Australia said it will increase scrutiny of investment from China and other foreign countries in mining companies, particularly when the investor is also a major customer or government entity seeking a majority stake.

Treasurer Wayne Swan, who must approve major foreign investments, said yesterday Australia needed to make sure that Australian companies remained reliable suppliers to all current and potential trading partners.

China in particular needs stable supplies of resources to fuel its booming economy, and has been stepping up investment in and overtures to resource-rich countries and resource companies worldwide.

“If you were considering making a multibillion dollar bid for an Australian resource company at the moment, you might look at that and think twice,” said Tom Elliott, managing director of hedge fund MM&E Capital.

“But the government wouldn’t want to be giving the Chinese the impression they are not welcome. The Chinese have been an enormous boon to Australia, we are one of the few countries on earth that has a net trade surplus with China,” he said.

Major foreign investments and takeovers need approval of the Foreign Investment Review Board and then Swan.
China has increased interest in Australia’s mining industry, a major supplier of the iron ore, coal, nickel and other materials, arousing concerns Australia could lose control of its natural resources to Beijing-backed firms.
Swan said Australia remained open to Chinese investment, with applications for Chinese investment in Australia reaching almost A$30bn since last December. But he said the government would be “particularly attentive” when a foreign investor in an Australian resource company was also a consumer of the resource.
“Our predisposition is to more carefully consider proposals by consumers to control existing producing firms,” he told the Australia-China Business Council.
Still, the government usually encouraged “some participation” by the buyer of a resource, below the level of control, he added.

Australian miners, ranging from global heavyweights BHP Billiton and Rio Tinto to small explorers, are in the sights of state-backed Chinese firms.

China’s Sinosteel launched a A$1.36bn ($1.3bn) bid for iron ore prospector Midwest Corp, and has expressed interest in Murchison Metals.

China’s state-owned Aluminium Corp of China (Chinalco) and its US partner Alcoa Inc earlier this year bought a 12% stake in Rio Tinto.

Alison Broinowski, from the Australian National University, said Swan’s comments may be designed to overcome a hurdle in free trade talks between Australia and China.

She said the tighter scrutiny should not pose too many problems for the Australia-China relationship, as long as foreign investment rules were applied universally and not seen as a way of singling out Chinese investments.

“At the moment, they are very touchy about anything that looks like it is disparaging of China, or discriminatory against it,” Broinowski told Reuters, adding China’s investments around the world had all followed market rules. – Reuters

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