Australia must ease China mining investment confusion

Australia's government, headed by Mandarin-speaking Prime Minister Kevin Rudd, should open talks with Beijing to ease uncertainty clouding Chinese investment in the country, two prominent academic economists said on Thursday.

Although Chinese aluminium giant Chinalco and US aluminium maker Alcoa Inc recently won approval to buy a 12% stake in Anglo-Australian miner Rio Tinto, Chinese investment in Australia was clouded in "confusion and uncertainty", the pair said in a research paper.

"It may seem a puzzle as to how we got ourselves into this pickle over Chinese foreign direct investment," said Peter Drysdale, from the Australian National University, and Christopher Findlay, from the University of Adelaide.

A wave of Chinese mineral and commodity firms have been eager to snap up foreign assets in Australia and other resource-rich countries to fuel China's fast-growing economy, using the cash generated by years of breakneck economic growth.

The centre-left Labor government in February warned it would act in Australia's national interest when assessing investment applications from state-owned companies, adding state enterprises must operate at arms length from their governments.

Treasurer Wayne Swan will rule within weeks on a bid by Chinese investor Sinosteel for a $1.3bn stake in West Australian ore miner Murchison Metals He has already approved Sinosteel's takeover bid for Murchison's rival Midwest Corp

Sinosteel's interest in Murchison has been heightened by a recent Western Australian state government decision to ask a Murchison consortium to build a new port to serve the region.

"The scale and structure of these investments do not suggest any considerations of 'national interest' effects on competition or strategic importance that might recommend their non-approval," the two academics said.

Chinalco's approval in August came as Australia's competition watchdog mulls BHP Billiton's $136bn all-share takeover bid for Rio to create a global mining titan, raising concerns among steel makers in China and Europe.

Rio and BHP are the world's second- and third-largest iron ore producers, respectively, and some industry experts saw Chinalco's Rio move as a bid by Beijing to protect its steel sector.

Canberra's anxiety over the growth of foreign investment by China was as unfounded as concern over Japanese investment decades ago during Tokyo's emergence as Australia's major economic partner, Drysdale and Findlay said.

"Increased uncertainty about the treatment of Chinese FDI in the resources sector is, at the margin, likely to damage the potential growth of the sector. Chinese investors are under-invested in Australia," they said.

To ease uncertainty, Drysdale and Findlay said the Labor government should begin routine consultations between Australian and Chinese authorities for more transparent scrutiny of competition and corporate governance issues.

"The best way to dispel the uncertainty and confusion is through reassertion of the market framework within which all foreign investment proposals are examined," they said.