The China opportunity

Published on
October 14, 2012

China’s seemingly insatiable demand for minerals and food has been driving a new global wave of Chinese Outward Direct Investment (ODI) with Australia a key target.
Over the past six years to June 2012, Australia has become the biggest single destination for Chinese ODI worldwide, with investments totalling more than US$45.1 billion, according to an updated report by KPMG and University of Sydney China Studies Centre (August 2012).

Western Australia and Queensland have snared the lion’s share of Chinese investment in Australia equating to about a 30 per cent share each and focused mainly on thosee State’s lucrative mining, energy and agribusiness assets.

However, China (including Hong Kong) represents only about three per cent of total foreign investment in Australia, with traditional source countries such as the United Kingdom, United States of America, Japan and Korea still accounting for most of Australia’s foreign capital.

Yet these private and state-owned Chinese enterprises have been facing heightened community, political and media scrutiny.

The Lowy Institute 2012 Poll on Chinese investment showed more than half (56 per cent) of Australians say ‘the Australian government is allowing too much investment from China’.

These perceptions have been fed by a number of high profile takeover bids by Chinese investors including:

  • Agribusiness – the recent Cubbie Station purchase by Shandong RuYi and COFCO’s purchase of Tully Sugar last year
  • Mining – hysteria over Chinalco’s failed investment in Rio Tinto and the FIRB rejection of the takeover bid by Minmetals of OzMinerals on national security grounds
  • ICT – Australian Government rejected a bid by Huawei to take part in the rollout of the National Broadband Network because of fears of Chinese espionage.

Bridging the cultural divide

Rowland’s Director of Agribusiness, Brendan Egan said while there is a growing economic relationship with China, for Chinese investors to succeed in Australia they will need to better understand and develop their social licence and engagement with the Australian community.

Brendan said the level of public and media scrutiny in the Australian business environment is very different to that experienced in China, especially by the state-owned enterprises.

“The real challenge for Chinese investors is to recognise these differences and to adapt their investment strategy and expectations in order to succeed in the Australian context,” he said.

As the KMPG and University of Sydney China Studies Unit report (November 2011) highlighted, Chinese companies need to ….bridge language and cultural divides, comply with unfamiliar and sophisticated regulatory standards, acquire local market knowledge, manage local staff, negotiate with organised labour and other stakeholders, reach higher quality and safety standards, adhere to different tax and accounting rules and develop appropriate communications and public relations strategies.

Similarly, Brendan said Australian companies and professional service providers to Chinese investors needed to play their part, engaging and assisting Chinese businesses to succeed in Australia.

Rowland experience

For 20 years Rowland has helped foreign investors to understand and bridge the cultural and business divide, and increase the value and success of their Australian investments.

Brendan said Chinese investors need to recognise that managing reputation risk is just as critical as the legal, tax and audit risks associated with their foreign investment, and investors need to have a strategic communication and stakeholder engagement plan to support their investment strategy in Australia.

Rowland is also supporting the efforts of its international affiliate FleishmanHillard, which last year established a specialist China practice team to assists Chinese investors in overseas markets, including Australia.

While the level of Chinese investment in Australia relative to other sources of foreign capital may not be historic, the level of public and media scrutiny remains intense, and Chinese investors need to consider and manage this risk as part of their investment strategy.

Sources:

Lowy Institute 2012 Poll – Australia and New Zealand in the World – Public Opinion and Foreign Policy, Fergus Hanson, Lowy Institute for International Policy (June 2012)

KMPG and University of Sydney China Studies Unit report (November 2011) – The Growing Tide: China outbound direct investment in Australia

KMPG and University of Sydney China Studies Unit report (August 2012) – Demystifying Chinesse Investment: China’s outbound direct investment in Australia.