Arthur Sinodinos (NSW, Liberal Party) Share this | Hansard source

) ( ): I rise to speak on the Asian Infrastructure Investment Bank Bill 2015. I take the opportunity, as Senator Back has done, to commend the Treasurer, Mr Hockey, for his sponsorship of this proposal. I think he was an early supporter of it. I do not think it is disclosing any secrets to say that the government initially had some reservations about being a founding member of the bank. Those reservations reflected discussions with some of our allies, such as the United States and Japan. However, the decision was taken by the government under the leadership of Tony Abbott, by Mr Abbott and Mr Hockey, to be part of the Asian Infrastructure Investment Bank.

I think that is a good decision. Towards the end of last year I was in Singapore and met with senior government officials, including at their central bank, the Monetary Authority of Singapore. It was clear to me that they thought it was important that they be a founding member of the bank. They said it would be good if we were a founding member of the bank as well. They put the argument that if you are on the ground floor of a new institution like this you have a capacity to influence its governance and structure. There had been reservations about the governance and structure of this institution. I will come back to that later in my speech. But overriding all of those considerations and, I think, the fundamental reason that the Australian government decided to be part of the Asian Infrastructure Investment Bank, is that it is a further evolution of the role of China in the region. It shows China extending its influence in the region, being a player in the region and promoting economic development and growth in the region.

That is important. From a geopolitical perspective it is really important that we continue to encourage China to engage not only in this region but globally and, therefore, to increase its commitment and stake in the global rules of engagement. That is very important. We often express some concern about what will happen to the rules of engagement on trade and investment—which we have had largely since World War II and which were largely a product of American power, particularly in the Asia-Pacific region—if other countries, like China, start to become more important. Will they change the rules of engagement to benefit themselves, and will that be at the expense of other smaller economies, including Australia?

We have come at that in a number of ways. The first is, obviously, to reaffirm our strong alliances in the region and to continue to encourage the United States to engage constructively in the region. But we have also done it by promoting economic development and growth in the region; not only because that will benefit us, but also because rising incomes in those countries and rising engagement in the global economy will encourage amity and cooperation in the region.

From a geopolitical perspective it is very important that we encourage China in these multilateral regional initiatives. It is very important that we engage constructively with China, so I am very happy to support what Australia, under the guidance of the Treasurer, Mr Hockey, is undertaking to do in this particular context of the Asian Infrastructure Investment Bank.

The word 'infrastructure' is in the title advisedly. The Chinese have identified a significant infrastructure gap in the region. It is estimated to be US$8 trillion in Asia in this decade alone. This is a product of economic growth and the need to produce new infrastructure. Infrastructure is very important. Economic infrastructure, in particular, increases your capacity to produce goods and services. It lays the basis for economic growth and development and for rising incomes. This infrastructure gap arises because economic growth is proceeding apace in the region. We need to address the financing gap that opens up as a result. This financing gap can be addressed over time through a combination of public and private contributions. The Asian Infrastructure Investment Bank will mobilise capital in the region, drawing on government contributions, in order to help fill at least part of this gap.

In this context I commend the work that Mr Hockey has done in the context of the G20, where, last year, under the presidency of Australia, the G20 endorsed the idea of a global infrastructure hub. The Global Infrastructure Hub will be based in Sydney and will be a clearing house for experience in addressing infrastructure issues, including matters like public-private partnerships and how to facilitate cross-border cooperation in developing and building infrastructure. That Global Infrastructure Hub is underway. It will be located in Australia and it will complement some of what we are doing here.

We must remember that, when we talk about promoting infrastructure, it is very important to note that we must not always categorise all debt as being bad. There are contexts where providing debt financing, which can be serviced in due course, can be a very appropriate thing to do, as you would understand from your own background, Mr Acting Deputy President Whish-Wilson. We should not be afraid of that. The question is always the rules under which it is done, so we can promote sound investment decisions to get the sort of returns which are needed in order to justify the investment and provide the funds for future investment.

The Asian Infrastructure Investment Bank has identified a gap in that regard. It is classified as a multilateral development bank. It is a quasi-commercial bank. What is meant there is that it is neither purely a commercial operation—it is not just a commercial bank which would crowd out private investment—nor purely an aid agency which would provide concessionary finance, grant finance or whatever. What it seeks to do is to earn minimal returns—at least in the sense of breaking even—but some returns in order that it can fill the gap in financing which exists on the continuum between purely aid focused projects and purely commercial projects. It plays a catalytic role. That is, I think, very important. It can play a role in catalysing private investment by topping it up. It can play a role in filling the gap that we have identified in getting infrastructure underway which may not be purely private infrastructure. In other words, it may not be infrastructure that benefits only one particular party that is building it. You could argue then that they capture the private benefits of that infrastructure, so they should pay for all of it. But there will be infrastructure which will have spillover benefits, or benefits which are not captured just by one group—common user infrastructure, for example. That is a good example of where having a group like this can help to fill the financing gap. That is very important. This bank will play an important part in helping to fill that infrastructure gap.

There were some concerns expressed earlier about structure and governance issues to do with the bank. These revolved around issues as to the extent to which the Chinese would have influence over the operations of the bank. It is true to say that for some aspects of the work of the bank there will be a veto. China will have veto power on issues that require a supermajority vote, such as the board, the president and the capital as well as the major operational and financial policies. But issues such as the acceptance of new members and ordinary loan decisions will not require a supermajority. And this particular veto power has been scaled back. I think this is recognition by China that it needed to make its proposal more palatable than might otherwise have been the case, and it may in part have been a reaction to some of the scepticism of the US, Japan and others. I commend the Chinese for being sensitive in that regard.

I spoke about the infrastructure gap in the region. For us the benefits of filling that gap will include a demand for commodities as new infrastructure is rolled out. That in itself is one level of demand. More importantly in a longer run sense, higher incomes in those countries will lead to more demand for a whole slew of Australian goods and services, potentially not just those involving Australian mineral and energy resources. That is very important. So there are benefits in terms of trade opportunities. There are investment opportunities in the sense that there is a capacity for the bank to invest in Australia as well. Interestingly, that could be a conduit for more investment in infrastructure related, for example, to what we are seeking to do in Northern Australia through our Northern Australia policy, which is to promote the development of Northern Australia by working with the Western Australian, Northern Territory and Queensland governments to put together infrastructure projects which will open some of those territories to more economic development. That could be a very important development. It could be a conduit for Chinese investment in Australia, done in a way which may not carry the same connotations as other forms of Chinese investment here do. And of course there will be a capacity for Australian companies to bid for procurement on major projects which are being sponsored and financed by the bank. That is a big opportunity, because from what we understand the procurement process will be a competitive one and we will be able to participate in all of that.

So this infrastructure bank provides an opportunity for us to deepen our relationship with our largest trading partner and the region's largest economy, along with 55 other member countries including India, Korea, the UK, Germany and France. It is very significant that European countries have seen this as an opportunity to participate. They recognise not only, clearly, the rise of China but also the importance of direct engagement. I have always believed that direct engagement is the best way to get other countries to understand you better and to understand them better. That is to the benefit of everybody. We will be committing, in Australian dollar terms, $932 million to the bank. Apart from the benefits I mentioned earlier, it should be noted that, consistent with the budget treatment of Australia's contributions to the other international financial institutions, Australia's paid-in capital will be treated as an investment. It does not come at the cost of other government spending, in that sense, and does not directly add to the budget deficit. So we are not talking here about a situation where we are potentially diverting spending from other, more useful, social purposes.

I mentioned earlier that Australian companies will be able to bid for projects. There will be what is called an open procurement model, meaning that companies from any country—not just member countries—can bid for contracts. Australia as a member of the bank will be able to benefit from up-to-date knowledge of the opportunities available to our companies. Australian companies have won contracts from other multilateral banks such as the Asian Development Bank, so they will be well positioned to make strong bids for contracts from this bank. Australian companies have built up a bank of knowledge in bidding for contracts with the Asian Development Bank and others, and that gives us a capacity to understand the needs of these international financial institutions. That will stand us in good stead, I believe, in bidding in the region. One other area where we can potentially also benefit is in sharing our expertise when it comes to infrastructure financing. Financial institutions such as Macquarie Bank have over the years pioneered all sorts of infrastructure financing models. It would be interesting to see the extent to which they can be adapted for the purposes of the region.

I need in my remarks to also cover a broader issue to do with our relationship with China, which is that we have recently, of course, also been negotiating and have concluded negotiations on a major free trade agreement with China. So what we see is Australia broadening and deepening our relationship with China, giving us the capacity to influence them in a way which could be very useful to the region as a whole. We are in the region, but in some ways we are seen as a bridge to other countries.

I remember working in the Howard government when we were bidding for major gas projects in China. Australian companies were bidding against British and other companies. What was important then was that the Chinese not only thought of us as potentially a major supplier of all sorts of different resources and commodities, but also saw the awarding of contracts to Australian companies as a way of sending us a signal that they saw us a valued partner in the region, an interlocutor who could also have influence with other partners in the region and outside the region, including the United States. Sometimes the Chinese used the Australian channel to get messages to our alliance partners.

There are a number of levels on which our relationship with China is developing. We have the free trade agreement. We have investment in the Asian Infrastructure Investment Bank. On top of that we have the people-to-people movements: the ways in which we are reforming our international education to make it as good as it can be and having high-quality national education to make the experience as good as it can be in Australia. Now, particularly with a lower dollar, our tourism sector is really starting to revive and be stimulated. The Chinese will also play a major role in that regard.

The need to generate returns at the bank raises a key question regarding how the bank will balance its funding of infrastructure projects with practical considerations. Infrastructure development is known for long funding cycles, low interest rates and the potential for waste and corruption. If the bank is to grant loans that other banks reject for good reasons, it would assume major risks, especially in less developed Asian countries with volatile domestic economies and unstable governments. How the recipients will repay loans is a major question for any bank, including this bank. But I am heartened that the governance and structure being put in place will give the bank a capacity to draw on the experience of other multilateral development banks in particular. As I said before, because they will operate not to seek high returns but to break even or to earn minimal profits, they will have that quasi-commercial focus, which I think will allow them to very well fill a gap that has opened up in the infrastructure financing chain.

With regard to our relationship with China more broadly, let me also say that it is clear from the way the Chinese economy is now developing that the rebalancing which is underway means that there will be an increasing focus in China itself on economic growth being driven by consumption rather than infrastructure investment and exports. China has had a very significant and very impressive export led growth model, but that is changing. They are rebalancing their economy to put more focus on consumption. That will also lead, of course, to greater demand for a whole array of goods and services from countries like Australia. We are well placed to meet much of that demand, not just because of the free trade agreement but also because of the wide array of goods and services produced by the Australian economy. I think it is very important that we do what we can to continue to promote the competitiveness of our economy, because while we are very good at producing a whole array of goods—whether you go through the agricultural chain, where we are very efficient in physical terms, or you go through to a whole array of advanced services that we are now able to generate—it is very important for us to maintain our competitiveness in the region. As I have said so many times, our competitors in the region are not waiting for us to be competitive. They continue to be competitive and to increase their competitiveness. They face their own pressures. In many ways we need to run faster just to stay in the one spot.

It is very important for us to recognise that when we contribute to these sorts of international organisations—even though we will be eligible in terms of being able to bid for the procurement on projects—we have to be competitive, not just drawing on our experience in dealing with other multilateral development banks but also recognising that we need to be innovative, we need to be productive and we need to keep our costs under control so that we can be cost-effective, have an edge and maintain an edge over our competitors. That whole innovation agenda is a topic for another day, but that is an important part of being a good partner—(Time expired)