AIID is a positive initiative

Comments on Andrew Elek “The potential role of the Asian Infrastructure Investment Bank”, 12/02/2014, http://www.eastasiaforum.org/2014/02/11/the-potential-role-of-the-asian-infrastructure-investment-bank/

From reading this article by Andrew Elek, the AIIB is largely if not exclusively an initiative by China. It is understandable that China has made such an initiative, given China's economic size, huge savings including foreign exchange reserves and its experience in economic development and infrastructure investment/building, as well as the needs from the region.

It is a positive step from China to contribute to a better Asia and APEC.

It also appears that such an initiative may also reflect China's desire for reforms to existing international institutions and the difficulties that it has faced in that direction.

It is not very clear from the article, whether AIIB will be a Chinese state bank, a private bank with some support from the Chinese government, an international institution or other types of institution/organisation, even though the articles seems to imply the form of AIIB is likely to be dependent on consultation and negotiation China has and will have with APEC members and other interested or potentially interested parties.

The broader the shareholders or stakeholders of the AIIB, the better its influence is likely to have. On the other hand, decentralisation of the governing structure may have implications for decision making.

An appropriate balance is needed to make the AIIB most useful to and beneficial for the region.

China's urbanisation and fixed investment

Comments on John Lee “Don't buy China's growth mirage”, 24/05/2010, http://www.businessspectator.com.au/bs.nsf/article/china-economy-fixed-investment-urbanisation-migrat-pd20100520-5m6hl?opendocument&src=blb&

I have some questions for John Lee in terms of urbanisation in China.

If urbanisation is not what it is understood earlier by us here, then what did the investment go and what purpose did it have in Chinese economic growth?

If it was not quite the case in the past, will it be in the future?

Isn't that the case that China starts to reform its household registration system to loosen the limit on rural people to move to urban areas?

Further, what is urbanisation? Isn't a change from rural villages to urban towns or small cities part of that?

In short, please define urbanisation and clarify where China's huge fixed investment has gone.

Overhaul the policy of foreign investment

Comments on David Llewellyn-Smith “THE DISTILLERY: China silence”, 25/09/2009, http://www.businessspectator.com.au//bs.nsf/Article/THE-DISTILLERY-Wheres-China-pd20090925-W7VG4?OpenDocument

I agree with the second paragraph completely.

The federal government needs to have a strategic review of its policy on foreign investments in general and its approach to Chinese investments in particular.

There needs to be transparency in this area to contribute to national interest.

The obscure ways and approach by the foreign investment review board is incomprehensive and incomprehensible. And there is a legitimate question on its competency to do a proper job.

There should be an urgent overhaul of the nation’s foreign investment policy that dated back to the cold war era.

Stern Hu, Chinese steel industry and Sino-Aussie relations

Comments on Peter Yuan Cai “The China ‘spygate’ affair and China’s steel industry chaos”, 19/07/2009, http://www.eastasiaforum.org/2009/07/19/the-china-spygate-affair-and-chinas-steel-industry-chaos/

There has not been much official information from China regarding Mr Stern Hu case that has frustrated many in Australia, including the foreign minister and the prime minister probably. So most if not all people have to speculate on what is happening according to own thinking and draw own conclusion. That is regrettable, to say the least.

On the one hand, it may reflect the complex and different Chinese legal system and the varying interpretations and difficult implementations of that legal system. On the other, it may also be a very complex situation, likely to be much more complex than most people have thought, that China has been in recent time, with potentially very broad implications.

If I were to speculate, I would link this to a wider context, like China’s (and other big developing economies too) demand for a more equal recognition and treatment in world economic affairs, such as IMF voting weights. Further, China also appears to be seeking to broaden international reserve currencies.

Reports have said that China officials say China treats Mr Stern Hu case as a business case and state that it will not affect China Australia relations. That may be the official line spoken in the open, just like the Australian Prime Minister and Treasurer said openly after the collapse of the Chinalco Rio deal that it was a business case and Australia welcomes Chinese investments in Australia.

Are there any unofficial lines that have not been spoken openly here in both countries? Or are there any different interpretations of what have happened, or at least misunderstanding of what have happened in both cases? What are happening below the table? Were they kicking each other?

In the case of the international iron ore market, China is the largest iron buyer, but it has not been treated as such, with the help of people who understand “how to deal with the Chinese”, such as using the tactics of “divide and conquer”. As some commentators have said, it may be difficult to be sure whether one has crossed the line between what is legal or illegal in pursuing business dealings that often can involve gifts and bribery and possibly more.

In terms of the Chinese steel industry, the “wars” between large steel firms and small ones can occur from time to time. When the economy is booming and demand for steel is strong with supply shortage, many small steel and mining firms spring up like new green shorts, and presumably making some profit from high steel and iron ore prices. But when the economy slows and demand for steel exceeds supply, the industry body and the government would like to close some small firms they say are inefficient in energy and intermediate inputs consumption and produce low quality products and damage the environment.

There are people who profit from the market conditions and make a lot of money. Many people here would say, why not, it is entrepreneurship, right? However, it is a situation in China where and when corruptions can occur and law and regulations can be breached.

It is a complex issue. In a reform era and constantly changing environment, what is appropriate and inappropriate today may be different tomorrow. Otherwise how can reforms be undertaken?

Most people involved may be lucky enough not being caught. But from time to time some of those people are caught by a crack-down by the authorities.

It cannot be said that China’s legal system is perfect. So such a system exists. One has to live with that system if you deal with China, although people may ask that China improves its legal system.

It is not unusual that corruptions and briberies may happen in China. In fact, it is more prevalent than in Australia. Some involves very high level officials.

Many Australians assume that Mr Stern Hu have not involved in appropriate business dealings in China. That is a still open case. Australian politicians have tried to use political pressures on China.

Maybe that is what China like to see them to do and also to show them it is not working.

As Paul Kelly’s article in The Australian on Saturday says it is a tussle that we cannot win and China may want to dictate the relationship.

We Australians need to treat the Chinese fairly and equally. We cannot continue to assume that they can be treated as second class people internationally and they will accept that. We cannot assume that we are better than playing games than the Chinese are.

I have said before that it is hard to know which side will win if strategic gaming is played out between the two governments.

Way over the top, Mr Gottliebsen!

Comments on Robert Gottliebsen “Unpleasant truths about China”, 13/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/Unpleasant-truths-about-China-pd20090713-TVRZW?OpenDocument&src=sph

Robert, although you should be respected for your knowledge of the Chinese, you appear way over the top by linking what occurred in Xinjiang to Mr Stern Hu issue. Good imagination, although most likely speculation, I am afraid. To say that China is now under unprecedented pressure of civil war in Xinjiang probably ignores the facts that there can be many civil unrests in China.

For the other potential trigger you mentioned, there might be some truth, even though that cannot escape as speculation either at this stage.

Why do you assume that the Chinese have got the detention of Mr Stern Hu wrong? Even the Australian foreign minister does not know details of the matter, then how are you so sure and do you think you know better than the minister? Is that you have some information that the minister does not have?

On the matter of the Chinalco matter, you say that both the Australian government and Rio Tinto contributed to the current situation by the way they handed Chinalco. Why do you think both of them got it wrong and you got it right on such dealings? Why was the Rio board inferior compared to you in managing its business?

You also say that Stern Hu has played a remarkable role in maximising the returns for Australia from the mineral boom – something from which all Australians have benefited. That may be correct, and as an Australian, I should be grateful to Mr Stern Hu too. However, while we may have benefited from his work, if he really breached the Chinese law, what should we do in that scenario (and the Chinese say it is that scenario)? We should blame the Chinese just because Mr Stern Hu has benefited us? Don’t you think that is a bit unjust and selfish? If we did that, aren’t we hypocritical?

You blamed Rio and the Australian government. You seem to have forgotten what you advocated at that time for the Australian government to price out Chinalco. Why don’t list this as a trigger for the Chinese detention of Mr Stern Hu?

Australia prosecutes some businessmen for their misconducts every year. Why shouldn't China do the same? Why should China stop if Mr Stern Hu, a Chinese Australian businessman is involved?

Less intimidations and more facts please

Comments on Alan Kohler “Chinese business in chains”, 13/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/Chinese-business-in-chains-pd20090713-TVT2N?OpenDocument&src=sph

Alan, many people in Australia appear to assume that Mr Hu is completely innocent and his detention by Chinese National Security Bureau is arbitory. As a result, many are arguing for his release. That is understandable from Australian’s point of view.

But that is a big assumption and does depend on that the assumption is correct. At this stage there is no evidence to suggest that assumption is correct or not, apart from speculations, or political and business intimidations.

Do we like other nationals to violate Australian laws without any consequences? Or, any lawful prosecutions should not be done, because other businesses may get scared? Scare of what, if they obey the law and conduct their business lawfully?

Australia is not the master of the Chinese and we can’t tell the Chinese how they should conduct their business. It is not only we don’t have the power, but also morally wrong for us to dictate another nation.

At this time, I am not sure you still remember that your colleague argued that the Australia government should impose special terms for the proposed Chinalco Rio deal so that it is unattractive to the Chinese? Don’t think that went a little too far? It would have been much better to leave that matter for Rio’s shareholders’ vote to decide. That may have the same outcome but with fewer hostilities exhibited by us towards the Chinese, isn’t it right?

The case against Mr Hu and Australia China relations

Comments on Glenn Milne “Case calls for Kevin Rudd to ring his China plate”, 13/07/2009, http://www.theaustralian.news.com.au/story/0,25197,25769691-33435,00.html

It appears that Rudd is dealing with a complex China. It may also be the case that China has been dealing with a complex Rudd.

The Australian white paper of defence implicitly sets China as a threat and the excuse for increasing military spending substantially, in the context of a potentially waning US. Irrespective the assumptions are correct or not, that certainly did not send a signal that Rudd and Beijing are close and special friends.

Then there was the Australian government a series shows in the context of a number of Chinese proposals of investments in Australia. New measures regarding foreign investments were introduced immediately after some Chinese investment proposals. Special and strict conditions which are possibly unacceptable to many foreign investors were imposed to approved Chinese investments in Australia. Then there were delays in completing the government’s review of the Chinalco proposed investment in Rio, that could be construed as a tactic to give Rio more time to ride out the share market turbulence and change the relative attractiveness of the Chinalco proposal. In the end, the Chinalco Rio deal failed not by shareholders vote but by the Rio board’ rejection, after months saying that the Chinalco proposal was the best for Rio.

One would wonder what role the Australian government under Rudd played in all those issues regarding Chinese investments in Australia. The Chinese may not be as stupid as we Australians think they are. Also, if the Australian government and big firms can play games with the Chinese, the Chinese may also be able to play some games back. Which side will have the upper hands is dependent on one’s interpretation. It seems the Chinese may have a different interpretation from the Rudd government and Rio.

Now there are reports that the case in which Mr Hu was caught has been approved by Chinese President Hu Jintao. The case now becomes Mr Hu versus President Hu. This, and the timing of the case, whether it was coincidental or deliberate, raise a number of questions for Australia China relations, not just now but long into the future.

Monopoly and strategic gaming - please be realistic about it

Comments on Harry Clarke “More on Rio, BHP-Billiton & Chinalco’s rejected love”, June 2009, http://www.harryrclarke.com/2009/06/09/more-on-rio-bhp-billiton-chinalcos-rejected-love/

People are talking about the monopoly issue and the Cournot Nash model just like they can be applied anywhere without a need to be modified. It is laughable for such a naivety.

Don’t you think it might be more appropriate to use a strategic model of strategic gaming by monopoly and monoposony (not sure the spelling is correct)? There is a need for a little bit more advanced economics, perhaps. Let’s be more realistic.

China is much bigger than Australia. It is unlikely that Australia will benefit from strategic gaming with China. So it may be in Australia’s interest not to play that game and build trust with the Chinese to benefit both.

Just thinking one side can move and the other side, the bigger one doesn't is misleading to not only other people, but self-cheating as well. Let's be mature, alright?

A lesson from the failed Chinalco Rio deal

Comments on Peter Yuan Cai “Chinese media’s response to the Rio-Chinalco deal”, 12/06/2009, http://www.eastasiaforum.org/2009/06/12/all-quiet-on-the-eastern-front/

While I have been critical to the Australian government's handling the matters regarding to Chinese investments and some commentators and politicians fanning ignorance and hostility towards such investments, I came to realise that the Chinalco - Rio deal was probably made a bit too complex to look attractive to more people.

Some Australian commentators say it was too complex, including more than 600 pages documents and involving complex transactions. In hindsight, maybe a less complex deal would have been much better.

Starting with complexity and failure was not good for confidence building on both sides. Maybe that is a lesson for all involved. Of course, how to manage issues involving the politics and public relations in Australia by Chinese investors remains as important as ever, if not more so.

It is also important investment that Chinese investors need to make. Investing wisely and having good returns to such investment will benefit both sides. It is in both sides' interest to foster such investment.

Australia and China after the collapse of the Chinalco - Rio deal

Comments on Peter Drysdale “Australia needs to get its act together on China, and fast”, 7/06/2009, http://www.eastasiaforum.org/2009/06/07/australia-needs-to-get-its-act-together-on-china-and-fast/

Peter Drysdale's article is encouraging in the wake of the fell-over of the Chinalco – Rio deal. Drysdale is one of a small number of Australians who have much better understanding of Japan, China and East Asia and their real significance for Australia and has both the experience, first hand knowledge and the analytical capacity to analyse such issues. Unfortunately, knowledge and rationality do not necessarily always prevail in a society, whether it is a democratic one or not.

The failure of that deal was hailed by many in Australia, as Drysdale implied. That is unfortunate, for both China and Australia. China may feel having been fool-played by the Australian government due to its prolonging its review process of the deal and being stabbed at the back, by some elements in Australia, including the Rio Board.

As a Chinese Australian, I hope China can view this incident as merely a blip in the expanding and beneficial bilateral relationship between the two countries. Leaving any disappointment and upset aside, neither China nor Chinese firms should retaliate against this incident, by countering with strategic playing, even though the Chinese may have greater leverage due to larger size. It will harm rather than benefit the interests of both sides, including China. Greater leadership and statesmanship need to be shown and displayed.

While there are lessons for Australia, China and Chinese companies should learn something from this incident and be more subtle in their approaches to investing in Australia. They need to take into account the political reality in Australia and the knowledge and understandings of Australia to adopt the most appropriate strategies and tactics in doing business with Australia and Australian companies.

The unfortunate delay of the Australian government review process and some media displays may be interpreted by some as Australia played a strategic game against Chinese firms and China. Some may think that the delay by the Australian government may have resulted in a few factors that caused the deal to fail.

First, it extended the timeframe for the equity market to bottom out and to recover, so the deal may be seen less or un-attractive to Rio. The market did just that. The risk for Rio’s survival has greatly reduced and it is breathing much easily now.

Second, the Australian government may have influenced Rio Board to ditch the deal with Chinalco and to join hands with BHP, as the event finally played out. Rio’s Chairman’s remarks, that they received feedback from investors AND regulators about the deal, may be perceived as an implicit admission, though he may have been innocent in saying that and did not mean to sell the government out.

Third, the facts of the changes to the criteria regarding foreign investment in Australia by the Australian government immediately following the announcement of the Chinalco – Rio deal and the conditions imposed to earlier approvals of other deals with Chinese firms may have strengthened the impression that the Australian government has not been fair to Chinese investments in Australia.

Australian Prime Minister, Kevin Rudd should have more expertise on China. It, however, can be a double edged sword. Already, as some Australian media reports suggested, some Chinese analysts and commentators already voiced that Chinese may feel it is more difficult to deal with Rudd as compared to Howard, ironically. The underlying message may be that because Rudd understands the Chinese more, he is aware of their weaknesses and knows how to play them to Australia’s advantage at the expenses of the Chinese. Whether it is misunderstanding or something else remains to be seen.

Be rational - we are not monopoly in minerals!

This is comments on Professor Christopher Findlay's article on Public opinion on Chinalco’s investment in Rio Tinto April 19th, 2009, on http://www.eastasiaforum.org/2009/04/19/public-opinion-on-chinalcos-investment-in-rio-tinto/ I put it here, since it looks at the issue from another angle, often seldom mentioned in the media or by politicians.

While it is perfectly normal to have a range of views, some even very influential at high levels, especially when the issues involved can stir up strong emotions and the real interests are ill defined or difficult to define, one needs to realise an important point that the world mineral market is reasonably competative and Australia does not have the monoply power over world natural minerals, even though it is a very important player.

The Chinese investors want to invest in Australia when they see value in such investments. Equally, they will want to invest in mining in other mineral rich countries when they see value in investing there. Further, if they are not allowed to invest in Australia when they have the fund to do so, they can and probably will move to other countries, although it may be a second best outcome to them.

As in all investments, investors move down the ladder of investment opportunities, starting from the highest return to the point either their funds are exhausted completely or the benefit from such investment equals the cost of their funding at the margin. So although they may be dispointed if their applications are disallowed, they will move on to find other opportunities outside Australia.

After the dust of high emotions finally settles, one has to live with the hard and sometimes maybe very uncomfertable reality, bearing the consequential benefit or cost.