Despite The Move On Rio, 'team China' Not Always United
The Age
Monday March 3, 2008
Rudd must decide at what point might Chinese investment be contrary to the national interest.
CHINALCO president Xiao Yaqing last month told Australian reporters that his spectacular move on to the Rio Tinto share registry was driven by commercial imperatives, without Chinese Government involvement. Last week he clocked on for his second job: as an alternate member of the 17th Central Committee of the Communist Party of China.CCTV news footage of Xiao filing into the central committee's second plenary session in Beijing was a reminder that aluminium conglomerate Chinalco and its president are creatures of the Chinese state. The Chinese Government hired Xiao and can fire him. It can be involved in planning, approving or blocking Chinalco's major strategic decisions - such as buying shares in Rio Tinto.Caijing Magazine last week reveals how deep such government involvement can be. It reports that China's top planning agency, the National Development and Reform Commission, "summonsed" state-owned corporate giants to several meetings back in December to co-ordinate China's "counter-measures" against BHP Billiton's bid for Rio.The chosen companies were Chinalco, coal giant Shenhua, leading steel maker Baosteel and the China Development Bank (which the Government uses to fund many of its overseas projects). The Chinalco-China Development Bank consortium came out in front.In mid-December the State Council, China's cabinet, officially approved Chinalco's application to broaden its core business mandate from aluminium to diversified metals. On February 1, Chinalco, China Development Bank and junior partner Alcoa stunned the investment world by announcing it had secretly swallowed 9% of Rio.Without citing sources, Caijing asserts Chinalco has three options. It could block BHP's full takeover bid, it could acquire assets divested in the takeover process or it could try to take control of Rio Tinto in its own right.This somewhat sinister sketch of Government involvement in corporate decision-making will feed into one of Prime Minister Kevin Rudd's most pressing policy challenges. At what point might Chinese investment in Australia become contrary to the national interest? Rudd will be expected to enunciate his answer soon - perhaps at the Bo'ao economic forum on April 11.Yet the picture of "Team China" subverting the world economic and geopolitical order is misleading. What looks like political control of Chinese corporations can sometimes be the other way around. While the Government may have picked Chinalco to pursue a probably unachievable nationalistic goal, Chinalco has also co-opted the Government into endorsing its own corporate ambitions.Time after time, corporate projects that are born of or backed by the Chinese Government have become commercially driven, independently minded enterprises. The best state-owned businesses have often ignored government preferences that conflict with their bottom lines.Chinalco, for example, is on the way to becoming a diversified global resources company because it has ruthlessly competed against other state-owned enterprises. It engaged Lehman Brothers and China International Investment Corp to work on its Rio attack plan well before it got the go-ahead from the Government - just as Baosteel had to shake off other steel companies before reaching the government shortlist.Some commentators speculate that Chinalco might subsidise Australian iron ore sales to China's steel makers if it had the chance. But Chinalco executives would be loath to compromise their own profit margins to help a junior rival such as Baosteel."Chinalco is a very entrepreneurial and competitive organisation," says Michael Komesaroff, a consultant who works with large mining companies, including in China. "It's hard to see them acting as an arm of Chinese foreign policy."The experience of "China Inc" in Africa is telling. Contrary to some Western commentaries, Chinese oil companies in Africa have bid against each other for assets, sold oil on the world market rather than to China when prices are favourable, and have largely ignored the preferences of China's Ministry of Foreign Affairs."Chinese commentators . . . have complained that the foreign investments of China's national oil companies are like a battle in which 'each soldier is fighting his own war'," writes Erica Downs in "Fact and Fiction of Sino-African Energy Relations", in November's China Security journal. "Government agencies face enormous difficulties co-ordinating the formulation and implementation of energy decisions among themselves, let alone with the national oil companies."Unlike with some hedge funds, there is little evidence that China deploys its corporations to disrupt world markets or weaken sovereign entities. Quietly, Rudd's senior ministers have already suggested to Chinalco's Xiao and China's ambassador to Australia, Zhang Junsai, that they disbelieve Chinalco's claims that it is not controlled by the Chinese Government. Chinalco has been gently warned that it should think carefully before acquiring more shares or pushing for a director on the Rio board.Rudd's public response to the Chinalco-Rio deal will reverberate among the other Chinese corporations hoping to invest in the country. BusinessDay understands that cashed-up metals and minerals companies including Sinosteel, China Minmetals and Baosteel are thinking about major investments. The Foreign Investment Review Board is considering at least two major resource acquisitions by Chinese companies. Some of these companies are turning to Australia precisely to avoid what they see as xenophobic reactions elsewhere in the West. It would be easy for an Australian government to overstep the line that separates nationalistic chauvinism from the national interest.
© 2008 The Age