China becomes our No. 2 foreign investor

KyaemonAugust 17, 20107min470

China becomes our No. 2 foreign investor

CHINA has shot up the ladder of Australia’s top foreign investors, jumping to second place after a flurry of mining deals by its state-controlled companies.

The Foreign Investment Review Board approved $26.6 billion of proposed investments from China last financial year, according to its annual report. This was more than triple the $7.5 billion that China spent the previous year.

In a sign of China’s ravenous appetite for commodities, 99 per cent of this investment was in the mining development and exploration industry.

The key reason for the surge was the board’s approval of a $19.8 billion investment by Chinalco in Rio Tinto, but Chinese companies also bought major assets from Oz Minerals and an increased stake in Fortescue Metals Group.

A separate ”strategic alliance” between Rio and Chinalco collapsed under commercial pressure before Treasurer Wayne Swan was forced to make a ruling on the contentious proposal.

In first place on the investment ladder was the US, which spent $39.6 billion over the year, a 20 per cent fall from $49.5 billion in 2007-08. Japan was close behind China, with $22.1 billion in investment, most of which was also in the mining industry.

Across all countries, investment was dominated by mining, which drew in $90.6 billion, making up half of all investments.

The latest figures from the board – a secretive branch of the federal Treasury – come at a sensitive time for foreign investment in Australia.

China’s thirst for mineral assets has sparked warnings that Australia is selling out to its biggest trading partner, hurting the country’s ability to profit from high commodity prices.

In response, last year the board told state-owned businesses to limit their stakes in Australia’s peak mining assets to 15 per cent.

Foreign investment has also been controversial in real estate, after a relaxation in rules led to claims that overseas buyers were pushing up house prices.

Temporary residents were also exempt from notifying the board when buying a house.

The government reversed its position last month, tightening rules for foreign buyers, but the board’s figures shed no light on this because of changes to data collection rules.

Apart from real estate and natural resources, the overall rise in inwards investment highlights the key role of mining. ”The increase in foreign business approvals in 2008-09, in both number and value of proposed investment, stood in sharp contrast to the experience of the countries of the OECD area as a whole during the global financial crisis,” the report said.