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Re: INSIGHT - CHINA/AUSTRALIA - General observations and Sino-Oz relations - CN65

Released on 2012-02-29 14:00 GMT

Email-ID 976931
Date 2010-09-28 16:43:59
probably two things

1) capital flight - into things like bonds, real estate and such --
non-FDI investments -- most of this is probably NOT from the major

2) resource acquisition - one of the nice things about china's financial
model is that there is little return for making a profit, so spending $4
billion for a $2 billion asset is considered a-ok

there can obviously be overlap as anything that is a 2) is certainly
considered a reliable hard asset that is out of the country

On 9/28/2010 9:02 AM, Antonia Colibasanu wrote:

In response to some of Matt's queries. We were talking the other day
and he noted that the Chinese seemed to be investing in anything and
everything. We had a lively discussion on whether or not this was an
indication of capital flight. He thought it wasn't this as much as it
was the attempt to put the money in a place far away from government
control. But he did concede that there could be some element of capital
flight insofar as there was nothing with high ROI in China. Although he
argues that there are plenty of projects to invest in in China, but it
isn't about opportunity as much as it is ROI. To that though he pointed
out that the Chinese really weren't all that interested in ROI in their
overseas investments either, although it was a nice bene. We have
argued in the past that their primary concern is supply-line security,
which I think is still correct, but they are investing in projects in
Australia recently that the source argues does not do much to secure
supply-lines. At any rate, this is a bit of an extension of this
conversation in relation to Matt's recent questions. Sources responses
are in red.

ATTRIBUTION: Australian contact connected with the government and
natural resources
SOURCE DESCRIPTION: Former Australian Senator. Source is
well-connected politically, militarily and economically. He has become
private businessman helping foreign companies with M&As
PUBLICATION: Yes but with no attribution

So there are a couple of things that we are watching. China's foreign
policy seems to have become considerably more feisty in the past year,
and there are basically two theories for explaining this behavior: a
centralized theory (in which more assertive foreign policy is being
generated at the top central leadership) and a de-centralized theory
(in which Hu Jintao and the central leaders are seen as weak, and
powerful forces within China are each pushing their own interests
internationally). In the latter theory we hypothesize that there are
different elements within the Chinese system (such as different
ministries, outward-looking SOEs, and the PLA) pushing their
interests, leading to more assertive behavior on several fronts, but
that these are relatively uncoordinated and not necessarily following
orders from the central leadership.

What are your thoughts? This touches on our last convo of the varied
companies that are combing Oz for investments. Any more thoughts on
this appreciated.

I'm noting an interesting trend in that there are fewer big investments,
and more "non-traditional" investments, such as real estate. I describe
these as non-traditional, in that most investment has, hitherto, been
aimed at achieving resource security or resource sovereignty (the
Chinese have never been good at distinguishing the difference). Now,
the investments seem very different, and are aimed at things which are
simply financial. The question is why are they doing this?
I think it is decentralised, and based on the objectives of the elite in
control of state owned companies. If this is so, it leaves serious
doubts about the authority of the NDRC, which is supposed to vet
outbound investment. The alternative is that NDRC remains strong, but
that this investment is made with hard currency that never came onshore.
I specialised in washing this sort of money in Latin America 20 years
ago, and there are lots of ways of doing it.

On a similar note, what do you think about the progress and
limitations of Sino-Australian defense ties, especially in regards to
China's seemingly new assertiveness mentioned above? Is there any
coordination with the Americans when Australia holds talks with
Chinese military and defense officials? How do the Australians
perceive and plan to respond to the increasingly active Chinese
foreign policy in the Pacific islands?

Generally Australia takes a dim view of others messing around in our
backyard, even the New Zealanders. You can guess the attitude to China.
I don't know about talking to the Americans. The PLAN thing was noted
last week, but there have been various exercises with them, and these
make sense to an extent, since we have a shared interest in protecting
seaborne trade between the two countries, especially ships passing
through the Malacca Straits.

Jennifer Richmond
China Director
Director of International Projects
(512) 744-4300 X4105