Is Australia in danger of biting the Chinese hand that it feeds?
Clive Palmer wants to help Chinese investors. Photo: AP
FIVE-BILLION-DOLLAR-MAN Clive Palmer has never shown much interest in personal qualities such as dignity or self-respect, but he knows a marketing opportunity when he sees one.
The Australian government, he says, has “racially discriminated” against Chinese investors and he will save them by investing on their behalf.
"They've brought in things like the Foreign Investment Review Board in Australia, which is an outstandingly racist legislation designed to slow Chinese growth, and it's a national disgrace,” he said at the weekend.
Yesterday Palmer hung up the phone before I had a chance to ask why Citi, Macquarie, Credit Suisse and JPMorgan had all stepped aside from advising on his $2.9 billion plan to list Resourcehouse on the Hong Kong stock exchange, revived again after two years of talk.
Palmer's fast-and-loose style hurts him in China as much as it helps. But his message of Australian discrimination, however crudely expressed, does strike a chord.
Earlier this month, for example, Luo Tao, the chairman of China Nonferrous Metal Mining, complained of Australian “bias” against Chinese investors.
Last month, several Chinese chief executives told Prime Minister Julia Gillard of their concerns about the FIRB, labour laws, environmental regulations and various approval processes, at a private lunch hosted by Australian ambassador Geoff Raby.
The previous day, Shen Heting, the chairman of China Metallurgical Construction Corporation, put his criticisms on the public record. None of them mentioned the carbon or resource rent taxes to Gillard; they were focused on more pressing things.
Mostly, however, Chinese investors are choosing to keep their resentment among themselves and their advisers, while taking their billions to every other resource-rich corner of the world.
Advisers say Chinese clients are baulking at the "political risk" associated with Australia, opting instead to pursue opportunities in South America and even Indonesia.
When "political risk" is applied to Australia, ahead of developing economies that have only just become democracies, then it is time to look closely at the data.
Thilo Hanemann, the research director at Rhodium Group, keeps a file on every Chinese foreign investment in the resource and energy sectors. His data shows that, in the space of two years, Australia is in danger of tumbling from being China's preferred investment destination to an also-ran.
Chinese companies completed 25 separate investments in Australia that were announced on or after January 1, 2010, which is more than in any other country. But the value of those investments adds up to just $3.6 billion, which ranks Australia fourth behind Brazil, Canada and Argentina.
But the news is worse than that. The biggest of China's 25 “investments” in Australia was actually a corporate restructuring, where Minmetals Group transferred assets from an Australian subsidiary to a listed vehicle in Hong Kong. After stripping out that $2.8 billion portfolio reshuffle, Chinese companies have invested just $750 million in Australian resource and energy assets since the start of last year.
In value terms, Australia drops to fifth place behind the US. Australia is getting lots of small investments, including by state-owned enterprises and private companies, as joint ventures and straight acquisitions, but the big money is passing us by.
There is a case for discriminating against some kinds of investment by Chinese state-owned companies. Many Chinese investors who have plunged money into Australia have themselves to blame for multibillion-dollar cost overruns and multi-year delays.
They've thrown billions of dollars of government money into assets they don't know how to manage in markets they don't understand. Their investments are exacerbated by some Chinese executives succumbing to the temptation to take a slice of the transaction or supply contract as personal “grey-income” that can be stashed overseas.
The consequences of missing out on investment capital should no longer be ignored. Lower inflows of Chinese investment have reduced the value of Australian assets, reduced mine and infrastructure construction and, inevitably, will reduce Australia's export share in the global market long after the boom has ended.
It is early days yet, but the costs of Australia's discriminatory investment policy are coming into view.