In the wake of the collapse of the mining boom, Chinese capital is set to play a remarkable role in who wins the next federal election and the overall state of the Australian economy. We are headed into uncharted waters.
On the surface, Tony Abbott has two potential election winners in the ‘rogue’ Victorian government led by Daniel Andrews and the inexperienced and unprepared new Queensland Premier Annastacia Palaszczuk.
The Coalition election strategists are preparing an election campaign that will link Opposition leader Bill Shorten to the disasters that seem set for Victoria and Queensland following the election of Labor governments. The problems of the ALP in South Australia can add a bit of spice.
But it’s Victoria that will make or break the strategy.
On the surface, Australia’s second-largest state looks headed for a terrible beating, which will affect the whole nation. Joe Hockey’s decision to close the Australian motor industry (for which he had no mandate) will cause unemployment to rise, while the cancellation of the East West Link is a total disaster because Victoria has no major infrastructure project ready to go ahead for about three years. A few rail overpasses will provide only token help.
To make matters worse, Australia’s best government construction team was sacked over the East West Link and they have gone overseas and the militant CFMEU is now in charge of all major construction in Victoria. It seems a total disaster and Ken Phillips today details just how powerful the CFMEU is set to become (Victoria is no longer the place to be for business, April 20).
In turn, that will savage investment and the cancellation of the East West Link contract has caused a significant number of potential investors in Victoria to look elsewhere. Melbourne is Australia’s fastest growing municipality, with its western suburbs leading the charge. But Andrews has made it tougher for them to cross the river to get jobs. All this will send Victorian unemployment through the roof and return Tony Abbott to the lodge.
But wait, that is not necessarily how it will turn out because the Chinese control a big part of the game. And there is at least a chance Daniel Andrews may be able to save Victoria from disaster.
As I set out in Business Spectator last month (Asian investors are transforming Melbourne’s CBD, March 16), Melbourne has approved the construction of over 20,000 apartments in the central business district over the next four years, five times the ‘normal’ level of around 1,000 a year. Construction has already started on some 7,800 apartments.
In addition, there are a vast number of apartments being built in the Melbourne suburbs and many more are planned on the city’s fringe in areas like Fisherman’s Bend. These are incredible numbers and the vast bulk of the CBD apartments and a proportion of the non-CBD apartments are funded, financed and usually developed by the Chinese.
If these projects, most of which were approved by the previous Victorian government, continue to be developed then the resultant boom in building activity will help propel the Victorian economy. (Although a property glut could emerge, depending on population trends).
But over the next 18 months, Andrews will take the credit for all this construction activity and Abbott will have to try and be re-elected on his portfolio of broken promises and mistakes.
These apartment developments depend on massive ‘off-the-plan’ selling in China and the rest of Asia, involving a 10 per cent deposit. Melbourne has been promoted as the Australian city with a great future because it is led by education, tourism and health rather than mining and will be a major beneficiary from rising population.
The decision to abandon the essential East West Link and pay $600 million plus to cancel the contract has shocked the world, including the Chinese. You simply don’t expect that behaviour from governments in developed countries.
Will this affect investment in Melbourne apartments? Will it cause Asian investors to forfeit their deposits and leave the apartments in the hands of the Chinese banks?
The large CBD towers were always going to be CMFEU projects but now an emboldened CFMEU may decide to push up construction costs which will devastate these developments that have been priced on the basis that the CFMEU would be kept under control as occurred when the previous government was in power.
The new Victorian Premier may have cancelled the East West Link because it was not a CFMEU project but, at least on the surface, he looks to be one of the strongest premiers Australia has seen for a long time.
But for the union movement in Victoria, it’s seen as ‘payback time’ with firefighters, teachers, ambulance drivers etc demanding big pay rises. The CFMEU also wants to teach everyone in the building industry a lesson they will never forget and boost the cost of construction projects.
Will the apparent strength of Andrews be deep enough to control such widespread union action? Or does he really care -- maybe militant union funding of the ALP is more important to him than the Victorian economy.
I suspect he may decide to act in the interests of his state rather than his mates in the union movement and if he does, then Abbott may be in trouble.