chinese resource funds may be mining lifelines

i got this from the RIO thread.

http://www.businessday.com.au/business/chinese-resource-funds-may-be-mining-lifelines-20090123-7oog.html

Chinese resource funds may be mining lifelines
John Garnaut Beijing
January 24, 2009
CHINESE corporations may throw a lifeline to Australia's struggling mining companies, with plans for multibillion-dollar resource funds designed to win approval from Australia's Foreign Investment Review Board.

The funds would be jointly managed by Australians and would not seek to control Australian companies, creating a new model for investing China's corporate savings and $US2 trillion ($3 trillion) in "sovereign wealth".

China's leading investment bank and several Chinese and Australian consortiums are working on independent proposals.

They offer a way around what Chinese business leaders perceive to be the Rudd Government's restrictive investment policies against Chinese state-controlled companies. It is a perception that may have already cost the Australian economy billions of dollars in investment.

"In almost every discussion I have had with Chinese companies about investing into Australia the first and foremost concern they have is Foreign Investment Review Board approval," said Frank Xu, the head of mergers and acquisitions at China International Capital Corporation. His client book includes most of China's major resources and heavy industry players including Baosteel, Shagang, Jiangxi Copper, Shenhua, China Minmetals and the three major Chinese oil companies.

"They're very concerned with the time it takes, the complexity and the difficulties associated with convincing FIRB about their friendliness," he said.

Mr Xu said Chinese resources and industrial companies were still keen on directly investing in Australian miners, particular discount start-ups rather than established players such as Fortescue that demanded high premiums.

He singled out coal giants Shenhua and China Coal as having strong balance sheets and being "good candidates" for investing overseas.

Some market players have linked Shenhua to Rio Tinto's coal assets but others say such an acquisition would face too much resistance from the investments review board.

Robin Chambers, a leading resources investment lawyer, said some of the angst in China about Australian investment regulations was overstated, as the Australian Government continued to support joint ventures.

Government restrictions were aimed at protecting the big miners and resisting hostile takeovers, he said.

Nevertheless, he said "it will be very interesting to see the response of the Australian Government and how flexible they'll be [given] there are stranded investments that won't get off the ground unless they have Chinese investment".

The Herald is aware of at least five China-Australia resources fund proposals whose backers claim to be at an advanced stage of planning. Some have faced difficulty raising cash from Chinese industry players who want to secure resource access deals in return for their investments.

CICC's proposed diversified resources fund would put China's money "to good use by professional fund managers through commercial decision-making processes," Mr Xu said.

"In the first several years it could be limited, because the idea needs to be tested and people need to believe it works, but once that's proved we could be talking about billions of billions of dollars," he said.

Mr Xu said he was seeking Australian fund managers capable of handling the share market volatility and also "the sudden appearance of China and maybe the sudden disappearance of China on the world commodities market".

He is pessimistic about China's long-term commodities demand but believes share prices are affordable and Chinese investors remain transfixed with the idea of "resource security".

Key Chinese regulators are open to overseas investment proposals in resources and technology but are discouraging forays into financial institutions, he said.

The CICC fund would seek to raise capital from China's sovereign wealth funds, such as China Investment Capital, and resource-consuming companies like Baosteel.

"The idea needs to be tested , but once that's proved we could be talking about billions of billions of dollars," Mr Xu said.