With the China crisis yet again drawing attention to Australias heavy dependence on the export of commodities to Asia, calls for more on the ground investment to facilitate services exports have been growing. The argument goes that commodities can often by exported with little investment on the ground but taking Australian services to the emerging middle-class markets requires people and infrastructure to be physically present.

The new ABS data appear to suggest there is a greater correlation between offshore affiliates and services exports than goods exports, although it is hard to disaggregate goods and services produced on the ground by the affiliates and those brought in from Australia.

Nevertheless, the offshore affiliates sold $A89 billion of services which is equivalent to 90 per cent of Australias official services export value compared with $A123 billion of goods exports which is only 32 per cent of Australias total goods exports.

While Australia has an obvious comparative advantage in commodities exports, services exports are seen as having stronger long-term growth as Asian economies mature away from infrastructure construction and manufacturing. These figures suggest investment will be a necessary driver of services export success.

It is often noted how private businesses small and large seem to have more appetite for the risks involved in Asian investment than the big publicly listed companies that face fund manager demands for quick and regular quarterly profits. But these data suggest the pacesetters in Asian investment are the Australian subsidiaries of foreign owned multinationals (MNCs) which are using Australia as a base for Asian investment.

Almost 700 of the Australian affiliates operating abroad are owned by MNCs. But 80 per cent of these businesses are operating in Asia or Oceania (largely New Zealand), whereas only 29 per cent of fully Australian owned offshore affiliates are operating in Asia or Oceania. This is perhaps not surprising since it is unlikely an Australian MNC subsidiary would be investing in the US or Europe from where these multinationals typically come. And this investment trend was apparent back in 2003.

The little understood importance of Australian-based MNCs in leading Asian investment is better revealed in unpublished analysis of these data by Austrade economist Divya Skene which shows those MNC affiliates in Asia are performing much better than fully Australian-owned subsidiaries.

Her calculations show return on equity (ROE) for the MNC affiliates in Asia was 16 per cent compared with 5 per cent for the Australian-owned businesses. The margin was even greater in Southeast Asia where the MNC businesses earnt 20 per cent compared with 3 per cent for the Australian owned ones.

This is quite a stunning finding for Australian based companies but it is positive for the periodic government campaigns to promote Australia as a base for MNC regional operations. A new industry group recently launched to pitch this idea to foreign companies planning to exit Hong Kong due to concerns about increased Chinese control.

The finding means Australian expertise and products may be making their way to Asia via the little appreciated backdoor of MNC investment. But this is not so good for soft power projection because on the ground it is likely this business engagement will be seen as coming from the MNCs home country rather than Australia.

Greg Earl is the editor of Asia Society Australia's monthly publication Briefing Monthly and was a former south east Asia correspondent for the Australian Financial Review.

This article draws on articles published by Asia Society Australias Briefing Monthly and the Lowy Institutes The Interpreter.

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Aus business growth in Asia in the slow lane - BlueNotes