Wednesday, 16 April 2008

Australia v New Zealand: Foreign Investment, Vector, AIAL and BHP

New Zealand is quickly making its attitude to foreign investment known. The Canadian Pension Plans bid for AIAL was rejected in a process created with blatantly political ends in mind (stopping the bid).

It will be interesting to see what happens with the Vector sale (and this is an actual 100% sale, not 40% with 24.9% control), given all bids are foreign. One bid is from a Chinese controlled fund and one bid from China itself (through State Grid), you have to wonder what the Government's reaction will be. Will they use the same line as for AIAL? Or will they allow it to go through as an electricity network is not such an iconic asset (note I did not use the word 'strategic') and the Government doesn't want to piss China off.

This may in fact be one reason why Cullen is not announcing a list of "strategic assets on sensitive land", so that if public sentiment does point towards not selling the network it can suddenly become such a strategic asset and the sale can be loudly rejected. If the public don't care, the sale can go through and the Chinese can stay happy (assuming the Chinese successfully bid).

Turning to Australia, Fran O'Sullivan states:

"Australian Governments of both Liberal and Labor stripes have placed clear foreign ownership restrictions on ports and airports, trading banks, and news media (this has since been relaxed.). The Australians have made clear they want to keep Qantas and major mining companies under Australian control.

But the key point is that the Australians (in the main) have clear rules or criteria for assessing applications. New Zealand used to - but now doesn't."

Things foreign investment and Chinese related look better in Australia than in New Zealand. However, there have been complaints that the Australian approval process for Chinese investments "is slowing down". The difference between Australia and NZ is that:
"the [Australian] Government was struggling to determine [the] national interest implications of Chinese investment at a time when China was worried at the prospect of a merged BHP-Rio having too much market power. Chinalco has moved to intervene by buying a stake in Rio, but its intentions remain unclear."
Crikey suggests that a majority stake in one of the big miners (the resource producers) would be totally unacceptable. A majority stake may give China (a huge resource consumer) too much power to influence resource prices (and therefore, indirectly, the benefit to Australia of its resources). The issue is therefore one of 'strategic national interest' (not that I agree that national interest should determine who can and cannot invest in an asset) unlike the issue of the sale of AIAL, which although called an issue of 'strategic national interest' was actually one of populism.

The BHP saga also goes further than just attempted Chinese acquisitions. BHP is in a complex dance with Rio Tinto trying to merge and create a super mining company. China, who will be affected by any merger as a major resource consumer, has been making strategic acquisitions in its national interest. And don't forget that these Chinese acquisitions that have been slowed down are the first foreign investment decisions that the new Labor Government has had to make. It is well aware of the precedent that it will be setting with this decision and wants to get it right.

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