When Prime Minister Julia Gillard visits China this week one issue on the table will be what China sees as a foreign investment policy that is starting to discriminate against Chinese companies. The harbinger for that was the exclusion of Chinese telco manufacturer Huawei from bidding for work under the National Broadband Network. But there is more at stake than just investment in this strategically sensitive sector.
An apparently minor amendment last month to Australia’s foreign investment rules by government entities is almost certainly aimed squarely at Chinese investment. As a result, Chinese organisations looking to invest in Australia are advised to be more proactive in their communication efforts with the Australian government and public to counter concerns rising concerns about Chinese government ownership in investments.
While law firms advising Chinese investors are just coming to grips with the change, there is more than meeting the regulatory requirements to a successful investment into Australia. Chinese investors will need to increase their communications efforts with the Australian government and public to assuage the concerns that have led to the change.
The amendment, which broadens the definition of what might be construed as government ownership, is perhaps in response to growing public concerns about investment by sovereign funds into strategic assets and key national industries. But a clear target of the change will be investment by Chinese State-Owned Enterprises (SOE’s), which is coming under increasing scrutiny by the Foreign Investment Review Board (FIRB).
No doubt the change was driven by growing public concern about the level of Chinese Government investment into Australia. Any which way you cut it, SOE investment in Australia is high. For example a recent study by law firm Clayton Utz, Digging Deep: Chinese investment in Australian energy and resources, showed that 74% of Chinese investment into Australia, by number, and 97% by dollar value are made by SOE’s. The report also found that the majority of them (67%) invested in energy and resources projects “for the purpose of securing supply”. And the report found that Chinese SOE investment has primarily been into development projects in gold, oil, gas and uranium, with very little interest in exploration projects.
While the Australian business sector has been broadly supportive of that investment, sectors of society have been concerned at the level of foreign investment into Australia’s energy, resources, and farm sectors. In particular concerns have been raised about investment by sovereign wealth funds and Chinese SOE’s. In July last year Opposition Leader Tony Abbott told an Australian business group in Beijing “It would rarely be in Australia’s national interest to allow a foreign government or its agencies to control an Australian business.” That barb was clearly aimed at SOE’s and was meant to appeal to a broad base of voters ahead of the election due this year. The business community however was critical because the Coalition appeared to lack a sophisticated understanding of the nature of Chinese investment here. (See for example this report of The Australian of the time.)
More recently the situation has been complicated by what is best described as SOE “fig leaf” investments into Australia. A report in The Australian last month discussed how Chinese SOE’s were investing in Australia by “stealth”. According to the report, after the Foreign Investment Review Board (FIRB) had approved investments by private Chinese companies, those companies were unable to complete the deals for financial reasons, opening the way for an SOE to then invest in the Chinese company in China and thereby become a shareholder of a project or company in Australia.
Perhaps it is for this reason that the FIRB made its recent amendment to broaden the definition of “foreign government investor”. A report on the change by law firm Addisons suggests that foreign investors that may not traditionally have been considered government-owned may now need to notify FIRB of government ownership because the broader definition could be construed to include even small foreign government stakes in the investment.
While Chinese investment into Australia may primarily be driven by SOE’s, many Australian business leaders see their investments as primarily commercially driven. Indeed, the Clayton Utz report bears this out. It found that the majority of Chinese SOE’s tended to take minority positions in the projects they invested in and preferred to keep Australian managers in place.
Clearly Chinese companies investing into Australia, whether privately owned or SOE’s, will need to engage more strategically with stakeholders. First and foremost there is more work to be done with the Federal Coalition to assuage the concerns of what could be the next Australian government if current voter polling is any indication.
But there is also a crying need for Chinese investors to actively engage the public, via the media and other communications avenues, to ensure a better understanding of Chinese investment, that it is not necessarily counter to Australia’s national interests. More often than not, Chinese investment means much needed funds for projects and job creation here. But the public doesn’t know that and is therefore suspicious of the investment.
That’s the communication challenge for Chinese investors: they now need more than ever to demonstrate they are making a substantive and sustainable contribution to the Australian economy. That’s going to take a sophisticated understanding of the political and cultural milieu than has been the case hitherto.
Political engagement and FIRB approval aside, they will need to communicate better to the public and establish strong corporate social responsibility programs that give back to local communities and contribute to Australia’s national goals. In particular they are going to need to engage with Australia’s aboriginal communities in some of the areas they are investing in.
Like the foreign companies that began investing in China 30 years ago, Chinese companies now investing in the West, Australia included, have much to learn about the local politics and culture. And like those foreign companies operating in China they will need to engage good local advisors if they are going to succeed.
Alistair Nicholas is a Senior Advisor in the Public Affairs Practice of Weber Shandwick Australia. He recently returned to Sydney after 13 years working in Public Affairs in Beijing.