Australia is walking a fine line over Chinese investment in its natural resources. It has approved Chinalco’s recent purchase of a minority stake in Anglo-Australian miner Rio Tinto, but said any further share purchases will require prior approval. Nor can Chinalco have a seat on Rio’s board, Wayne Swan, Australia’s Federal Treasurer, ruled on Sunday.
State-owned Chinalco, along with the U.S.’s Alcoa, has been buying what they say is a target 14.9% stake in Rio, the subject of a $164 billion takeover bid from BHP Billiton. The pair said in February that they had paid $14.1 billion for a 12% stake in Rio’s London-listed shares, or 9% of the total group. As a consumer of iron ore in particular, China doesn’t like the prospect of so much supply being concentrated by the merger of the world’s no 2 and no 3 products.
Approval of the share purchases to date was expected, despite some muttings that Australia was leaning towards backing off its open-to-foreign-investment stance. The Australian government does seems to have used the ruling to set a ceiling on what it it considers an acceptable level of Chinese investment, and that may mean Chinalco won’t end up with a large enough shareholding to have a material affect on the outcome of the Rio-BHP bid.
The other point in all this is that while China is still an important market for Australian natural resources, taking 20% of Australia’s output, Australia is getting relatively less important as a supplier as China’s needs continue to grow and China’s companies turn to mines in Africa and South America. Rio and BHP operate on those continents, too. The Australian government may be walking the wrong line.