March 3, 2011 – CANBERRA (Reuters) - Australia's changes to foreign investment rules in 2009 were aimed at limiting Chinese investments in local mining companies, according to confidential U.S. embassy cables.
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Treasurer Wayne Swan on Thursday denied the rules were aimed at China, but said they were designed to clarify Australia's position on applications from foreign state-owned enterprises.
"We produced those guidelines so that we could have a set of guidelines that dealt with state-owned enterprise investment," Swan told Australian radio. "It doesn't discriminate against any country at all."
Swan in 2009 announced higher thresholds for investments that would need foreign investment approval, but he did not change the limits on investments requiring approval from foreign state-owned enterprises.
At the time, Chinese state-owned firms had several applications to take up interests in Australian mining companies. The changes came after China's state-owned Chinalco's abortive acquisition of 18 percent of mining giant Rio Tinto <RIO.AX> <RIO.L>.
The U.S. Embassy officials reported that the rule changes were a clear signal aimed at China's growing influence in Australia's resources sector.
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"FIRB (Foreign Investment Review Board) general manager Patrick Colmer confirmed ... the new guidelines are mainly due to growing concerns about Chinese investments in the strategic resources sector," the cables quote the embassy as reporting to Washington.
According to Colmer, the FIRB had received more than one Chinese investment application every week in 2009. Colmer said the measure was also meant to prevent complex investment schemes, such as proposals with loans that are convertible to equity, which sought to circumvent existing FIRB rules.
The new guidelines "clearly signal a stricter policy aimed squarely at China's growing influence in Australia's resources sector, and serves as a warning to potential investors," according to the cable.
"China is now the third-largest foreign investor in Australia, with a record 90 projects worth A$34 billion in new investment proposals over the past 18 months (from September 2009)," the cable said.
"Larger-scale Chinese financing may become harder to come by for these companies in the future," it said.
Global miner BHP Billiton <BHP.AX><BLT.L> and Rio Tinto each count China as their biggest markets but relations with China have sometimes been tense, especially in the iron ore market which Rio Tinto and BHP Billiton dominate along with Brazil's Vale <VALE5.SA>.
Tensions peaked in 2009 when Chinese steel producers failed to clinch an annual pricing deal and a Shanghai court jailed four Rio Tinto employees, including Australian citizen Stern Hu, for stealing commercial secrets and taking bribes.
Their arrest at the height of fraught 2009 iron ore price negotiations strained ties between Australia and China, and shocked the Chinese steel industry.
(Reporting by James Grubel; Editing by Ed Davies and Bill Tarrant)