Australia Worried China Buying Up Resources

Australia's foreign investment regulator privately acknowledged to US officials in 2009 that it is targeting investment from China in response to political concern about the control of Australia's strategic resources.

Contrary to Australia's claims that it supports a non-discriminatory foreign investment policy, the latest round of WikiLeaks releases indicate the secretive Foreign Investment Review Board told US diplomats that new foreign investment guidelines approved by Treasurer Wayne Swan signaled "a stricter policy aimed squarely at China's growing influence in Australia's resources sector."

The anti-China rationale was set out by Treasury Foreign Investment Division head and Foreign Investment Review Board executive member Patrick Colmer in confidential discussions with US Embassy officers in late September 2009. The embassy's report of Colmer's remarks, titled "New Foreign Investment guidelines target China" and classified "sensitive."

Based on Colmer's briefing, US diplomats reported that the Australian government privately wished to "pose new disincentives for larger-scale Chinese investments."

On Aug. 4, 2009, Swan announced changes to Australia's foreign investment review laws to increase the threshold for mandatory review of foreign investment proposals – so that private overseas businesses buying a stake greater than 15 percent in companies valued below A$219 million could proceed without review. (With annual indexation, the threshold was raised to A$231 million on Jan.1.)

The new threshold was more than double the old A$100 million mark that would trigger Foreign Investment Review Board scrutiny. Swan said these measures would ensure that the government would not become unnecessarily involved in uncontroversial business transactions. At the same time the treasurer denied that exclusion of foreign state owned companies from the new threshold discriminated against future Chinese investment.

"There's never been a threshold for foreign government or state-owned enterprise investments, so nothing changes there for anybody," he said. "It's not related to any particular country - the rules are the same for everybody - this is a change in the rules for lower value applications for private business investment."

Trade Minister Simon Crean also strongly rejected any suggestion that the Labor government was inclined to discriminate against Chinese investment in the Australian resource sector.

"We run a non-discriminatory policy," Crean said in a radio in October 2009. "Large investments from whichever source have to meet a national interest test and there has been huge approval of Chinese investment into Australia."

However, in the private talks with US Embassy economic officers the Foreign Investment Review Board confirmed the Australian government's preference for minority foreign shares in new resources projects, with the foreign share of greenfield developments limited to below 50 percent, and around 15 percent for major mining companies.

"FIRB general manager Patrick Colmer confirmed to Econoff [economic officers] the new guidelines are mainly due to growing concerns about Chinese investments in the strategic resources sector," the US Embassy subsequently reported to Washington. "According to Colmer, the FIRB has received more than one Chinese investment application every week this year [2009]. Colmer said the measure is also meant to prevent complex investment schemes, such as proposals with loans that are convertible to equity, which sought to circumvent existing FIRB rules."

Colmer explained that the new foreign investment thresholds were "largely meant to reduce the administrative burden on the FIRB," but emphasized that "the change excludes state-owned companies from the higher threshold -- virtually all Chinese investment."

Colmer's private remarks were made in the aftermath of Chinese state-owned Chinalco's abortive acquisition of 18 percent of resources giant Rio Tinto as well as the state-owned China Nonferrous Metal Mining Company's bid, subsequently withdrawn, to acquire a controlling interest in rare earths miner Lynas Corporation and the Australian Government's rejection on security grounds of plans by the state-owned Wuhan Iron and Steel Group of China to invest A$40 million in a 50-50 joint venture with Western Plains Resources to develop an iron-ore project on the Woomera missile test range in South Australia.

The US Embassy reported to Washington that the Labor government's new foreign investment guidelines "clearly signal a stricter policy aimed squarely at China's growing influence in Australia's resources sector, and serves as a warning to potential investors."

The Embassy's report of Colmer's private remarks provides the context for public observations he made at a Chinese investment conference in Sydney in late September 2009, in which he urged potential investors to consult informally with the Foreign Investment Review Board before making formal applications for approval.

"If you talk to us early, before the deals are signed, sealed and delivered between companies, we can point out where there might be concerns," Colmer told the Australia-China investment forum on Sep.24, 2009.

The Australian Government remains acutely sensitive about any suggestion that it has reservations about Chinese investment.

Last month another leaked US diplomatic cable revealed private remarks by BHP Billiton chief Marius Kloppers who was reported to have told the US Consul-General in Melbourne that the Labor government had a "real fear" that Beijing would win control of Australian resources.

"Australia does not want to become an open pit in the southernmost province of China," Kloppers said, adding that the Australian government was "drawing a line in the sand to keep Chinese-state owned firms from owning the larger mining companies such as Rio Tinto, BHP Billiton and Woodside."

Last Friday Australian Defence Minister Stephen Smith made an unusual digression in a speech on "International Legal Relations: Rule of Law and Australia's National Security" to emphasize that "Australia maintains, as it has for many years, a consistent, open and welcoming stance towards foreign investment, wherever it comes from, including from China."

Smith noted that since December 2007, around 220 Chinese proposals to invest in Australia had been approved, totaling around $60 billion in investment. Official statistics do not take into account investment proposals that have not proceeded to the point of an application to the Foreign Investment Review Board. The government has not yet released the board's 2009-2010 report.

Another version of this story appeared in The Age in Melbourne and The Sydney Morning Herald.