25 Mar 2013

Digging Deep: Exploding some myths about Chinese investment in the energy & resources sector

There are quite a few myths about Chinese investment, says Jonathan Li from our Energy & Resources group, but most don't withstand any scrutiny.

Digging Deep: Exploding some myths about Chinese investment in the energy & resources sector
Jonathan Li, Partner, Clayton Utz

I think the findings relating to the frequency of which the Australian Government intervened using its powers under the Foreign Investment Regime were quite surprising. Of the 196 announced investments they only intervened in 17 instances and only three of them resulted in an outright rejection. I think whilst there is a lot of informal consultation that occurs prior to the submission of formal applications, these findings do put to bed some of the concerns raised by Chinese investors that the Foreign Investment Regime is a barrier – certainly a hurdle, but it is certainly a hurdle that can be managed.

I think the empirical evidence of the number and value of the investments made by the Chinese investors and the nature of the assets acquired and the way they manage these investments after they have acquired the assets would counter the perception that Australia is selling the farm.

Firstly in terms of the value of investments made, in total we identified it was $50 billion. That's $50 billion dollars – in the context of the total value, the market capitalisation of the top 100 companies in each of the mining and minerals sectors and the oil and gas sectors on the ASX it constitutes only 10% of that. When we then consider that a lot of Australia's major projects and energy and resources assets are not owned by companies that are listed on the ASX I think we can say that the $50 billon of Chinese investment will constitute considerably less than 10%.

There has not been (other than Century mine which was acquired by Minmetals and now owned by MMG) any assets that could be described as large tier 1 low cost, long life and producing that have been acquired. And then finally even when the Chinese make the investments they rely on Australian management teams to manage a lot of the investments so we can't really say that there has been leakage of knowledge or experience.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.