China’s ambassador defends Australian investments

In the wake of widespread resentment in Australia against the prospects of China's state run companies acquiring the country's strategic natural resources, the Chinese ambassador to Australia has defended his country's investment, saying it is good for the Australian economy.

Writing in the The Australian, China's ambassador to Australia Zhang Junsai said, ''Hot debate and arguments for or against investment by Chinese companies are not surprising. But rather than using emotive language, to approach this matter in a rational and comprehensive manner perhaps will generate a holistic and objective observation.''

The same article was also posted on China's Foreign Ministry website.

Armed with massive amount of foreign exchange reserves, China has been swarming the globe, making huge investments in energy and metal ores through its state-owned enterprises ever since the the global financial crisis began.

It is currently the world's second-largest producer and consumer of energy after the US, and has been aggressively undertaking overseas investment into energy and resource projects around the world in a bid to secure its future energy needs.

The rapid growth of the past five years has resulted in China rapidly consuming its own natural resources. At the current rates of consumption, only 21 of the 45 minerals with proven reserves in China will meet its domestic demand by 2010. By 2020, the figure will fall to only six minerals.

This is why resource-rich Australia has become the prime target for China's outward investments in energy and natural resources. In 2006, Australia attracted 11 per cent of global spending on global mineral exploration, second to Canada, which  attracted 19 per cent.

Australia attracted more Chinese investment in its strategic natural resources last year than any other single country, which many Australians view as a threat, including critics of Prime Minister Kevin Rudd.

Australia's top six merchandise exports to China in 2007-08 were iron ore ($12.4 billion), lead, zinc, manganese and other ores ($1.6 billion), wool ($1.5 billion), copper ores ($1.2 billion), crude petroleum ($646 million) and nickel ores ($631 million).

In his article Zhang writes, ''When I finished my last posting here eight years ago, two-way trade between China and Australia was merely $8.45 billion. Last year it jumped to $59.7 billion, a year-on-year increase of 36.1 per cent. It would have certainly exceeded $60 billion if not for the global financial crisis. Fast growth in China, the two economies' complementarily and deepening economic cooperation have elevated China to Australia's largest trading partner.''

''By the end of 2008, about 300 Chinese companies made direct investment in Australia, with a paid-in volume of $3 billion (not including Chinalco's Rio bid), or less than 1 per cent of total foreign investment in Australia."

According to estimates by Deloitte Touche Tohmatsu in Australia, China may spend more than $500 billion on overseas resources investments over the next eight years to secure its supplies.

Australian investments in China
Until last year, China approved on a cumulative basis investment from 8,954 Australian companies with a paid-up volume of $5.82 billion. In 2008 alone, an additional 337 Australian companies entered China with an investment of $400 million.

But Australians say that there is a vast difference between investments made by Australian private companies in China versus investments in strategic natural resources in Australia made by China's state-owned enterprises, a charge Zhang defends saying, ''State-owned enterprises are no longer entities under a highly centralised planned economy. They are being transformed to joint stock market players that pursue profit, remunerate employees, pay taxes and endeavour to expand business.

''Chinese companies investing in Australia, state-owned or private, do not seek to control Australia's energy or mineral resources. Like companies from other countries, they eye long-term, sound and reliable supply of energy and resources.''

But their state-owned status is sparking a political backlash in Australia against Chinese investments. Critics say that if China wants free and fair access to Australian companies, it should grant the same access to its resources and corporate sector to foreign investors.

Last month the Chinese anti-trust authorities rejected Coca-Cola's, $2.4-billion acquisition bid of Beijing-based Chinese juice maker Huiyuan Juice saying that the deal could restrict competition and lead to higher prices for consumers. (See: China trips Coke on Huiyuan Juice acquisition)

According to a poll of 1,001 people by the Sidney-based international policy think tank, Lowy Institute, in September, nearly 78 per cent of Australians opposed Chinese government-controlled investment in Australian businesses.

Opposition political parties say applying the same yardstick, Australia should not let China's state-owned Chinalco buy Rio Tinto's valuable mineral assets  in Australia, (See: Chinalco invests $19.5 billion in Rio Tinto to raise stake to 18 per cent)  that would give China the ability to manipulate ore prices  since it is also a buyer of the mineral from Rio Tinto.

Australian National Party senator Barnaby Joyce, who has been leading the campaign against Chinalco, has seen the Chinese rejection of the Coca-Cola deal as a windfall boost to his campaign saying it signals that China is willing to protect its own industry but expects Australia to allow China to buy its strategic assets. (See: China's knockout punch to Coke may floor Chinalco in Australia)

Joyce has also released an advertisement on Australian TV, where he says in the commercial, "The Australian government would never be allowed to buy a mine in China, so why would we allow the Chinese government to buy and control a key strategic asset in our country? Stop the Rudd government from selling Australia.''

Facing increased criticism on China's increased investment in Australian natural resources, the Australian government rejected Minmetals' $1.8-billion acquisition of the world's second-biggest zinc miner, citing national security since OZ Minerals' Prominent Hill mining operations are situated in the Woomera Prohibited Area, which happens to be the weapons testing range.

Last week, Minmetals' revised its acquisition terms from buying out Oz to a $1.2-billion deal for most of its assets, excluding the Prominent Hill mine.

Last Tuesday Australian treasurer Wayne Swan approved a $844-million (A$1.2 billion) investment by the Chinese steel producer Hunan Valin in Australia's Fortescue Metals Group (See: Australia okays Valin stake in Fortescue Metals)

The approval is subject to "formal and strict undertakings" in relation to the board seat Fortescue has allotted the chairman of Valin and comes with a set of conditions to shun trade rivalries including "marketing, sales, customer profiles, price setting and cost structures for pricing and shipping". Hunan Valin is also prohibited from using inside information when negotiating resource prices.

Kevin Rudd, himself is an old China hand and scholar, having served in mainland China in the early stages of his career with the country's diplomatic corps. He speaks Mandarin fluently and is often called by the opposition parties as ''China's roving ambassador.''

His government has lately come under considerable pressure for being too close to China. A series of controversies, including defence minister Fitzgibbon's links to prominent Chinese-Australian businesswoman Helen Liu, who is close to the Chinese defence establishment, and the secrecy about the Australian visit of China's propaganda chief Li Changchun have left the government scrambling providing explanations.

Fitzgibbon's failure to declare two free trips to China sponsored by Helen Liu and the minister's relationship with Liu, which goes back 20 years, has came under the scrutiny of the Australian Defence Signals Directorate, under Fitzgibbon's ministry.

The directorate is a covert arm of the defence ministry with expertise in counter-surveillance and communications security and routinely eavesdrops on foreign agents and governments.

Worried about Fitzgibbon's relationship with Liu, the DSD hacked into Liu's computer with the trail ending up at Fitzgibbon's computer.

Liu is one among the many prominent Chinese business personalities, who have donated more than $90,000 to Kevin Rudd's political party.

Australians are also asking why Rudd did not inform the Australian media of his hush-hush meetings with China's security and intelligence chief Zhou Yongkang late last year, as well as his lunch meeting at the Lodge last week with Chinese propaganda chief Changchun.

Yesterday, media reports in Australia said that China had conducted blatant electronic espionage, directly targeting Rudd during his visit to China last August, where the prime minister and his staff were under constant cyber attack from Chinese authorities trying to access communications gear.

Australian intelligence agencies have also leaked information to the media that Rio Tinto may also have been the target of a Chinese cyber attack in the early stages of Chinalco's bid for the miner's assets and said that the attacks were "incessant and enduring."