" Lou Jiwei's response will be relatively straightforward. Andrew Forrest at Fortescue Metals can keep banging on his door for $6 billion to expand his Pilbara iron ore facilities, but he won't get it. And if Noble Group has to dump its Australian assets rather than risk Australian regulatory refusal, then that's what it may do ". ---------------------------------------------------------- China revises its funds targets.
JOHN GARNAUT - the age October 4, 2009
LOU Jiwei, the head of China's sovereign wealth fund, is not a man known for his humility. Two weeks ago, he bought a small stake (by his standards) in a Singapore-listed, Hong Kong-based diversified commodities company. After he "sealed" the deal he was told by an Australian bureaucrat that it could not proceed without Australian Government approval. Lou copped a rubbishing at home after his $US200 billion China Investment Corporation lost buckets of Chinese taxpayer money on all of its early offshore excursions. But that was pre-financial crisis.
Now the global tables have turned. European officials who once lectured him on the need for transparency and non-voting investments are now back, caps in hand, requesting that he invest in their countries on any terms, according to Lou's own account at this year's Bo'ao Forum. And now his $US200 billion fund has surged, along with the Chinese stock market, to more than $US300 billion.
Lou paid $A1 billion for a 14.9 per cent stake in Noble Group. Noble holds minority positions in a start-up iron ore project in the Northern Territory and four coal mining developments in NSW and Queensland. It also has a joint venture with BHP Billiton to build a large coal loading terminal at Newcastle, aimed at unblocking one of Australia's worst export bottlenecks. In other words, CIC now holds a one-seventh stake in a company that holds minority stakes in ventures that are expanding Australian exports.
Apart from Australia, Noble has a sprinkling of commodities assets in 14 countries ranging from Brazil to the Netherlands and the US. Of all these countries, it was only Australia that earned Lou's ire by demanding that his minority stake in Noble be subject to foreign investment regulatory review. Experiences such as this have led many of China's top corporate and financial leaders to the view that Australia now has more restrictive and arbitrary foreign investment regulatory rules than any other developed country.
Patrick Colmer, head of Australia's Foreign Investment Review Board, could not be accused of doing his job half-heartedly. This year, Chinalco and its advisers were not just burnt by their experience in front of Colmer, they were mystified. They had spent three months studying Australia's investment laws, principles and precedents before signing their Rio Tinto investment deal in February. They thought they had ticked every box. But every time they approached FIRB they were given a new reason to believe that the Australian Government hated the deal and would do anything it could to stop it.
FIRB spent much of its time grilling Chinalco on whatever new allegation had just emerged in the morning's press. On some days, FIRB was concerned with Chinalco appointing directors to the Rio Tinto board or the raw size of the investment. On other days, the problem seemed to be squarely about iron ore. As the month of May progressed, FIRB's interrogations appeared to grow more random. It expressed anxiety that if Chinalco was able to deliver Rio Tinto access to exploration rights in China, then that would be unfair to BHP Billiton - as if BHP and Australia's national interest were one and the same.
It was the nature of Chinalco's dealings with FIRB, rather than the fact that the Rio deal collapsed, that left Chinese decision makers and opinion leaders with the sense that Australia was hostile towards Chinese capital. A senior decision maker in the Australian Government has since told me that Canberra would have let the Chinalco deal go through with workable conditions including allowing Chinalco directors on the Rio board and its desired iron ore investment.
Rather, he said the Government was concerned with Chinalco buying alumina resources (because it was a downstream consumer) and that it would have helped if Chinalco had planned to invest in Australian processing facilities. But Canberra never communicated its preferences to Chinalco. Chinalco had no way of knowing that FIRB - which is legally an adviser to Treasury Wayne Swan rather than a decision maker - may have simply been off on a frolic of its own.
And so it remains today.
Was Patrick Colmer talking on behalf of the Government when he said 10 days ago that "our government" prefers that foreign investors with "significant government ownership" confine themselves to less than 50 per cent stakes in greenfields resource projects and 15 per cent in major producers? Despite a string of recent Chinese investment deals, many of the largest Chinese investors who once favoured Australia are now going out of their way to avoid it.
Lou Jiwei's response will be relatively straightforward. Andrew Forrest at Fortescue Metals can keep banging on his door for $6 billion to expand his Pilbara iron ore facilities, but he won't get it. And if Noble Group has to dump its Australian assets rather than risk Australian regulatory refusal, then that's what it may do.
There are few Chinese officials and executives who delight in their new-found power like Lou does. But there are many who share the experience of being catapulted from developing country bureaucrats to the top of the financial world in the space of one year. They are approaching a consensus that investing in Australia is not worth the political uncertainty and potential humiliation. Australia will continue to benefit from the China-driven commodities super cycle, but China won't be going out of its way to ensure that Australia receives a growing share of it
FMG Price at posting:
$3.63 Sentiment: None Disclosure: Not Held
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