Chinese Investment in Australia: Unique Insights from the Mining Industry PDF
Preview Chinese Investment in Australia: Unique Insights from the Mining Industry
Chinese Investment in Australia Unique Insights from the Mining Industry Xueli Huang and Ian Austin Chinese Investment in Australia This page intentionally left blank Chinese Investment in Australia Unique Insights from the Mining Industry Xueli Huang and Ian Austin Palgrave macmillan ©XueliHuangandIanAustin2011 Foreward©PeterDrysdale2011 Softcoverreprintofthehardcover1stedition2011978-0-230-29849-1 Allrightsreserved.Noreproduction,copyortransmissionofthis publicationmaybemadewithoutwrittenpermission. Noportionofthispublicationmaybereproduced,copiedortransmitted savewithwrittenpermissionorinaccordancewiththeprovisionsofthe Copyright,DesignsandPatentsAct1988,orunderthetermsofanylicence permittinglimitedcopyingissuedbytheCopyrightLicensingAgency, SaffronHouse,6-10KirbyStreet,LondonEC1N8TS. Anypersonwhodoesanyunauthorizedactinrelationtothispublication maybeliabletocriminalprosecutionandcivilclaimsfordamages. Theauthorshaveassertedtheirrightstobeidentified astheauthorsofthisworkinaccordancewiththeCopyright, DesignsandPatentsAct1988. Firstpublished2011by PALGRAVEMACMILLAN PalgraveMacmillanintheUKisanimprintofMacmillanPublishersLimited, registeredinEngland,companynumber785998,ofHoundmills,Basingstoke, HampshireRG216XS. PalgraveMacmillanintheUSisadivisionofStMartin’sPressLLC, 175FifthAvenue,NewYork,NY10010. PalgraveMacmillanistheglobalacademicimprintoftheabovecompanies andhascompaniesandrepresentativesthroughouttheworld. Palgrave®andMacmillan®areregisteredtrademarksintheUnitedStates, theUnitedKingdom,Europeandothercountries. ISBN978-1-349-33469-8 ISBN978-0-230-31415-3(eBook) DOI10.1057/9780230314153 AcataloguerecordforthisbookisavailablefromtheBritishLibrary. LibraryofCongressCataloging-in-PublicationData Huang,Xueli. ChineseinvestmentinAustralia:uniqueinsights fromtheminingindustry/XueliHuangandIanAustin. p. cm. Includesindex. 1. Mineralindustries—Australia. 2. Investments,Chinese—Australia. I. Austin,Ian. II. Title. HD9506.A72H832011 332.67(cid:2)351094—dc22 2011011827 10 9 8 7 6 5 4 3 2 1 20 19 18 17 16 15 14 13 12 11 Contents ListofTables ix ListofFigures x Foreword xi Acknowledgements xiv 1 Introduction 1 Australiaanditsmineralsindustry 4 ThetraderelationsbetweenAustraliaandChina 5 ChineseinvestmentintheAustralianminingindustries 10 Bookstructure 12 2 AnOverviewofChina’sInvestmentintheAustralian MineralIndustry:TheoreticalPerspectiveand InvestmentCharacteristics 18 ExistingtheoreticalperspectivesonChineseODI 19 GeneraltheoreticalperspectivesonFDI 19 SpecialtheoreticalperspectiveonChina’sODI 20 ChineseODI:Thedevelopmentalprocess,patterns andcharacteristics 22 ThedevelopmentstageofChineseODI 22 ThemotivesbehindChineseODI 24 EntryapproachofChineseODI 26 ChineseODIintheAustralianmineralsindustry: Anoverviewandkeycharacteristics 27 Anoverview 27 CharacteristicsofChineseinvestmentintheAustralian miningindustry 28 Mineraldistributionandthedevelopmentalstageof investment 28 ThecharacteristicsofacquiringChineseorganisations 34 MotiveandmodeofentrybyChineseinvestors 36 Entrymotive 36 Entryapproachandthedevelopmentalstagesoftarget companiesacquired 38 v vi Contents WOS 40 Acquiringacontrollingstake 41 JV 41 Minorityequityparticipation 44 ObligationsandrightsforChineseinvestorsasJVpartners orequityparticipants 45 3 AustralianRegulatoryFrameworkonFDIandits ApplicationtoChineseInvestment 48 Introduction 48 AbriefdescriptionofFDIinAustraliaanditsmining industries 49 FDIintheAustralianresourcessector 50 AustralianregulatoryframeworkforFDI 51 Anoverview 51 TheFATAandthepolicy 52 TheAustraliannationalinterest 53 RecentdevelopmentsontheAustralianregulatory framework 54 TheSixPrinciples,SOEsand“SovereignWealth Funds” 55 Convertiblebonds,andliftingthethresholdforforeign investmentreviews 57 Clarificationofnationalinterest 58 Summaryofnationalinterest 59 TheoutcomesofFIRBdecisionsonFDIapplications between2001and2009 60 ConcernsaboutChineseinvestmentandtheirreview outcomes 62 ConcernsaboutChineseinvestmentintheAustralian miningindustries 62 FIRBdecisionsonChineseinvestment 63 4 TheImpactonAustralianPoliticalEconomyfrom ChineseInvestmentintoAustralia’sMiningIndustry 71 Introduction 71 Australia–Chinaeconomicrelations 73 TheGFCandimpactonAustralia–Chinapoliticaleconomy 80 PoliticalreverberationsofthefailedRio Tinto–CHINALCOdeal 82 PoliticalnatureofCHINALCO 82 Contents vii Australianpoliticaloppositiontothedeal 83 CollapseoftheRio–CHINALCOdealandpolitical reverberations 85 ChineseinvestmentinAustralia:Thepoliticalsales activitypostRio–CHINALCO 87 TheRio–BHPBdeal:Chinaopposition,Australianpolitical replyandthedealsdemise 90 ThecaseofSternHu:Ironorecommercemeets internationaldiplomacy 93 TheAustraliangovernmentandoppositionresponseto theSternHucase 95 TheSternHutrialandtheAustralianresourcesectors commercialdiplomacyresponse 98 Anendtotheannualironorebenchmarkpricingsystem: Politicalconsequences 99 WApolitics:ThepremierminingstatewithinAustralian politicaleconomy 102 Thepoliticsofthesuperprofitsmineraltax 105 TheglobalpoliticsofChina’seconomyascendancy: Australia–Chinarelationswithinthebroader internationalsphere 107 Conclusion 111 5 TheInvestmentProcessandAfter-Transaction IntegrationandManagement 113 Introduction 113 Theentryprocess:Majorstepsandfactorsconsidered 114 Pre-investmentpreparation 114 Thenegotiationstage 119 Thetransactionstageandseveralkeytermsand conditionsinthetransactions 120 Entryconsiderationsandtheirimpactonfinancial performance 124 After-transactionintegrationandmanagement 127 6 WhytheProposedCHINALCOInvestmentinRio TintoFailed 140 ThebackgroundoftheCHINALCO–Riodeal 141 TheproposedstrategicalliancebetweenCHINALCO andRio 142 Analyticalframeworkanddatacollection 143 viii Contents Identifyingkeystakeholders 145 Datacollection 145 Actionsandinteractionsamongkeyplayersonthedeal 147 KeyactivitiesconductedbyRioanditsinteractionswith otherkeystakeholders 147 ActivitiesconductedbyRiofrom12Februaryto20April 148 ActivitiesconductedbyRioafterits2009AGMs 151 Thefinalstageofdealnegotiation(lateMay–4June2009) 153 ActivitiesconductedbyCHINALCO’sseniormanagement 155 PoliticalandcompetitiveactivitiesconductedbyBHPB 160 TheAustraliangovernment’sactions 164 FactorsconsideredbytheAustralianGovernmentin assessingtheCHINALCO–Riodeal 164 ActivitiesconductedbytheChinesegovernment 170 FactorscausingthefailureoftheproposedCHINALCO–Rio alliance 171 Environmentalfactors 172 Organisationalfactors 173 7 ChineseInvestmentintheAustralianMineralsIndustry: ConcludingComments,OrganisationalChallengesand PolicyImplications 175 KeycharacteristicsofChineseinvestmentintheAustralian mineralsindustry 176 Mineraldistributionandthestageofentry 177 OwnershipbyChineseinvestors 178 EntryapproachesbyChinesefirms 178 Operationalandmanagerialissuesandfuturechallenges 180 Ownershipandcorporatecontrol 180 Seniormanagementappointmentandremuneration 181 Challengesincorporategovernance 182 Issuesandchallengesinfinancing 185 Otheroperationalchallenges 186 PolicyissuesforChineseinvestmentinAustralia 187 PolicyissuesforAustraliangovernments 188 China’sODI-relatedpolicyissues 195 References 200 Index 216 List of Tables 1.1 TheEDRforsomeofAustralia’smineralsandtheirworld ranking 6 1.2 AustralianmajortradeitemswithChinain2008–09 9 2.1 Theentrymode,developmentalstage,transactionand industryofthetargetcompaniesandprojectsacquiredby Chinesefirms 29 2.2 TherightsofChinesepartnersintheirJVwithAustralian companies 46 3.1 ThenumberofproposalsconsideredbyFIRBbetween 2001–02and2008–09 61 3.2 ThereviewoutcomesforseveralmajorChinese investmentsintheAustralianresourcessector 65 3.3 ConditionsimposedbyFIRBonthreemajorChinese investments 68 5.1 Theterms,conditionsandapprovalprocessforMCCto acquireCapeLambertProject 121 5.2 KeycommercialtermsintheJVbetweenWISCoand CentrexMetals 123 5.3 ThefinancialperformanceofsixChineseinvestmentsin listedAustralianminingcompanies 126 5.4 AlistofChinese-controlledentitiesandJVsinthe Australianmineralsindustrywithsomecharacteristicsof theirinvestments 128 5.5 Theappointmentofboardandseniormanagement positionsatChinese-controlledentities 131 5.6 Financialapproachesadoptedbysome Chinese-controlledentitiesorJVpartners 136 6.1 DetailsofCHINALCO’sinvestmentinRio’sassets 144 6.2 Thenumberofarticlesretrievedfromthreekeyresources 146 7.1 FDIIndexscoresbycountryandtypeofmeasure 197 ix
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