Australia discriminates ‘Chinese investors’

The report on China-Australia investment relations also found that Australians were suspicious of Chinese investors, believing their motives are not always commercial but geopolitical.

The report by the Lowy Institute for International Policy in Sydney, based on a series of interviews with Chinese investors, said Australia needed to better communicate its foreign investment guidelines to Beijing.

It warned that with access to food and water becoming of global concern, future flashpoints in Australia-China investment ties would likely centre on China's food security objectives and the intersection with Australian FDI policies.

China's negative perception of Australia stems largely from the failure of a series of high-profile Chinese deals in Australia's resource sector, said the report.

"Official Australian pronouncements repeatedly emphasise that Chinese investment is welcome," the institute said.

"Despite this, however, some Chinese investors and officials perceive that Australia discriminates against Chinese investors, although that perception is generally not one that is shared by their investment advisers."

Australia's foreign investment approval process has long been criticised for being opaque and unpredictable, although the vast majority of overseas applications are approved, with Australia's Treasurer Wayne Swan having final say.

But the Labour government applies special scrutiny to projects involving state-linked investors looking to take control of a strategic business.

A 2008 bid by Chinalco to take a controlling stake in Rio Tinto was abandoned. In 2009, China Non-Ferrous Metal Mining Co was blocked from buying a controlling stake in rare earths miner Lynas Corp .

Australia also blocked state-linked China's Minmetals bid for OZ Minerals, saying its Prominent Hill mine was too close to a rocket testing range.

Australia has been the biggest target for Chinese outward foreign direct investment over the past five years, excluding Hong Kong and tax havens, with direct investments worth more than a$16 billion, according to Australia's Treasury.

China has become a major source of global Foreign Direct Investment, or FDI. China FDI in 2009 accounted for 4.4 percent of total global FDI outflows, putting China in fifth place behind the United States, France, Japan, Germany and Hong Kong.

Unofficial estimates for 2010 indicate China's proportion of total global FDI outflows increased to 5.3 percent.

The overwhelming focus of Chinese investor and official complaints was investment in Australia's natural resources.

Australia's planned 30 percent profit tax on mining projects had hurt the country's reputation with Chinese investors, with less sophisticated investors or ones with existing projects being the most aggrieved said the report.

In contrast, it said Chinese banks operating in Australia had no perception of discrimination.

The report said that while informal briefings by Australia's Foreign Investment Review Board were useful, the secretive FIRB had left itself open to charges of discrimination through its case-by-case approach to decisions, instead of broad rules.

One way for FIRB officials to build more trust in China would be through a more regular FIRB presence in China, building greater exposure to investors, advisers and officials.

"Would this be a special arrangement for China? Sure. But that could be justified given the huge importance of the bilateral economic relationship in general," the report said.

Copyright Reuters, 2011