Downer: Rio's time to talk?
As former foreign minister Alexander Downer prepares to travel to China for the first time since the incident involving the arrest of several Rio Tinto employees, including Australian national Stern Hu, he tells Business Spectator's Isabelle Oderberg:
Isabelle Oderberg: I understand that you were part of the consulting team that worked to help Minmetals secure Australian government approval for its bid for OZ Minerals. Is that correct?
Alexander Downer: Well, our firm did. [Bespoke Approach]
IO: Well, I was just wondering if you could tell me a little bit about what the experience was like and what were some of the things you had to overcome?
AD: Well, I don’t really want to go into it all, but you know obviously they sought FIRB [Foreign Investment Review Board] approval for their takeover of OZ Minerals and that wasn’t a very smooth process, because the application for the Prominent Hill mine was rejected, but they then repackaged their bid and bought out the best of the OZ Minerals assets and it all turned out quite happily in the end and everybody was pretty satisfied.
IO: And through your work with Minmetals, are you getting other enquiries now from other Chinese companies that are looking to come into Australia?
AD: Yeah, well, I don’t know whether it’s through that or through the fact that obviously we have a lot between us all, between the three of our partners. We have a lot of contacts with China, not just me, but we have a lot of dealings with China in all sorts of ways and have over many, many years particularly Nick Bolkus and me, so it makes sense for us to do work in relation to China.
IO: Later this week you're going to be speaking at a conference in China for the China International Mining Group. One of the topics you’re going to be speaking about is the future of Chinese investment in Australian resources. Obviously that’s quite a broad topic, but could you just give a little bit of insight into how you see that progressing? There have been some hiccups in recent let’s say the last 12 months or so. Do you expect the process to be smooth or do you think there’ll be more speed bumps to overcome?
AD: Well, no two cases are identical and so there are circumstances surrounding the different proposed Chinese investments will always be different. I think it’s worth recording in China that inherently there isn’t any Australian hostility to Chinese investment in Australia and in assets in Australia. There’s a view that that an inevitable evolution of an open economy that you would get investment from a country like China into Australia. There’ve been some issues with the Australian government, both the present one and the past one, over state-owned enterprises investing in the private sector and the extent to which state owned enterprises operate completely separately from the Chinese government or the extent to which they don’t. That’s obviously an issue which is of some interest to the Australian governments past and present. But in a broader sense there’s a natural complementarity between the Australian and Chinese economies and that is inevitably going to lead to some continuing increase of Chinese investment in Australia and on balance that will be welcomed in Australia.
IO: There is a fear in the market about the alignment of state-owned enterprises and political objectives of the Chinese government and the Australian government has its own political objectives in protecting its very important resources sector...
AD: Well, it’s not very important if you don’t sell them.
IO: That’s true, but the issue is the merging of some Chinese firms as both customer and owner.
AD: Well, the question is the extent to which buying assets in Australia, any customer including the Chinese could distort the market for those commodities and divert assets to their interests at the expense of the maximising returns for the industry, but you have to look at on a coast-by-coast basis to see whether there is any possibility of that happening in the particular proposal. The Chinese naturally enough – people should understand this – are really interested in is secure supplies of raw materials and they obviously know prices go up and down, but they want security of supply. They don’t want to feel supplies will veer off somewhere else and they’ll suffer from shortage.
IO: The issue isn’t just supply. This issue’s also price, isn’t it surely?
AD: Yeah and from Australia’s point of view we just want to make sure that market prices are paid for our commodities.
IO: But if the state-owned enterprises are buying in on the supplier side, then do you think that the Australian government has any cause for fear?
AD: Well, it hasn’t happened so far, but it’s obviously been an issue that they’ve been monitoring for some years.
IO: If you were asked to give advice to a Chinese company for how to approach a deal to buy into an Australian company here or commodities producer or supplier, what would you suggest? What would be the key strategies for success?
AD: I think the key is transparency, being up-front, making it clear what their interests are and what their medium and long term plans are with the investment in Australia and, you know, obviously taking into account the market nature of the Australian economy and that we want the economic relationship between Australia and China to be a market based relationship, so all of that would be important. They need to take all that into account.
IO: How has the situation with Stern Hu changed the landscape?
AD: I haven’t been to China since that’s happened, number one, so I don’t know is the honest answer. I mean it’s a big media story. Just because something’s big in the media, doesn’t really mean anything in Australia. I will be meeting with Chinese officials while I’m in China and so it’ll be interesting if they raise it or talk about it or if there is discussion about it. I'll get a better sense. I don’t know. Is it stopping Chinese investment in Australia? I shouldn’t think so. Is the political relationship fundamentally changed? No, certainly not.
Australia has a lot of very big interests in China and China has pretty big interests in Australia, so you know to be frank with you I don’t really know enough about this case and the efforts to try and find out. I haven’t made great efforts to find out, but the company Rio hasn’t wanted to tell us, so given that they don’t tell us anything about it, we don’t really know. And there’s no reason why they should, by the way, but if they don’t want to tell us, well then there’s not much we can do.
IO: There’s been a lot of to-ing and fro-ing over who needs whom more and therefore who holds the greater position of power. What’s your view?
AD: Well, that’s not like five to four or something like that. It’s not a game. We have complementary economies, so China needs access to raw materials and it needs reliable partners, reliable sources of supply. It has of course a range of choices, but it needs reliable and competitively priced sources of supply and Australia is proving to be a very reliable and competitive source of supply for the time being, so they’ve been on the whole pretty happy with that relationship with Australia. On the other hand, from Australia’s point of view, we need markets. Of course we have options for markets, Europe, Japan and so the list goes on, but China is of course a fast-growing and a good market for us as well. It’s not a question of who is the more important. It’s that we’re both important to each other.
IO: You said that the Stern Hu case wouldn’t make fundamental change within the Australian/Chinese relationship. There seems to be a lot of questioning now over what constitutes a state secret and that’s where part of the argument about dealing with state owned enterprises comes in because…
AD: But we’ve been dealing with state-owned enterprises for decades in China – since the 1970s. So this is one incident that has arisen, but we have done tens of thousands of transactions with China over the years. The argument here is: has China decided to do something fundamentally different and is this an indication that they have? Are they going to start going around arresting business executives left, right and centre or is that the plan? And I think the answer to that, is that that is not likely to be the plan. So, what has happened in this case? See, the facts are going to be the key to understanding this case and bearing in mind we don’t know what the facts are if the company doesn’t want to tell us which is fair enough. I’m not saying they should, I’m not being critical of them, but it’s hard to know whether this case is as you would say it’s sui generis. It strikes me that it is sui generis [unique in its characteristics]. It may or may not be unfair, but it does strike me as being sui generis.
IO: But you don’t think it’ll inject any fear into the Australian businesses that are working with China or doing business there?
AD: There’s no sign of it so far. You can get people to say oh well it certainly makes us wonder, but I don’t think fear is the right word.
IO: What would the right word be?
AD: Interest. 'And what’s this all about?' I think they’re very interested in that. What’s the story here? But you know it’s hard to know.
IO: Thanks so much for your time.
AD: Ok. Good on you. Nice to talk to you.
Related Industry Sectors
Related People