China’s state-owned steel makers are looking to buy a big stake in BHP Billiton, despite a warning by Australian finance minister, Wayne Swan that he would set a high bar for state-owned corporations investing in Australia.
Mr Swan's most detailed explanation of the Australian government's foreign investment policies came yesterday as a senior Chinese steel industry official told BusinessDay of efforts to form a joint investment vehicle to buy shares in the world's largest miner.
"Large Chinese companies like Baosteel, Wugang and Angang hope they can come together to take a stake in BHP," said the official, who is connected to the powerful China Iron & Steel Association.
The official said the proposed investment would probably be financed by the China Development Bank — the same state-owned policy bank that funded Chinalco's 9% raid on Rio Tinto's London-listed shares. But details on how the steel makers would proceed and what specifically they hoped to achieve remain unclear. "Organising this is not easy," the official conceded.
Yesterday Mr Swan repeatedly emphasised that foreign investment should be market-driven. "It should be consistent with Australia's aim of maintaining a market-based system in which investment and sales decisions are driven by market forces rather than external strategic or political considerations," he said.
Canberra lobbyists say the Rudd Government is uncomfortable with large investments by Chinese government-owned corporations.
Chinalco's raid in February on Rio will eventually be approved but any larger investment would be discouraged, according to a lobbyist connected with that deal. But the Government is yet to explain how it thinks Chinese Government-controlled investments might harm the national interest.
Professor Peter Drysdale, at the Australian National University, said such investments would advance Australia's interests by imposing market and regulatory "discipline" on Chinese state-owned corporations and therefore assisting China's transition into a market economy.
Chinese aspirations to buy into BHP are driven by the widespread view in China that the global mining industry acts like a cartel to the detriment of Chinese producers and consumers, and that this problem would be amplified if BHP succeeds in its takeover bid for Rio Tinto. Yesterday, Rio extracted a 95% price rise for iron ore that it sells to small Chinese mills to further underline this view.
Chinese Government investment can look more sinister in theory than in practice. The Chinese steel industry's difficulty in organising a raid on BHP highlights the limits of Chinese Government influence and the competition between state-owned corporations.
Baosteel is the largest and government-preferred Chinese steel maker in a hugely fragmented industry. Other steel makers such as Wugang (Wuhan Iron & Steel) and Angang (Anshan Iron & Steel) are only slightly smaller.
Mr Swan yesterday said Australia's investment rules were "non-discriminatory" and he blamed a hold-up of Foreign Investment Review Board approvals on an explosion of Chinese investment applications since November.
Yesterday Australia was added to the list of five approved destinations for Chinese investment funds after sustained Australian Government lobbying.
Source: Melbourne Age
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