Glass Pyramid Exclusive

Selling Australia: Toll – Another $6.5B worth of Oz Assets sold


Mr Hockey announced on Thursday that he had given a big green tick to the $6.5B transfer of ownership of Toll Holdings to Japan Post (a Japanese government company).

This deal has been in the pipeline for a few weeks and The Australian gave the negotiations a nice bit of swoony Mills and Boon coverage back in February.

“..But by the third week of January, the Toll board had received a non-binding indicative offer which contained the magical number which became music to Horsburgh, Kruger and the board’s ears…”

No doubt Mr Robb supports this deal as he can barely rest between stitching up capital flow facilitation deals (aka FTAs) that make it even easier for our trade rivals to export capital , acquire ownership of Australian assets and in doing so inflate the relative exchange rates and maintain their competitive trade advantage in their relationship with Australia.

Why capital flow facilitation deals?

The misleading description given to these agreements is Free Trade Agreement and it is misleading because they are rarely about Free Trade or even Free-er Trade.  In almost all of the recent agreements Australia’s important exports remain severely restricted – just as they were under the Howard USA FTA (remember that deal of the century?).

The primary purpose of the agreements is to allow our trade rivals an even easier way to export capital to Australia and in doing so maintain their competitive trade advantage.

We relax our already feeble restrictions on  capital exports to Australia and in return, if we are lucky, we get vague promises that some time in the future we might, if they feel like it (or their citizens and producers permit), allow a bit more basic unprocessed Australian commodities into their markets.

In short – We have to trade off our capital inflow restrictions because in most cases we don’t have any merchandise trade restrictions (tariffs or quotas) to trade – we unilaterally relaxed them years ago.

Exhibit One – Australia and Japan

According to the ever helpful Department of Foreign Affairs and Trade Fact Sheet on the Japanese Australian trade relationship Australian merchandise exports to Japan in 2013-2014 totalled almost $50B and the merchandise imports from Japan totalled approx $18B.

This means that we sold roughly $32B more to Japan than they bought from us. Merchandise includes mineral exports in case you were wondering.

Note – The Trade in services was roughly in balance with Australia buying about $700M more in services than we sold.

All good it would seem.  $32B more in exports than imports and so we should expect that insofar as our Japanese trade is concerned the $AUS will rise as Japanese acquire the $AUS required to buy the $32B surplus of Australia goods they bought.

But when we look at the capital side of the relationship things get interesting.  Even though Japan is buying $32B more merchandise from Australia than they are selling they are exporting massive amounts of capital to Australia.

According to the DFAT Fact Sheet,  Australia’s investment relationship with Japan, 2013 (e):

    Total:                 FDI:

Australia’s investment in Japan (A$m):         50,225           477

Japan’s investment in Australia (A$m):         130,982         63,257

A difference of $80B dollars which completely dwarfs the large $32B surplus in Merchandise Trade that Australia. Or a difference of $63B dollars if we are talking about FDI.

And Mr Robb has just strapped Australia to a deal that makes the export of capital to Australia by our ‘best friend’ trade rival even easier but will gain little crumbs in exchange – a bit more milk in X years, a few more greasy lambs at some point, permission to open a campus for a university off-shore maybe etc.

Trinkets are what Mr Robb is securing – nothing more – and yet anyone would think he had won lotto.   Our trade rivals see his type coming a mile away.  The politically desperate to make a deal.

But what is wrong with allowing our trade competitors to export capital by the truck load to Australia?

Good question and if you read editorials in The Australian, like loyal subscriber the Glass Pyramid, you would be NONE the wiser.  The myopia on this issue is frustrating as the National Interest is at risk.

Exporting capital is the fundamental technique that a mercantilist country (i.e. one that wishes to support domestic production by generating a lower exchange rate than their trade in merchandise and services warrants – e.g. Germany, China, Japan, Korea, Europe generally – the list is long) uses to manipulate their exchange rate.

When a mercantilist country exports capital they force up the exchange rate of their trading partners relative to their own exchange rate.

This is why when you look at all of the FTAs signed by Mr Robb the deal with regard to capital exports/imports remains very one sided.  The Mercantilist country treats capital imports with even more disdain than a boatload of Australian rice or other agricultural commodities – they are not too worried about minerals as they need those to make the stuff they want to sell back to us.

Does anyone recall Mr Robb trumpeting that the deal allows Australia companies or Government agencies (like AustPost) to export capital to Japan (buy assets, industrial sectors, land, distribution systems etc) in chunks of $1B No Questions asked?

The Chinese FTA made a big deal that some piddly Australian investments in hospitality and eduction might be allowed but just about everything else of a capital nature was OFF the table.  Nice deal Andrew.  The Chinese are not silly, like the Japanese during the Meji restoration, they have long made joint ventures the method of getting foreign know-how without selling off the country. Australia seems proud to act like a colony.

So why do so many Australian business people and business friendly publications support capital imports when they are the No 1 tool of mercantilist trade manipulators and distort exchange rates?  The most likely explanation is a combination of obsessive and naive Free Market ideology and that there is good money in facilitating and servicing the transactions that are involved when capital is exported to Australia.

Classics bits of worn out thread bare rhetoric that get rolled out to defend the indefensible include

“…Reflecting our well-entrenched hunger for foreign capital and China’s recent economic rise,


As a nation whose expansion and key industries have been funded by the savings of foreigners it is important to keep some historical perspective.


Our small savings pool and tiny domestic market demand a mature approach and continued openness to China’s vast capital reserves…”


Australia has more than enough capital as the 12th largest economy in the world, with a pool of super savings of almost $2T, to build and expand all the key industries it could ever hope to have.

Are any capital imports productive?

Yes – the indicator is if the proposed capital import is involved in directly building Australia’s productive economic capacity by building capital pr productive assets. The best imports are skilled staff and that simply requires giving them a ticket to the front door.

A properly staffed and skilled FIRB can easily assess if this is the case. This need not be a festival of red tape but the hurdle will be substantial.  If the importer of capital cannot demonstrate a direct connection to building productive capacity the deal does not go ahead.  What exactly is Japan Post going to teach Toll about distribution systems that it does not already do or could not do itself?

Deals that simply involve the transfer of ownership of Australia capital assets into foreign hands do not pass the most simple sniff test.  Deals for the sale of $39M existing houses on Sydney Harbour would damage the sniff detector with the strength of the bad odour.

The one import that Australia desperately needs are brains that understand that when the world is engaged in currency wars and manipulating exchange rates (some have been doing it for decades) ONLY FOOLS sign up agreements with our trade rivals that facilitate the number one tool of the currency warrior – exports of capital.

6 replies »

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  2. Instead of resorting to capital controls, the government could use the mercantilist country’s savings to build infrastructure, reduce taxes for lower and middle income earners and other economically productive purposes. i.e. long term government bond yields are low; perfect borrowing conditions to finance infrastructure spending which is almost guaranteed to generate a higher return.

    The second point I’d make is that as countries specialise in production, price (affected by exchange rates) becomes less important. For example, how can Japan ever compete with Australia in agriculture and food processing industries?

    Liked by 2 people

    • Shervin,

      Thanks for your contribution.

      1. “….the government could use the mercantilist country’s savings….”

      Keep in mind that neither the Oz government nor any other Australian can use the mercantilist’s savings (though foreign QE money printing is a major source rather than actual foreign savings) directly because they are in a foreign currency.

      All that happens when the Australian government or some other local ‘borrows’ foreign savings is that a foreigner acquires already existing $AUS deposits in the Australian banking system and hands them over in exchange for a bond or an IOU. NO new money enters Australia. There are no bags of $AUS held by Foreigners that are being returned to Australia when we borrow from foreigners. All that happens is that the location of already existing deposits in our banking system change location. BUT what does happen is that the $AUS exchange rate rises to reflect the increased demand for $AUS from foreigners and the Currency Warrior smiles

      If the concern is that the ‘price’ of local deposits to borrowers (oz govt & home owners) will be higher if we choose to stop relying on foreigners to acquire control of Australian deposits and direct them, the government/RBA can always reduce the interest rates on offer by increasing the supply of deficits – i.e. some variation of what already happens when the RBA seeks to reduce interest rates. Keep in mind that the problem with trying to drive economic activity with cheaper debt is that our households are already choking on record levels of household debt. The string is already well pushed – not that this is stopping the RBA from trying.

      2. “…how can Japan ever compete with Australia in agriculture and food processing industries….”

      The Japanese agricultural and food processing industries already compete very well with Australian industries through a combination of tariffs and quotas on Australian agricultural imports and the Currency Warrior methods of exporting capital to Oz and thereby devaluing the Yen. If Australia was not allowing currency warriors to export unproductive capital to Australia our agricultural industries, goods and service industries would be much more competitive as the exchanges rates would be lower – though of course that is not enough to get around explicit or sneaky direct barriers like tariffs and quotas – which most of our Trade Partners (including Japan under the FTA) continue to deploy with great enthusiasm – even though we unilaterally removed most of ours years ago.

      I should emphasise that I am not promoting the return of tariffs and quotas imposed by Australia on imports as generally speaking freer trade in goods and services and movements in people is a good thing. My concern is unregulated, unproductive and in many cases predatory capital flows.


      • I should have been clearer when I said “use the mercantilist country’s savings”, I mean take advantage of the mercantilist demand for AAA sovereign debt to fund productive investments.

        I don’t really blame the savers for unproductive capital investments, I blame government for not taking advantage of the demand for AAA debt and more importantly, for setting up a regulatory and taxation regime that promotes property speculation. Everything from land supply restrictions, restrictive zoning, bank preferential treatment towards mortgages instead of business finance etc. is a fault of poor government policy. My point being, it’s about how savings are channelled not whether or not people are saving.

        Liked by 1 person

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