china a dud investor

I hope Luk and his merry band of China/Hong Kong goons and Australian traitors read this. It may be too late for you burks - take note. This article could have been written for and about you.

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China fears unfounded because it's a 'dud investor'

by: Andrew Burrell
From: The Australian
July 28, 2012 12:00AM


FORMER Rio Tinto executive Michael Komesaroff believes the debate over Chinese investment in Australia -- which reignited this week when Tony Abbott flagged tighter conditions for Beijing's state-owned companies -- has ignored one key point: the communist giant is a dud investor.

"You tell me one successful mineral resource project they've got anywhere in the world," says Komesaroff, who has worked for the Chinese government in Beijing and is now a consultant to some of the world's biggest mining companies.

"How I define success: was the project delivered on budget and on time, and was the China brand damaged? I can't think of any."

While Australia has been tying itself up in knots over the rising level of investment by China's state-owned enterprises, the results of Beijing's spending on the ground have been dismal and its policymakers are growing increasingly anxious about the poor returns.

State-owned miners, says Komesaroff, have wasted billions of dollars on ill-conceived ventures in Australia and elsewhere, because they have mistakenly attempted to copy their methods at home in a foreign setting.

China, of course, is a very different place from Australia, where truck drivers in the mining industry earn $150,000 a year, unions complain about work conditions, environmental approvals are a headache and governments change policies on a whim.

"Either through hubris or lack of sophistication, the Chinese think the success they've had in China can be replicated overseas," Komesaroff says. "They think it's a universal model and it's not."

For Australia, this means Beijing is now more cautious about funnelling money into big mining projects here and is looking elsewhere to secure the raw materials it needs to continue to fuel its miraculous industrialisation.

The common image of China Inc as a foreign investment juggernaut -- a perception which provokes fear in politicians like Abbott and his Labor counterparts -- may therefore be inaccurate.

"There's no doubt that these big problems have caused them (China) to slow down," Komesaroff says.

Exhibit A in this argument is Citic Pacific's massive Sino Iron magnetite mine in Western Australia's Pilbara, which looks set to start production within weeks, but may well be remembered as the most disastrous project of the mining boom.

The Weekend Australian revealed last week that the cost of building Sino Iron -- China's first wholly owned mine in Australia -- had blown out to a staggering $US8 billion, more than triple the original $US2.5bn budget in 2006. The project has been hit by almost every conceivable problem: rising costs, labour shortages, a stronger Australian dollar, the introduction of new taxes, disputes between the Chinese shareholders and a blatant lack of expertise in building a project on such a grand scale.

Making matters worse, the mine is due to enter production at the wrong end of the cycle, as iron ore prices fall amid slowing Chinese demand.

The chairman of Citic Pacific, Chang Zhenming, told the Financial Times in June that Sino Iron -- which includes its own power station and desalination plant -- was four times bigger than any iron ore project in China.

"The whole of China is watching this project," he said.

Sino Iron is not the only Australian mining project being scrutinised in Beijing. In WA's Mid-West region, which has long been touted as the nation's next iron ore province, Sinosteel was forced to put its $US2bn Weld Range project on hold last year because of the massive delays and cost overruns at the Oakajee port and rail development.

Sinosteel took control of the asset when it acquired Midwest Corp for $1.3bn in 2008, before the global financial crisis. In hindsight, it appears the state-owned company massively overpaid.

Also in the Mid-West, Gindalbie Metals is close to finishing its $2.57bn Karara magnetite project, which it has developed with Chinese steel mill Ansteel. But the final bill for that project will be far higher than originally envisaged. And the Oakajee debacle has done little to engender Beijing's confidence in Australia.

Australia is the biggest destination in the world for Chinese investment, with about $US38.4bn over the past six years, a study by KMPG and the University of Sydney says. Almost 70 per cent of that investment has gone into mining and energy projects in WA and Queensland.

Many Australian companies turned to China to help fund projects in the wake of the global financial crisis.

And for these small and mid-level companies, China's backing -- via its huge cash reserves -- will continue to be attractive.

Atlas Iron managing director Ken Brinsden says the Pilbara miner is focusing on building its relationships with China in the expectation that it will need Beijing's money to help fund its planned expansion. He acknowledges that China's high-profile investments in the Australian mining sector have been unsuccessful, but he insists China is "the only growth game in town" for iron ore and will continue to be Atlas's most important customer.

"We are finding the Chinese are genuinely interested in being involved in our business," he says.

WA Premier Colin Barnett has long welcomed Chinese investment in his resource-rich state, but he prefers to see state-owned enterprises taking significant stakes in projects or companies rather than attempting takeovers or developing mines from scratch.

His stance appears to contrast with that of Abbott, who signalled in Beijing this week that he would take a tougher approach to Chinese state-owned companies seeking to invest here.

Barnett says he has not spoken to Abbott, but it's unrealistic to discriminate against China's SOEs. "The only businesses that are of sufficient scale and have sufficient interest in Australia -- particularly in resources, agriculture and finance -- are all state owned-enterprises -- that is the nature of the Chinese economy," he said this week.

Komesaroff, who has more than 35 years' experience in Asia's mining industry, including a stint working for a government-owned miner in in Beijing, says SOEs may attempt to project an image of operating independently, but the leadership of these companies is staffed by Communist Party members.

This often means Beijing's political imperatives trump commercial objectives, leading to poor investment decisions. Sino Iron is a classic example, Komesaroff says. The Chinese government lowered its investment hurdles for foreign iron ore projects in 2006, as it embarked on a desperate search for supply to feed its steel mills. As a result, Citic "grossly overpaid".

He says involving a global engineering company with experience in Australia as a lead design and construction partner would have prevented such problems.

Komesaroff says China has failed to learn from the success of its earlier investments in Australia in the 1980s. Citic's 22.5 per cent stake in Alcoa's Portland aluminium smelter in Victoria and Sinosteel's joint venture with Rio in the Channar mine in the Pilbara are regarded as highly successful investments and are still profitable today, he says.

In both cases the state-owned companies went into a relationship with an established player familiar with local conditions. "China didn't have any money in those days, so they were more cautious. It seems they've gone from one extreme to the other.

http://www.theaustralian.com.au/business/in-depth/china-fears-unfounded-because-its-a-dud-investor/story-fnekegrp-1226437145011