Welcome mat out for ‘commercial beasts’

CHINESE investment in Australia may have slowed as uncertainty continues about the value of commodities, but it has not stopped.

The latest round of activity, in Western Australia at least, has included three significant gold deals and a group of six wealthy Chinese investors that paid more than $15 million for the assets of failed Kailis Organic Olive Groves.

In the gold scene: Zhongrun Resources plans to pay almost $85 million for 41.5 per cent of Noble Resources; Shandong Gold has moved to take 51 per cent of Focus Minerals for $227.5 million; and Zijin Mining paid about $229 million to own almost 90 per cent of Norton Gold Fields.

And there is still action in the iron ore space.

For example. Perth-based Sundance Resources, which has a $4.6 billion West African iron ore project, has moved a step closer to completing a $1.4 billion takeover move by China’s Hanlong Mining with an announcement that two critical financier commitment letters had been secured.

Sundance chairman George Jones believes his company’s deal, which has taken almost a year, shows that China remains serious about investing in resources, especially as the price tag for the company still comes with a multi-billion dollar development cost.

“I think Australia is coping with inbound investment pretty well,” Mr Jones said.

“You have to have rules. The Chinese actually understand rules; they are used to working with rules, so long as they know what the rules are.

“The problem in Australia is we actually chop and change a bit and our policy has not been well enunciated. Have the rules and just tell people what they are.”

Nevertheless, the issue of Chinese state-owned enterprises investing in Australia’s primary resources and even buying local brands has become controversial.

Australia is not alone in being concerned about state-controlled foreign investment, with Canada this week knocking back a major resources purchase by Malaysia’s sovereign wealth fund. That move is seen as a signal that Canada won’t allow a Chinese firm to buy oil company Nexen for an anticipated $15 billion.

China’s ambassador to Australia, Chen Yuming, highlighted the issue of state-owned investment when he was the keynote speaker at last week’s Perth event to celebrate China’s National Day, 40 years of diplomatic ties and 25 years of the sister state relationship between WA and Zhejiang.

“It is a consensus in Australia that foreign investments, including from China, are necessary for this country’s prosperity,” Mr Chen said.

“There are a few different voices, but as an Australian farmer said, people like him know best whether Chinese investments are good or not.

“Chinese investors, whether they are state owned or private enterprises, are all business entities in pursuit of profit. They look across the world for investment targets that are low cost, high quality and with a good environment.

“To put a political label on them is unfair.

“Chinese investors hope for a good investment environment in Australia.

“Investors always vote with their feet.”

Australia China Business Council WA president and KPMG partner, Duncan Calder, told the WA Business News forum on Chinese business that state-owned enterprises were commercial beasts.

“To say that we don’t welcome Chinese state-owned enterprises is to say we don’t want to deal with China,” Mr Calder said.

“It is a complete nonsense. There are some legacy issues in relation to how those organisations operate, and that the Chinese Communist Party makes appointments to senior levels at all of the state-owned enterprises, but that doesn’t alter the fact the people running those businesses are driven by commercial outcomes, their KPIs are commercial outcomes.

“They are competing with each other to get the best commercial outcome; their political trajectory, their career trajectory is determined by the commercial outcomes, and therefore their behaviour is very, very similar to what we would see from other organisations.

“To the extent that we are not alive and alert to this evolving of Chinese state-owned enterprises and we get stuck in a sort of McCarthyist dogma, then we are going to have major problems and miss out on investment.

“We’ll get a smaller share of the pie and it will just flow to other countries.”