Different attitudes of Canadian and Australian governments towards Chinese investments - which is better?

Comments on Yuen Pau Woo “China Inc. comes to Canada”, 20/08/2009, http://www.eastasiaforum.org/2009/08/20/china-inc-comes-to-canada/

The contrast between the Canadian and Australian governments' approaches to Chinese investments reflects that Canada is more pragmatic, realistic and less protection and restrictions against Chinese investments. While Canberra may have thought it had done in its national interest, the costs and benefits of unduly and overly restrictive to Chinese investments remains to be seen. As in the case of international trade, many protectionists thought or think their protections would be beneficial to their protective countries, but economics has proven the otherwise.

The international economic structure has been experiencing a significant transformation and this trend is set to continue for the foreseeable future. Although a developing country, China has shown to become a large capital exporting country, largely as a combination of main two reasons: a very high rate of savings and a very rapid grow of a large economy. On the other hand, a number of industrialised countries have been or become capital importing countries mainly due to relatively low saving rates and relatively low costs of international capitals.

International capital flows, as international trade in goods and services, benefit both capital exporting and importing countries, by raising the returns to capital for exporting countries and lowering the costs of capital in importing countries in the first place, and by smoothing savings, consumption and investment of every country over time and contributing to welfare maximisation in each country beyond what is achievable in the absence of international capital flows.

Due to various reasons, there are restrictions and protections regarding international capital flows and cross border investments, just as in the case of trade in goods and services. Some restrictions may be justified, but most are reflection of special interest groups, poor understanding including the economics of it and self-inflicted fears.

As in the area of trade, there appears a need for an international or world organisation / institution where countries come together and agree on a set of well defined rules governing international capital flows. Such a need is becoming stronger and stronger as the magnitude of international capital flows expands and also the incidences of “protection” are increasing. Otherwise, there is a rising danger of investment protection.