Beijing's 'lesson' for Fortescue chief Andrew ForrestSusannah...

Beijing's 'lesson' for Fortescue chief Andrew Forrest
Susannah Moran From: The Australian December 29, 2009


A SENIOR Chinese government official wanted majority ownership of Fortescue Metals Goup's $1.85 billion Pilbara iron ore project, claiming it was Chinese "national policy" to "obtain control", and later vowed to "teach (Fortescue) a lesson".

That lesson, or "alternative way of co-operation", turned out to be providing information to a newspaper -- whose subsequent negative article about FMG's planned project sparked the corporate regulator's investigation and subsequent highly costly court case, which was last week comprehensively dismissed by Federal Court judge John Gilmour.

The machinations of the behind-the-scenes dealings are revealed in the 204-page judgment.

The Australian Securities and Investments Commission alleged Fortescue and its chief executive, Andrew Forrest, breached the Corporations Act and that Mr Forrest was deliberately dishonest and misled the market in relation to 2004 market releases that outlined "binding contracts" made with several Chinese companies about the planned Pilbara project.


The court heard that by early 2005, the Chinese were demanding an 80 per cent majority stake in the Pilbara project, a move Fortescue was resisting.

The judgment reveals detailed conversations that Xin Lou-Lin, later to become a Fortescue consultant, had with the deputy director-general of China's National Development Reform Commission (NDRC), He Lianzhong.

Mr Xin, who was a former schoolfriend of Mr He, gave damning evidence in the case, recalling a conversation in February, the month before the article in The Australian Financial Review appeared. "The Chinese companies wanted control of FMG and as FMG was resisting, we would teach them a lesson," Mr Xin recalled Mr He saying.

Justice Gilmour said in his judgment that Mr He caused information to be provided to an AFR reporter to the effect that the agreements with the Chinese contractors to build infrastructure were not binding. The report "caused considerable public commercial distress" to Fortescue, which the judge said "was Mr He's intention".

Weeks later, Mr He used "very offensive" language when talking about Mr Forrest, the court heard.

"He, at that time, when I talked to him, he used the Chinese words called the `zhou han', which is very unusual," Mr Xin said.

"He said Andrew `bu shi' -- Forrest `shao han zhou han'. That means, that's a semi-underground word. That means in my territory somebody try to challenge me. `Zhou han' means, you know, normally it's a Mafia or underground word.

"So I told Andrew, I said, `you're in trouble'. He is so angry at you people," Mr Xin recalled of the March 2005 conversation.

After the March article, Mr He met with Mr Xin in Beijing. Mr Xin told him the Chinese contractors had made agreements, but the NDRC "had later intervened to change the position".