http://www.theaustralian.news.com.au/story/0,25197,23519659-50052...

http://www.theaustralian.news.com.au/story/0,25197,23519659-5005200,00.html

BHP raid highlights China investing

Andrew Trounson | April 11, 2008

AT a time when the prospect of Chinese government-backed investment in resources is stoking a national interest debate, the China Development Bank has urged Australia and China to agree on a long-term plan for ongoing Chinese investment in Australia's resources sector.

The comments come amid speculation that Beijing is considering a potential $22 billion-plus share raid on Melbourne-based mining giant BHP Billiton.

The CDB was the bank that largely financed Chinese aluminium giant Chinalco's $15 billion share raid in February on BHP's takeover target Rio Tinto.

The proposal for a more formalised co-operation comes amid complaints that Australia's approval processes for Chinese investment in the resources sector have been slowed down.

That has prompted suggestions the federal Government is struggling to come to terms with the implications of rising investment from Chinese state-owned enterprises.

Speaking at the Critical Issues "China India Dialogue" conference in Melbourne yesterday, CDB chief financial officer Liu Dawei said China and Australia should work to develop a "consensus" over Chinese investment in the resources sector.

Speaking through an interpreter, Mr Liu said China and Australia "should make a long-term plan for the next five to 10 years, with different professional bodies, for Chinese enterprises investing in Australia".

BHP was forced yesterday to confirm that it was unaware of any moves by "Chinese authorities" to buy a substantial stake in the company. The statement followed a query from the stock exchange after a report from Beijing in The Australian helped its shares gain almost 4 per cent on Wednesday.

BHP shares gained 9c to $42.00 yesterday, while Rio fell 14c to $137.74, leaving it at a discount to BHP's 3.4-for-1 share offer.

The issue of Chinese investment in the resources sector triggered an extended debate at the conference.

There were suggestions that the Government was struggling to determine national interest implications of Chinese investment at a time when China was worried at the prospect of a merged BHP-Rio having too much market power. Chinalco has moved to intervene by buying a stake in Rio, but its intentions remain unclear.

According to law firm Deacons head of China business, Ian McCubbin, Australia's Foreign Investment Review Board appears to be sitting on Chinese applications for approval to invest in Australian resources.

"The applications aren't being refused but they aren't being approved," Mr McCubbin told The Australian.

Mr McCubbin has advised China's Sinosteel in its hostile takeover bid for West Australian iron ore company Midwest. While Midwest had received FIRB approval, Mr McCubbin said there had been an apparent slow-down since Chinalco grabbed its 9 per cent stake in Rio, after which Treasurer Wayne Swan released principles around foreign investment decisions, including the stipulation that FIRB must consider whether the investor is independent ofthe relevant foreign government.

"It appears to us the enunciation of the principles seems to have marked a point where the Government has said we need more time to think about this," Mr McCubbin said. "In practice, I think the Rudd Government is still trying to develop its policy in relation to investments by state owned enterprises."