Calls for calm over China's investment plans

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Calls for calm over China's investment plans
http://www.news.com.au/couriermail/story/0,23739,25362519-3122,00.html                                         

By Terry McCrann April 21, 2009 12:00am

OH my - lower case, entirely secular - god: the Chinese are coming, theChinese are coming! Forget the children, hide the corporate jewels!

The reaction to the disclosure yesterday by our sister publication The Australian, that China intended to step up its global investment diversification, varied from the laughable to the disturbingly serious.

The Australian revealed that China's national pension fund intended to "explore" further investments outside China.

Apart from the fact that even at today's depressed prices, $US80 billion ($A112 billion) – the size of the fund according to The Australian – wouldn't even buy you Tasmania, the move is entirely logical and specifically positive for us.

The easiest way to understand this is to substitute the letters A-M-P.

That's to say, imagine the AMP opting to diversify its investmentsoutside Australia. Cause for alarm that it aimed to take over the world?

Not only would it be perfectly sensible, it – and ALL Australianinvestors, including the humble self-managed super fund – have longsince been doing exactly that.

We now have more than $400 billion invested overseas.

What else are the Chinese supposed to do with their massive andcontinuing surpluses. They've already bought more than $US1 trillion ofUS government bonds.

A fund manager that suggested you keep buying more as the US budgetsinks deeper and deeper into multitrillion-dollar deficit, is a fundmanager that should be working for someone else.

Chinese redirection of its investments away from an oversimplisticoveremphasis on the US – into US dollars, into US fixed-interestsecurities – makes sense for the Chinese.

To the extent that some of it comes Down Under, all the better forus – as we continue to rely on global capital to fund our deficits andour development.

This sort of investment is also – at least theoretically, on the surface – relatively unthreatening.

It's portfolio investment seeking a return and will be spreadrelatively thinly across many companies, and many markets around theworld.

That said, we should not be naive. China is different – even to Japan of the 1970s and 1980s.

There is a risk of China Inc marshalling all its financial forcesunder different banners, to achieve objectives beyond the normalfinancial and investment ones.

Again that would be both entirely sensible and perfectly legitimate,in their own national self-interest. It's just that we also need tolook to OUR national self-interest.

And that does NOT include allowing China to place a lock on RioTinto's world class resources porfolio AND potentially influence themarkets for them.

Clearly the board of Rio, in its blind determination to continuewith the proposed deal with Chinalco, is hoping it will be saved fromits own folly by the government rejecting it.

China is our single most important 21st century relationship. In business and economic terms, it should be very beneficial.

To reap the benefits, though, we have to be both constructive and hard-nosed.