Economics, Politics and Public Policy in East Asia and the Pacific
Author: Xueli Huang, RMIT University
Chinese outward foreign direct investment (FDI) has surged since 2003.
In 2010, China’s FDI reached US$57.9 billion, nearly 20 times 2003 levels, and accounted for over 5 per cent of global FDI. Since 2007, Australia has become one of the world’s largest destinations for Chinese FDI. Read more…
Author: Justin Li, ICE
Chinese foreign direct investment is without a doubt one of the most discussed and debated topics in the world of international trade and investment. The sprawling tentacles of Beijing seem to be extending to the four corners of earth, wherever red dirt and black coal can be found. In the recently released statistical bulletin of Chinese foreign direct investment (FDI) by the Ministry of Commerce, total stock of Chinese FDI had reached a staggering 1 trillion USD.
The rapid expansion of Chinese investment activities is unnerving politicians from Washington to Wellington. Perhaps the most controversial aspect of Chinese investment is Beijing’s appetite and apparent willingness to do business with lepers of the international system, such as Burma, Sudan and Iran. Read more…
Author: Peter Drysdale
China’s economic rise presages a fundamental change in the global economic and political system. China’s partners in the world economy are already benefiting, and stand to benefit more over the coming decades, from the economic impact of growth on a scale unprecedented in human history.
Both the scale and the character of China’s economic and social development mean that there will be powerful feedback effects as the rest of the world adjusts to China’s presence in all aspects of global economic and political life. Read more…
Guest Author: Warwick Smith, Chairman ANZ (NSW/ACT)
In 10 years time, China will have 15 cities each with more people than the entire population of Australia and a further 22 cities with more than 10 million people. This unprecedented urbanisation drive in human history represents a tremendous challenge and opportunity for our resources sector.
China’s significance is not only limited to its insatiable appetite for our red dirt but also its newly cemented status as a significant player in the international credit market. China is by far the largest holder of US Treasury bonds and this gives China a rare degree of leverage over the United States. Read more…
Author: Peter Yuan Cai
The city state of Singapore has been an endless source of fascination for Chinese leaders since the time of Deng Xiaoping. Its legendary efficiency, its miraculous transformation ‘from the third world to first’ and above all, the iron grip of the People’s Action Party on power through non-lethal means are lessons that Beijing may be thought keen to emulate. Singapore has more to offer beyond fraternal sharing in Machiavellian power tricks. Despite its small size, the Singaporean government is a big player in the world of sovereign wealth funds (SWFs). The Singapore Government undertakes investment through Temasek Holdings and the Government of Singapore Investment Corporation. The better known of the Siamese twins is Temasek, one of the oldest and most respected sovereign wealth funds around, according to the Wall Street Journal.
Temasek has recently undertaken a radical restructuring of its top management by recruiting a top corporate heavy hitter, Charles ’Chip‘ Goodyear, the U.S.-born former chief executive of the Australian mining giant, BHP Billiton, to replace its incumbent Ms Ho Ching, wife of the current Singaporean Prime Minister. The decision was made after a whole string of disastrous investments in failing Western financial institutions that saw its total assets decline from US$ 134 billion to US$ 84 billion. More importantly, the Economist commented that ‘Mr Goodyear is the kind of A-list executive who will help persuade the countries receiving potential investment that Temasek really is independent of the government’.
Author: Yuen Pau Woo, President, Asia-Pacific Foundation of Canada
The single biggest investment by a Chinese entity in a Canadian company was concluded on July 15 when China Investment Corporation (CIC) finalized its purchase of a $1.7-billion equity stake in Teck Resources of Vancouver.
A few weeks earlier, the world’s largest bank — Industrial and Commercial Bank of China — established a presence in Canada with the acquisition of the Bank of East Asia (Canada). These deals are important landmarks in Canada-China economic relations that could point the way to improvement in the broader diplomatic and political relationship.
It was a coup for Teck to secure CIC’s investment for 17per cent of the company in Class B shares, with a guaranteed lock-in period of 12 months. The deal not only brought in much needed cash for the debt-laden company, but also a formidable partner with impeccable connections in the very markets that will drive demand for Teck’s production of metallurgical coal and other minerals. This deal alone has quadrupled the stock of Chinese foreign direct investment in Canada. Read more…
By Maaike Okano-Heijmans and Frans-Paul van der Putten
Last month Wen Jiabao, China’s premier, announced that Beijing would use its foreign exchange reserves to support and accelerate overseas expansion and acquisitions by Chinese companies. This ‘going out’ strategy will benefit Europe and should be welcomed. Estimated at more than $2,000bn (€1,400bn, £1,200bn), the Chinese reserves are the largest in the world. Like all foreign investment, Chinese capital will bring employment, tax revenue and reciprocal market access. More generally, a welcoming stance could in the long run stimulate investing companies to adopt – to some degree – standards of corporate governance and social responsibility that are compatible with Europe’s economic interests.
To say that foreign investment from China is welcome, however, is not to argue that governments should just sit back and enjoy the benefits. On occasion, it can be at odds with the national interests of the host country. To maintain oversight, therefore, a case-by-case review system should be in place. The existence of such a system would also help address unwarranted public anxiety about investment from countries whose political and economic systems differ from our own. This would in turn facilitate the continued growth of investment from emerging economies such as China, which is still small compared with the high level of bilateral trade already in place.
Author: G.E. Anderson, UCLA
Australia’s government announced on August 4 an easing of foreign investment rules. The rules have apparently come under criticism recently for causing delays that may be overly burdensome to foreign investors.
One recent deal, the proposed purchase of a controlling interest in Aussie miner Rio Tinto by Chinese metals company Chinalco, was cancelled during Australia’s review process. According to Reuters, some critics have complained that the delay caused by Australia’s review process injected doubt and uncertainty, possibly causing Rio to cancel the deal before a decision was rendered. There is, of course, no evidence to support this speculation.
Author: Luke Nottage
Peter Drysdale’s weekly editorial, along with related postings to this blog and enormous media attention in Australia and elsewhere, focuses ‘on the continuing detention of Rio Tinto executive, Stern Hu, in Shanghai on allegations of espionage’. Drysdale signposts some future analysis of ‘the legal framework under which Hu’s detention has taken place’. He also emphasises that we need ‘a cooperative framework—bilaterally, regionally and globally’ for ‘China’s authorities to avoid damage to the reliability of markets and for Australia to avoid the perception of investment protectionism’.
The most pressing legal (and diplomatic) issues concern China’s criminal justice system, especially when ‘national security’ is allegedly involved. But we need to consider some broader ramifications, including investment treaty protections. Part of the backdrop to the Hu saga could be that nations retain considerable sovereignty when it comes to deciding on the operational ambit of foreign investments. Investment treaties – which may be bilateral or regional, stand-alone or folded into broader Free Trade Agreements – now often entrench substantive liberalisation. But these treaties maintain exceptions for national security or subject investments to national interest tests. So even if Australia and China conclude their current FTA negotiations making it broadly easier for firms from either country to invest in the other, that sort of exception could be invoked by Australia, for example, to block or restrict an investment like the now scuttled proposal by Minmetals to acquire Oz Minerals back in March 2009.
Author: Peter Drysdale
Amid the good news of China’s strong economic recovery as it posted a 7.9 per cent growth rate this week, the continuing detention of Rio Tinto executive, Stern Hu, in Shanghai on allegations of ‘espionage’ has sent shock waves around the commercial and official world, not only in Australia. There is evidence that Chinese business and other international players have also been stunned by the affair. This week’s lead from Peter Yuan Cai examines the chaos in the Chinese steel industry as context in which the Hu detention appears to have been instigated. This issue will be important for a long time to come. We shall seek to explore other aspects of it, including the legal framework under which Hu’s detention has taken place, in the weeks ahead.
Author: Peter Yuan Cai, ANU
The tug-of-war between the Anglo-Australian mining giant and the Chinese steel mills over iron ore negotiations has entered unchartered waters with the arrest of Rio executive, Stern Hu, for alleged espionage. This dramatic turn in events has the potential to cast a long dark shadow over the Sino-Australian relationship.
Despite Rio and Canberra’s expression of ‘surprise’ over the arrest of Hu by the Chinese security services, there have been forebodings of trouble in the trade for some time. The Minister for Industry and Information Technology lamented in a State Council news conference last year, ‘we cannot make the same mistake a second time’, referring to the disorganisation and trouble in the iron ore market.
Analysts had been expecting the traditional tactic of ‘kill a chicken to frighten the monkeys’ by punishing small-time traders dealing in iron ore without a government-issued import permit.
Author: Yongsheng Zhang
When the proposal for the Rio-Chinalco deal was first emerging, the so-called national interest issue was hotly debated in Australia. Some people warned that the deal was not in Australia’s national interest. With Rio Tinto’s rejection of the offer, the deal has now fallen through.
Does the rejection really serve Australia’s national interest, as suggested by key members of the Opposition and some sections of the Australian press?
The reasons why some Australians think China’s SOE investments in Australia, especially in the resources sector, are not good for Australia look convincing. Australia is a free market economy. It welcomes foreign investment, but that mostly (though not always) means foreign private investment, not investment by foreign government-controlled SOEs.
Author: Peter Yuan Cai
After the failure to consummate the marriage of Rio Tinto and Chinalco, the mood in Australia is one of celebration. The public is generally relieved that part of the jewel in the crown of Australia’s mining assets would not be pawned to Red China after all and the Rudd government was also spared the agony of making a politically difficult decision that had the potential to damage the increasingly important Sino-Australian relationship.
Opposition Senator Barnaby Joyce triumphantly told reporters that ‘it is great for the Australian people that this deal falls over and we do not have the complications of the Communist People’s Republic of China’s government owning the wealth of Australia.’
Apart from the tacit acknowledgement of Chinalco’s expression of ‘deep disappointment’ in the Australian press, Chinese voices have been conspicuously absent from this moment. Read more…
Author: Peter Drysdale, ANU
Last week the deal that would have seen Chinalco (the big Chinese metals conglomerate) take a US$19.5billion stake in Anglo-Australian mining giant Rio Tinto fell over.
This was not just another of the many Chinese resource investment deals on the block. It would have been the largest ever Chinese commercial investment abroad and would have led to the creation of the first great Anglo-Australian-Chinese mining and metals company, probably headquartered in Australia. This company would have been positioned to play a lead role in the Chinese market.
It was not just significant in the Australian scheme of things. It would have been significant in the Chinese and the world scheme of things.
Quite apart from whether it influenced the commercial outcome announced on Friday, the kerfuffle over the proposal in Australia prompts reflection on how Australia is managing the relationship with China. Australia’s management of its relationship with China is not merely of national significance; it is of regional and global importance because of Australia’s strategic role as an energy and resource supplier to China and, indeed, the whole Northeast Asian region.
Read more…
Author: Christopher Findlay, Adelaide University
The Australian carried a story by Lenore Taylor on 7 April 2009 which reports:
Fifty-nine per cent of respondents to a special Newspoll taken last weekend said they believed Chinalco should not be allowed to increase its stake in Rio from 9 to 18 per cent of the company…while only 31 per cent said they thought the federal Government should allow the investment to go ahead. ..Eleven per cent of those surveyed said they were ‘uncommitted on the question of the Chinalco bid.
There are a couple of interesting aspects of these data – the first is the relatively small proportion of people, it seems, who are uncommitted and the second is the 2 to 1 ratio in favour of barring the deal.
Tom Switzer in December last year reviewed various polls on foreign investment and globalisation.