or may not have been party to was left in abeyance. I would simply say, from my point of view, we should have arrangements in place with countries across the board that enable us to deal with corruption.
“But I would not be prepared to agree to any extradition that did not ensure no death penalty was in prospect.”
Ruddock’s consistency in opposing the death penalty is admirable, even if his action in signing an extradition agreement and then opposing its being enacted is a bit cunning.
The unending extradition issue illustrates Australia’s deep ambivalence to our economic relationship with China: Australia wants the goods they send us, but we’re suspicious of the provenance of capital inflows and dubious about its benefits.
It’s a public concern as well as a political one, notes Jane Golley, associate director of the Australian Centre on China in the World at the Australian National University. She cites polling done by the Lowy Institute that found 56 per cent of Australians thought the government allowed too much Chinese direct investment in Australia, while just 4 per cent wanted more, a result broadly consistent with findings over the previous four years. The psychology is interesting, she says.
“We’ve signed up for globalisation, for open trade, but we’re not nearly as comfortable with open capital flows. We don’t seem to care that Chinese people made our computers, but we don’t want them to have bought the building next door.”
Politicians have sought to exploit this hostility and in the process sent mixed messages to China, says Golley. She is particularly critical of former prime minister Tony Abbott in this regard.
“In 2012 after the Lowy results came out... Abbott as opposition leader turned up in Beijing and said we would rarely welcome investment by foreign governments. Then he became prime minister and changed his tune.”
Within a few months of election he was back in China to declare Australia “open for business”, spruik the free trade agreement, and offer Australia as a “true friend” of China. Direct investment in Australia continued to grow, making up about 85 per cent of Chinese money inflows that year.
More recently, we’ve seen former treasurer Joe Hockey, nettled by a real estate deal in his exclusive Hunters Hill neighbourhood in Sydney, initiate a “crackdown” on foreign (read Chinese) real estate purchases in breach of foreign investment rules. The Foreign Investment Review Board, Australian Federal Police, Department of Immigration and Border Protection and Austrac were harnessed to the task.
This has resulted in the forced sale of just 11 residential properties, although a treasury spokesperson says the program is investigating some 500 real estate purchases across Australia.
“Some of these investigations are indicating the involvement of third parties,” the spokesperson says. “We are particularly interested in agents, accountants, lawyers and financial advisers who may be facilitating illegal property purchases.”
That is not to say those properties were bought with the proceeds of corruption in China, but it does indicate, says Golley, that the government is struggling to deal with the rapid increase in the flows of Chinese money into Australia over the past five or 10 years.
“The response has been very ad hoc,” she says. “We have Joe Hockey’s dispute with his neighbour and suddenly a bit of a media stir, and in comes the FIRB… We weren’t ready for this. We weren’t ready for Chinese investors’ billions coming in and flooding the market.”
But we weren’t unhappy about it, either, at least at the government level.
A former senior official in the immigration department points to a Labor-initiated program, the significant investor scheme, announced in 2012.
“It was designed to tap that big flow of Chinese money,” he says. “It gave someone with $5 million to bring in a very quick and certain leg-up. By investing in various ways, you could get permanent residence in Australia essentially overnight, whereas it might otherwise take several years.”
Departmental officials, he says, had “serious misgivings about the origins of much of the money”.
“We tried to conduct due diligence to identify the provenance of the funds, to ensure it wasn’t ill-gotten, [with the result that] there was criticism from state governments, who benefited by these significant investors in New South Wales and Victoria in particular, that we were taking too long.”
As of the end of March this year, some $3.75 billion had come into the country through the buy-a-visa scheme. How much of that is dirty money? We don’t know.
A recent Four Corners report cited global estimates that some $US1.25 trillion of corrupt and criminal proceeds had exited China in the decade to 2012. Given that Australia is one of the favoured destinations for Chinese investment, the likelihood is that much of it had come here.
And it is also likely to be increasing. Despite Tony Abbott’s expressed concerns about investment by state-owned enterprises, they are not the corruption risk.
That is private investment, which is growing fast, according to Hans Hendrischke, professor of Chinese business and management at the University of Sydney. Along with accounting firm KPMG, he reports annually on Chinese direct investment in Australia.
“In 2014, for the first time, private investment was 66 per cent of inflows,” he says.
The types of investment have also changed.
“Overall Chinese direct investment has declined about 10 per cent in each of the past two years,” says Hendrischke.
“We have observed a fairly sharp decline in mining and resources investment, and a growing trend to investment in commercial real estate. In 2014, the percentage of investment going into commercial real estate has grown from 13 to 46 per cent. And it has grown even more in the number of deals.”
Yet the focus of most attention has been on residential real estate, and the suggestion the Chinese interest is driving up prices.
“I think we are getting a bit overexcited. We’ve looked at the figures in terms of the percentage of the overall Australian real estate market who are Chinese in immigration terms – not residents or citizens – and that’s only around 2.2 per cent. That’s a small share of the overall market, although in specific suburbs, there will be greater concentrations. In terms of general affordability, the effect is overstated.”
As are concerns about Chinese purchasing of farms.
“In 2014 we had $8.3 billion in direct investment into Australia. About $140 million of that was in agribusiness,” Hendrischke says, although he expects that to increase.
“Commercial real estate, in contrast, was $4.4 billion in 2014.”
The bottom line here is that we seem to be focusing on the wrong things in the rush to panic about levels of Chinese investment. It’s not state-owned enterprises; it’s not a relative few wealthy Chinese in harbourfront mansions. The action the government is taking is directed at assuaging public concern, while the hot money flows elsewhere.
Meanwhile, Australia isn’t going out of its way to help Chinese authorities by sending their crooks back to them.
Apart from any humanitarian concerns, we need the money.
This article was first published in the print edition of The Saturday Paper on Oct 31, 2015 as "China syndrome".
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