China Australia Business

Chinese Investment: too big, or too little?

Mme. Li Yanduan, Vice Consul General, Consulate-General of the People’s Republic of China, Sydney

The scale of inward investment from China has aroused some suspicion in Australia during 2009. however, as China’s Vice Consul General in Sydney, mme. Li Yanduan writes, Australia has nothing to fear from a country committed to a long-term and mutually beneficial bilateral relationship.

We live in an era of globalisation, where nations enjoy an unprecedented level of interconnectedness. This is particularly true for China and Australia.

For example, when American consumer demand for clothing dropped last year, Chinese garment factories received reduced orders and so cut imports of wool from Australia. An ordinary white-collar resident of New York City, a worker in a coastal Chinese factory and an Australian shearer were suddenly – and painfully – connected. Because we are all in the same boat, we must focus on cooperation as well as competition in the market economy. Cooperation is not only possible, it is necessary.

Complementary strengths

Not only are China and Australia two of the major Asia-Pacific economies, but their economic strengths are very much complementary. Australia is one of the most reliable sources in the world for its abundant natural resources, advanced technologies and prosperous service sectors. China’s development needs Australia.

At the same time, China is a key buyer of Australian exports; not only of metals and minerals, but also of green economic products such as tourism and education. Thus, Australia also needs China, especially with the threat of global economic recession. The necessity of cooperation between us is undeniable.

In the context of Chinese mining investment in Australia, Chinese companies are seeking reliable long-term supplies of energy and resources. This is purely a commercial interest.

Recently, facing the reality of diminished funds and investments, many Australian mining companies – including, for a time, the giant Rio Tinto – turned to Chinese companies in search of opportunities for cooperation. This was a reasonable option for both parties. But for Australia, where could Chinese companies find such a reliable source of materials? And but for China, where could Australian companies find such a large source of funds? The relationship is one of mutual needs and mutual benefits.

Australian suspicion

Nevertheless, many Australians are suspicious of Chinese investments. They are concerned that China’s investments are too big, and speculate that China is seeking to gain control of resource prices. There are many reasons why these worries are unnecessary.

First of all, Chinese investment in Australia is only in the early stages of its development. Rather than being too much, investment is actually too little considering our strong trade partnership. In 2008, only 300 Chinese companies directly invested in Australia, and the aggregate of these investments was just US$3 billion: less than 1% of total foreign investment in Australia. As Australia’s biggest trading partner and the purchaser of one fifth of Australian exports, China’s level of investment does not match the current state of our economic and trade relationship.

Secondly, the fact is that just like their Australian counterparts, Chinese companies are simply seeking profits. Controlling the prices of resources, or manipulating Australia’s mining sector, is far beyond the scope of reality. According to the Australian Bureau of Statistics, by the end of 2007, the United States was the biggest foreign investor in Australia with US$446 billion, and Japan’s investments stood at some US$58 billion. While China’s investments add up to a mere US$6.2 billion, it is difficult to imagine how China could possibly seize so-called ‘control’. Even if Chinalco’s bid to Rio Tinto had been approved, its share would only have been 18%.

So despite the fact that some people insist that Chinese companies intend to influence international market prices, in reality this is far beyond their capacity.

China’s long-term commitment

Thirdly, Australia’s economy and its people are benefiting from existing Chinese investments, which are paying taxes, providing employment and fostering harmonious relationships with local communities.

For example, Yancoal Limited, a Chinese coal mining company located in the Hunter Valley, employs nearly 200 Australian workers. Despite a drastic decline in profits over the last year due to the financial crisis, its Chinese management decided not to dismiss any employees. This is a good example of China’s commitment to long-term cooperation.

Moreover, following the Victorian bushfire devastation, the Chinese Chamber of Commerce in Australia immediately donated more than A$130,000 to the Red Cross. Only protectionists could see such investments as a ‘threat’.

Chinalco’s former President Xiao Yaqing and Rio Tinto Chairman Paul Skinner announce the strategic partnership between the two companies on February 12, 2009

Mutual understanding and trust

In contrast, Australia’s experiences of investing in China have been much smoother. Australia is one of China’s main sources of foreign investment. To date, China has cumulatively approved 8,954 Australian investment projects with a total value of US$5.82 billion. Most of these projects are making good progress, and more and more Australian companies are being attracted to China.

For instance: Telstra recently acquired a 51% stake in China’s leading real estate website; BlueScope has established a steel company in China with US$430 million of investment; Sino Gold stands as the top foreign-funded gold explorer in China; and ANZ Bank is planning to open 20 new branches in China. Almost all Australian banks have operations in China, while only two Chinese banks are licensed in Australia. So much for bilateral investments.

However, despite any differences and challenges, we can also foresee a brilliant future for business relations between our two countries. We have long enjoyed excellent trading ties, technical cooperation and cultural exchanges. More importantly, the bilateral relationship has been enhanced by the vital role of peopleto- people links, which greatly promote mutual understanding and trust. I believe that as our business relationships embrace continued development, both of our countries stand to benefit a great deal.

This article is an edited transcript of a speech delivered to the Australia China Business Council in May 2009.

Sep. 10, 2009 | Last Word