China investment radar hits home
- From: pluto <pluto@xxxxxxxxxxxx>
- Date: Mon, 08 Oct 2007 09:20:08 +0800
China investment radar hits home
Email Printer friendly version Normal font Large font John Garnaut
October 8, 2007
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AdvertisementAustralia is more open to the Middle Kingdom than the US and
Europe, and the feeling's mutual.
CHINA'S $US200 billion ($A222 billion) sovereign wealth fund is officially nine
days old and Australian companies have already been earmarked as its most likely
investment targets in the West. Australian politicians have therefore been put
on notice to make up their minds quickly: is this controversial State-controlled
investment fund an economic opportunity or a strategic threat?
Credit Suisse speculated last week that Australia was second only to Russia on
the fund's shopping list. In fact BHP Billiton and Rio Tinto (ranked two and
six) are the only Western companies in the Credit Suisse top 50, even though
equity markets are dominated by US and European companies.
Australia is on China's investment radar because it has resources and mining
companies that China's industrial-minded leaders are desperate to have a stake
in. It has stayed there, when equally compelling investment destinations have
been scratched, because Australian politicians have not reacted with the
reflexive fear of Chinese capital that has become common in the US and Europe.
The Howard Government has gone out of its way to smooth the way for Chinese
companies to invest in Australian resources. Last week Kevin Rudd cautiously
signalled he would take the same approach.
Leaders on both sides of politics have tended to welcome Chinese investment
because their voters view China's economic rise as a good thing.
Last week Sydney University's US Studies Centre showed 56 per cent of
Australians held had a favourable opinion of China. A recent Lowy Institute poll
showed a similar result.
"To Australians, China represents an opportunity not a threat," says Allan
Gyngell, executive director of the Lowy Institute. Such attitudes are
inconceivable in almost any other Western country.
In June, the Pew Research Centre's Global Attitudes Project found just 42 per
cent of Americans had a "favourable" view of China, along with 49 per cent in
Britain, 34 per cent in Germany and 27 per cent in Italy.
This reaction against China is largely driven by economic fear. Sixty-five per
cent of Italians view its economic growth as a bad thing. The figure is 64 per
cent in France and 55 per cent in Germany.
The view from the developing world, and Australia, could not be more different.
In oil-rich Nigeria, 75 per cent view China favourably. On the question of
China's economic growth, 96 per cent of respondents in Ivory Coast think it's a
good thing, as do 91 per cent in Kenya.
Similarly, the report says, "South American countries view China's economic
influence as a good thing, whereas the Europeans and Americans do not."
Australia stands with Africa and South America on China rather than with
traditional friends in the US and Europe.
Why? Because Australia, Africa and South America have received an extraordinary
mining industry dividend from China's economic awakening, but few of the
manufacturing costs. In resource-rich countries the benefits of China's rise are
plainly visible on the share market, in government revenue and in more jobs.
Europe and the US receive no net dividend from rising commodity prices but their
manufacturing industries face very visible losses.
China's new generation of state capitalists have made early mistakes by
underestimating the political impact of their investments. The China Investment
Corporation was badly burnt when it rushed to buy a 10 per cent, non-voting
share of the US private equity firm Blackstone. Overtures by other
state-controlled companies have been rebuffed in the US.
The European Union has recently hardened its stance. "We have good reasons to
ask these funds to declare what kind of assets they want to invest in, what
criteria they apply to decide their investments, and what the distribution of
their investments is," Joaquin Almunia, the EU's commissioner for economic and
monetary affairs, recently told the London Financial Times.
Australia's place near the top of China's shopping list is partly due to its
resources, but is largely due to other Western nations dealing themselves out of
play.
Australia's leaders should be prepared for tough questions in the next year or
so. Sovereign funds share many transparency problems with private equity, and
are also often controlled by secretive, authoritarian states. Should they be
bound by special investment rules? Would it be un-Australian to sell a large
slice of BHP Billiton to China?
theage
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