Public interest in Chinese foreign investment in the resource sector rose sharply through last year as the now distant commodities boom encouraged Chinese investors to seek a stake in the Australian mining sector and others around the world. The rash of Chinese investment proposals – A$30 billion worth it was said – raised anxieties, familiar from earlier times when Japanese investors expanded their stake in the industry, about whether investment from an increasingly big resource customer was consistent with the ‘national interest’, with the added twist that Chinese investors were dominantly state-owned firms or instrumentalities.

By year’s end the boom had busted and many of the proposals that looked good at the time were no longer worth a crumpet.

With the unanticipated collapse of commodities prices, there are now quality assets looking desperately for willing investors and China, unlike most places, has the capital to invest and the prospects to help deliver return on these investments, despite the current economic travails.

It is difficult to understand the current public muddle over Chinese investment in Australian resources except in the atmosphere created around BHP’s failed attempt to takeover Rio last year (see Christopher Findlay’s piece on this). Chinalco entered the fray through its earlier acquisition of a 9 per cent stake in Rio, potentially threatening the success of the BHP bid. The air is still heavy from the odour of the politicking around that contest which fanned an undercurrent of xenophobia playing into ignorance about the development of the market economy in China.

None of that should be confused with the Australian national interest in Rio-Chinalco deal and other Chinese investment proposals that are now on the table.

None of the Chinese investments under consideration involves control over strategic assets that would run against any conceivable national interest. All are being undertaken in a transparent and open way through the purchase of equity in the market. Chinese government ownership of the enterprises is of no strategic importance in judging the benefits from the deals. If there are aspects of governance in the detail of the Rio-Chinalco proposal that might attract conditions, we have a robust process of scrutiny through the Foreign Investment Review Board that can deal with that as required. But let us be perfectly clear: despite the innuendo of former Treasurer Costello this deal has no commercial or policy equivalence to that of the Shell-Woodside takeover proposal on Costello’s watch.

China is a minor investor in Australia at this point, with a share of less than one quarter of one per cent of all assets held by foreigners and only around one per cent of investment assets in mining. This share is set to grow but, even if all the proposals in train came to fruition, Chinese investors remain vastly under-invested in Australia, given the importance of China in Australia’s trade, including and especially as a market for Australian resources, and given China’s increased importance in global capital markets.

The global financial crisis has accelerated the long term change in the structure of the global economy and world financial markets, underlining the growing importance of China to the strength of the global economy and as a source of international capital in the decade or two ahead. The best analysis there is sees China not only as the driver of global growth and a bull element in demand for our exports but also as a pillar of the international financial system. China is a partner with whom Australia has deep economic and strategic interests in developing a large and positive open-market based relationship.

There is nothing in the Chinese investment proposals now under consideration that would threaten these national interests. Rather, properly managed, these proposals could deliver major benefits to both Australia and China, opening a new chapter in their partnership.

An open policy regime towards foreign direct investment laid the foundations for the strength and international competitiveness of the Australian resources sector. Foreign capital, management and marketing has been critical to making Australian mining the world class industry that it is today and it is now even more critical to delivering the benefits the sector does to the Australian community.

Telling China that its growing capacity to deliver these benefits is not welcome would be a bad call for our relationship with China, create serious uncertainty about the openness of our investment regime more generally and send a dangerously wrong political signal to China on commitment to participation in a transparent and open market economy.