Rowan Callick, Asia-Pacific editor | September 12, 2009 Article from: The Australian.
HOLD the angst. Australia is back as a favoured destination for Chinese investment. Big time. The successful conclusion of the Beijing Olympic Games, which had locked down China, including business deals, triggered the start to a slew of investments in Australia a year ago. This bubbled along despite the global economic downturn during the months before Chinalco launched its $23 billion Rio Tinto bid in February.
Then there was a mass holding of breath among potential investors as the Chinalco deal stirred heated debate in both countries. After Rio suddenly called off the complex arrangement in early June, business stayed on pause as both sides took time out to digest what had happened. But the core complementary elements that have increasingly driven the economies together -- Australia's need for capital and for markets, China's need for inputs for its industrial machine, and for international enmeshment -- have not changed.
Paul Glasson, Shanghai-based managing director of Sigiriya Capital, a leading figure in putting together deals between Chinese and Australian companies, says: "The core proposition between Australia and China remains the same. The bottom line demand and desire to supply resources has not changed. "This became palpable when Resources Minister Martin Ferguson flew to Beijing to initial on August 18 the deal through which state-owned giant PetroChina agreed to buy $50bn worth of gas from the Gorgon field off Western Australia. With scant notice, he secured a brief but crucial meeting with the central player in China's zou chu qu ' go global ' campaign, the chairman of the immensely powerful National Development and Reform Commission (NDRC), Zhang Ping.
Other official visits had been called off, representation by China scaled down, conferences cancelled. But the meeting with Zhang, coinciding with such a big gas deal, sent a clear signal to Chinese investors, bankers and officials: business is business, China's dominant priority remains guaranteeing its growth, and Australia features more prominently than ever in this picture.
Before that, the success of a mid-July conference on investment -- focused on WA and organised in Beijing by the Australia China Business Council's Shanghai office in attracting influential Chinese speakers had posted another positive sign. Premier Colin Barnett's warm speech there was especially well received. So it's business as usual, despite Beijing's continuing disappointment with what it deems is a recalcitrant Canberra that gives visas to "terrorists" such as Uighur leader Rebiya Kadeer, and despite the continued incarceration of Rio executive Stern Hu and three Chinese colleagues.
State-owned news agency Xinhua underlined this in a feature on Wednesday headlined: "Australia seeks Chinese investment despite recent strains." The story was written from an Australia-China business conference in the bustling coastal city of Xiamen, Fujian province, in which 16 Australian energy firms and investment houses participated. It quoted veteran Australian mining chief Owen Hegarty, now executive chairman of Hong Kong listed G-Resources Group, as saying: "Australia's rich resources and China's soaring demand have driven economic co-operation between the two nations, and we expect to attract more investment from China."
Wang Jianmin, director of Fujian Gangfa Group, told Xinhua: "We've long been seeking investment opportunities in energy and electro-mechanical manufacturing in Australia, and hope to conduct prosperous co-operation in these fields with Australian partners." The article says that the threshhold requiring Foreign Investment Review Board approval for investments in Australia is being raised to more than 15 per cent of a company valued at greater than $219 million.
But it does not explain that this does not alter the continuing requirement for all state-owned companies -- the great majority of resource, energy and finance companies seeking access to Australia -- to obtain FIRB approval.
Stephen Fitzgerald, who was Australia's first ambassador to the People's Republic and who remains heavily engaged in relations with China, in a recent speech to the Australian Institute for International Affairs in Sydney lamented the extent of the diplomatic and other issues between Australia and China. He said: "The Chinalco case is partly a technical matter, but it's also a political matter that goes to the heart of how the Chinese government governs."
Beijing has taken a view that the relationship between the countries can be portrayed, at its most essential, as one between seller and buyer -- that's China -- and that the distribution of risk between these two has not been a fair one, especially when it comes to the crucial steelmaking input, iron ore. This gives rise to the prospect that diplomatic and other incidents may be perceived as linked in some way with the desire to rebalance this economic relationship. The arrest of Hu and his colleagues in early July further delayed the conclusion of a number of deals that were under negotiation.
Thus the Gorgon announcement, followed swiftly by that of Baosteel, one of China's most prestigious industrial powerhouses, that it would pay $285.6m for a 15 per cent stake in Australian coal and iron ore company Aquila, sent a clear signal that those other investment proposals could now be concluded -- of course, as long as they met the Chinese "win-win" formula.
The stream of deals has surprised even the most bullish champions of closer business relations between the countries in their variety -- including uranium, rare earths and manufacturing, as well as the more predictable focus on iron ore from the Pilbara region of WA. At last count about 10 deals worth more than $10bn have been announced since the collapse of the Chinalco-Rio tie-up.
Chinese investment has also taken a wide range of formats, including 100 per cent takeovers as in Yanzhou Coal's $3.3bn bid for Felix resources, floats on the Australian stock exchange (starting to be popular among private Chinese firms that find it hard to gain access to capital back home, where the state sector has this year been given the inside running), joint ventures and project financing.
There was no magic switch, no direct instruction handed down, signalling that such deals -- which have in most cases of course been under detailed consideration for many months -- would now get the green light. There did not need to be. For the parties in discussion with Australian counterparts are mostly in constant discussion with the NDRC, China's strategic planning body.
At the start of negotiations, the Chinese player has to make a formal application to the commission for approval to enter more detailed discussions about terms and conditions. Approval also has to be obtained from the State Administration for Foreign Exchange in order to be able to send capital to Australia. If the deal involves a Chinese outlay of less than $US100m, it only requires a lower level approval, from the Commerce Ministry, if the company is creating an offshore entity.
But all nationally owned state companies -- the bulk of the investors in Australia -- need approval from the NDRC and from the state-owned Assets Supervision and Administration Commission. Both are bodies that report directly to the State Council, China's cabinet.
The heads of most of the bigger companies investing in Australia today are politically appointed and are constantly engaged in political meetings and phone conversations. Their executive committees meet weekly, where up-to-the-minute information is exchanged about the directions in which the political winds are blowing.
In these circumstances, assessing whether and when the climate is right to conclude a deal with Australia is not a matter of mere guesswork, luck or fate. It is guided by those very skills and networks that play a major part in enabling the Chinese companies' leaders to rise to the top in the first place.
Robin Chambers, a Melbourne lawyer who has been involved in Chinese investment in Australia for 28 years, said, before flying to China again this week, that his "boutique law firm" had this year completed 10 deals. "I've never seen anything like it, the sheer weight of the Chinese focus on Australia." He says some remarkably small Australian companies have benefited from obtaining funding from Chinese corporations that may be incongruously large in comparison.
But there always remains the possibility of surprise in dealing with China, even after such a long experience, Chambers says. He describes meeting the principal of a private Chinese company seeking a listing in Australia, which is based in a village in Zhejiang province. "He was a man in his early 40s. His finger was in a bandage, so he apologised that he couldn't shake hands. The reason, he said, was that he had just jammed it in the door of his Ferrari."
BAU Price at posting:
$1.09 Sentiment: Buy Disclosure: Held
