All Chinese firms are controlled by the Party

No, I did not say all Chinese firms are owned by the Communist Party; I said they are controlled by the Communist Party. Anyone who knows anything about China will tell you this. Take for example a recent episode of China: Triumph and Turmoil, hosted by one of the world's best known economic historians, Niall Ferguson. A one-man barber shop had changed hands in a small village somewhere in the back blocks of China and who was there to welcome the new owner? The local cadre, just to make sure the new owner 'understands' the rules and regulations, no doubt including the requisite 'hong bao' or 'red envelope' with some lucky money inside.

Every Chinese company, especially the major companies, have a Party structure to 'advise' the management. Some companies, for example Haier, one of the world's largest appliance manufacturers, is controlled by a trust -- and no-one knows who controls the trust. The cause of Haier's near miraculous rise from nothing to dominating China's appliance market in the space of a decade has been attributed to many factors -- none of which provide a satisfactory explanation.

In major companies, cadres will be rotated through senior management as part of their work experience in the Party, business and government. Most cadres are grossly incompetent businessmen but so what? One day they will rule China. Thus, when dealing with China, the distinction between privately owned firms  and state ownede enterprises (SOEs) is meaningless. Indeed, the idea that a private business would refuse to comply with a 'request' from the Party or government is laughable.

Economics is the management of scarcity. There is never enough of anything to go around. That includes investment capital. Australia has always been a capital importer -- first from Britain, then from the United States, then from Japan. They are countries with which we are allied. The Chinese are anxious to invest in Australia. According to KPMG in the last six years, Chinese enterprises have invested $45 billion in Australian enterprises Ninety-five percent of those deals have involved  SOEs.  Over 90 percent of those deals have involved the resource sector. The Chinese have trillions of dollars in foreign reserves that are effectively doing nothing. Many countries, including Australia, would be grateful recipients of even a small portion of those reserves.

China wants to spread its investment in Australia. On Monday, 30 July 2012, China's deputy ambassador to Australia said 'We need to expand the relationship beyond resources to finance, infrastructure and agriculture". It is noteworthy that the Chinese spokesman refers specifically to the finance sector, the first time a senior diplomat has done so to my knowledge.  

For a discussion on China's aims in the finance sector, see my previous post on 'China eyes ANZ Bank. The deputy ambassador has confirmed my position that China is looking for finance investments in Australia and  that over a long term, the ANZ Bank is a very likely target.

Investment in agricultural land by foreign owners raises hackles in the bush. According to the head of DFAT, Dennis Richardson, there is no evidence China is buying up the farm. Official data shows ownership of foreign owned farmland  had grown from 5.9 percent in 1984 to 6 percent in 2010. But as a political issue, it obviously has legs.

Tony Abbott, Leader of the Opposition, in his address to the Australian Chamber of Commerce in Beijing on Tuesday 22 July 2012 said 'Chinese investment is complicated by the prevalence of SOEs. It would be rarely in Australia's national interest to allow a foreign government or its agencies to control an\ Australian business. That's because we don't support the nationalization of business by the Australian government, let alone by a foreign one.'

This is a very long stretch of political imagination, especially as it's a very artificial distinction and one that is effectively meaningless in China's case. I would be very surprised if there weren't a great many agencies of foreign goverments operating in Australia -- think airlines, for example. Tony Abbott, like a lot of other politicians, will likely suffer a miraculous conversion on the trip to the Lodge he'll almost certainly make in a year or so.