China's Dirty Money

Nose to the Window for China
By Nisha Gopalan

No matter who becomes the next occupant of the White House, it's already clear that it will be tougher for Chinese companies to make acquisitions in the U.S. and elsewhere in the West.
Chinese companies have ramped up outside purchases amid a slowing economy at home, but they are finding a bigger push-back from politicians in their target markets. 

U.S. lawmakers have expressed strong concern about Chinese acquisitions in Hollywood and urged the Treasury Department to reject the $1.1 billion takeover of Aleris Corp., a Cleveland-based aluminum firm, by China Zhongwang Holdings Ltd. 

That came a week after once-welcoming Germany withdrew its support for the 670 million euro ($743 million) purchase of chipmaker Aixtron SE by a unit of Fujian Grand Chip Investment Fund LP.
Even as Chinese companies hone their sophistication in global dealmaking, it's looking as if there's not much left beyond Switzerland and Mediterranean markets like Italy and Portugal.
Scrapped Chinese overseas acquisitions are hitting levels not seen since 2009, when the world was reeling from the global financial crisis and mainland buying of overseas commodities and related companies was on a tear. 

On the Scrap Heap
The value of rejected Chinese acquisitions overseas is approaching the record level it hit in 2009, when China was on a commodities buying spree

Note: Several big China commodity deals were scrapped in 2009, including the Aluminum Corp. of China's $4.1 billion bid for a majority of Rio Tinto and Sinochem's $3.7 billion bid for Australia's Nufarm. Cnooc's $19 billion Unocal bid was rejected in 2005.

The U.S. has always been a tough market for China, which was made clear when regulators spurned oil giant Cnooc's almost $19 billion bid for Unocal more than a decade ago. 

But that hasn't stopped companies from trying, even as the list of spurned deals this year grows. 

For example, Anbang Insurance Group Co.'s $14 billion offer for Starwood Hotels & Resorts Worldwide Inc. earlier this year, scuttled in large part by opposition in Washington, is the second-biggest terminated Chinese transaction in the U.S.
As that deal indicates, opposition is moving beyond military-related, energy and infrastructure purchases. 

Technology options are also increasingly out, led by Tsinghua Unigroup’s $23 billion rebuffed attempt to acquire Micron, which would have been the largest Chinese overseas takeover at the time. The company also backed out of a $3.78 billion deal to invest in disk-drive maker Western Digital Corp. 

Other abandoned deals include a lighting unit put on the block by Royal Philips NV and Silicon Valley stalwart Fairchild Semiconductor International Inc.
The U.S. push-back has even expanded into so-called soft power like media. 

Tycoon Wang Jianlin, who has set his sights on Carmike Cinemas and finalized his acquisition of Golden Globes producer Dick Clark Productions, faces political accusations of being the vehicle for China's takeover of American cultural trophies.
Opposition isn't limited to the U.S., either. 

Until the approach for Aixtron, Germany, while increasingly sensitive to Chinese purchases, seemed ready for China's business despite rumblings about the sale of robot maker Kuka AG. 

That openness is going to be increasingly rare.
Australia, long a source of cheap commodities and utilities and highly dependent on trade with China, joined the chorus this year, blocking a bid last month from mainland Chinese buyers for Ausgrid, the country's largest electricity network, as public opposition to the sale of everything from farmland to Sydney real estate heats up.
Even Britain, one of the most popular destinations for Chinese investing, is partly cooling to Chinese money after its vote to leave the European Union. 

After a brief delay, Britain approved the controversial 18 billion pound ($22.4 billion) Hinkley Point nuclear power project funded by Chinese money in September but attached new conditions on foreign investing in U.K. infrastructure. 

That leaves just three relatively wide open big markets: Switzerland, home to agricultural giant Syngenta AG, which China National Chemical Corp. is looking to buy for $46 billion in its hunt for seed technology; Italy, where the Chinese chemicals giant acquired tiremaker Pirelli last year; and Portugal, whose largest insurer is now in Chinese hands.
But narrowing the potential Western geographies that are open for business means that access to the kind of technology knowledge or global brands the Chinese covet is becoming much more difficult. While strapped Greece or emerging markets like Pakistan open their smaller ports and utilities to Chinese money, the really big Western targets could be off the table. 

Shopaholic
Of the top 10 bids for overseas assets made by Chinese acquirers on record, five were this year, and all but Spanish firm Repsol's sale of its Brazilian assets were of Western companies

Chinese bidders are going to have to either narrow their focus to targets in other parts of the world or focus on minority stake purchases if they want to keep buying overseas. 

Though unlikely to fizzle, China's M&A boom is definitely beginning to sputter. 

Australia's Chinese fifth column

Australia's wake-up call isn't just hysterical
By Peter Hartcher

Former foreign affairs minister Bob Carr has said that Australia went through an "anti-China panic" and anti-China "hysteria" recently.
This was a reference to the reporting of events such as Labor senator Sam Dastyari's decision to ask a Chinese company to pay his personal bills. 

Dastyari, admitting an error of judgment, resigned his frontbench position. 

And events such as Treasurer Scott Morrison's decision to veto Chinese bids to buy control of Ausgrid, NSW's main power distributor, on national security grounds.
And events such as the decision of a pro-Beijing group of Chinese Australians to hold concerts in Sydney and Melbourne to glorify the life of Mao Zedong, only to be pressured into cancelling.
Was Australia gripped by an anti-China hysteria?
Dastyari, a close factional ally of Bob Carr's, is still a senator. 

A Chinese company has since been allowed to buy the equivalent of 20 per cent ownership of the Port of Melbourne, among other things.
The group that opposed the Mao concerts is a rival association of Chinese Australians who say they want to "protect Australian values" against the encroachments of the Chinese Communist Party, according to spokesman John Hugh.
And Bob Carr's former top diplomatic adviser, Peter Varghese, says it wasn't an anti-China paroxysm at all. 

"I wouldn't describe [the recent phase of Australia's China debate] as an anti-China hysteria," says the former secretary of the Department of Foreign Affairs and Trade.
So what was it? 

In part, it was what the former chief secretary of Hong Kong, Anson Chan, calls "a wake-up call for Australia", as she put it to me. 

"By the time China's infiltration of Australia is readily apparent, it will be too late," said the dual Chinese and British national.

Varghese, who retired from the public service in July and is now chancellor of Queensland University, is anything but hysterical about China's activities in Australia.
"There's nothing unusual about one country trying to influence the thinking of another country – we all do it," he tells me. 

"The issue is transparency about the means of this and Australia needs to decide the acceptability of those means. As a community, Australia needs to make a decision about whether we are comfortable with this.
"Transparency needs to apply to any institutional funding that goes back to foreign governments or organisations with close ties to foreign governments – in politics, in the media, in universities, in schools, in cultural institutions, in politics."
Including Bob Carr's Australia China Relations Institute, which is hosted by the University of Technology, Sydney. 

The new scrutiny of Chinese Communist Party influence in Australia provoked UTS into shaking up the governance of Carr's outfit. 

Its founder, Huang Xiangmo, resigned as chairman.
"We just have to be clear eyed about what's at stake and be prepared to make tough calls," says Varghese.
Galvanised by the Dastyari affair, a parliamentary committee is now debating whether Australia needs to ban foreign donations to political parties. 

And, says Varghese: "What we see in the China debate now is the fact that some issues are getting harder for Australia in how we navigate between China and the US."
Beijing is applying broad pressure to enforce its claim to ownership of 90 per cent of the South China Sea. This claim clashes with the claims of four other claimants: Vietnam, the Philippines, Malaysia and Brunei.
And it has created wider tensions. 

The US, Japan and Australia have repeatedly called on China to settle its claims through diplomacy, not through destabilising acts.
Such as using coast guard ships to bully fishermen from other countries. 

Or declaring an air defence identification zone that intrudes on other countries' airspace. 

Or imposing an oil drilling rig in contested seas. 

Or building islands. 

Beijing has used precisely these tactics against its neighbours in recent years.
This isn't a pointless tussle over rocks and reefs, as you might hear. 

Says Varghese: "We need to recognise that what's at stake here is what kind of strategic culture we want entrenched in the Indo-Pacific.
"Does it rest on strategic norms and international law or might is right, the law of the jungle, basically? We all have an interest in a rules-based system, though China doesn't see it. There wouldn't be a China story if not for the stability the US has provided."
Under pressure from China, some countries are cracking. 

Rodrigo Duterte has declared the Philippines' "separation" from the US, its treaty ally. 

He has demanded US forces leave within two years, and pledged to side with China and Russia.
Other countries are going the opposite way, hardening their stances to resist Chinese pressure. Indonesia does not have a conflicting claim to the South China Sea. 

But China has asserted "historic" fishing rights to waters off Indonesia's Natuna Islands, and has jostled Indonesian fishing boats to make its point.
This has provoked a decisive response from Indonesia's President Joko Widodo, known as Jokowi. The Natunas are undisputed Indonesian territory, and Jokowi says the fishing grounds are, too. 

He has started an urgent building program on the islands, increased the size of the defence budget, and pointedly chaired a cabinet meeting on a destroyer in the waters off the Natunas.
And in a striking development in the past few days, Indonesia has announced that it's in discussions with Australia about operating joint naval patrols in the eastern area of the South China Sea.
"We are sure that we will soon create a plan on how to realise it," said Defence Minister Ryamizard Ryacudu. 

His Australian counterpart, Marise Payne, confirms the idea is under consideration. 

Indonesia is discussing similar joint patrols with Vietnam and Cambodia.
"It's an important step in the Australian-Indonesian relationship," says Varghese, "and to the extent that it's reinforcing international norms and rules it's an important signal to send to countries including China."
Hysteria is one thing. 

Well founded concern is quite another.

The Land at Stake Is in Australia, but the Focus Is on China

By MICHELLE INNIS

Herding cattle in Queensland, Australia. A recent poll found 87 percent of citizens were against foreigners owning Australian farms and 59 percent did not approve of Chinese investment. 

SYDNEY — Gina Rinehart is very rich — and very Australian.
The mining magnate’s ancestors immigrated to the country’s hardscrabble western reaches in the 1830s. 

A mountain range there is named after her family. 

In public she sometimes adopts a characteristically Australian distaste for pretension — what one historian called the country’s “democracy of manners” — such as the time she climbed onto the back of a flatbed truck with a bullhorn to excoriate a mining tax.
On Friday Ms. Rinehart added further to her local bona fides as she became the sole remaining bidder for iconic Australian grazing land bigger than Portugal. 

But her apparent victory will probably add to unease among some Australian leaders over a major foreign buyer: Her partners in the bid are from China.
Australia already depends heavily on China’s vast appetite for its rocks, milk and meat. 

Now it is soaking up billions of dollars’ worth of investment from China, with the total reaching $11.1 billion last year, according to KPMG, the consulting firm. 

That has led to worries among members of the public that Chinese investors are buying up significant parts of the Australian economy and driving up already hefty home prices.
While critics of that stance say fears of China buying crucial Australian assets are largely unfounded, some Australian leaders have begun to act.
The Australian government in August blocked a joint bid by a Chinese and a Hong Kong company for Ausgrid, an electricity company and one of Australia’s largest infrastructure assets, with Scott Morrison, Australia’s treasurer, saying such a deal would be “contrary to the national interest.” Instead the government approved giving majority control of Ausgrid to two Australian pension funds in a $12.3 billion lease deal that valued the company at less than what the earlier bidders had offered.
The government also weathered the furor caused when the local authorities leased part of the port in the Australian city of Darwin to a Chinese company. 

United States Marines rotate through Darwin for joint military exercises as part of the Obama administration’s pivot toward the region.
Steve Ciobo, the trade minister, said in September that the government would consider updating its foreign investment guidelines so Australians could be sure that proposed investments were “good for the country.” 

Mike Smith, the former chief executive of Australia & New Zealand Banking Group, a major lender, went further. 

On Monday, he said Australia should make a list of “no-go assets.”
On Friday, four big Australian landowners withdrew a joint offer to buy S. Kidman & Company, which controls more than 38,600 square miles of land, after a group led by Ms. Rinehart topped their offer with a $294 million bid on Thursday.
Before their retreat, the landowners criticized Ms. Rinehart’s bid as not Australian enough. 

While Ms. Rinehart controls the group bidding for Kidman, the Chinese property company Shanghai CRED owns a one-third stake.
The bid from the landowners did not rely on “getting money out of the People’s Republic of China,” said Sterling Buntine, one of the landowners, in comments that came days before his group bowed out. 

Instead, he told lawmakers, it “will see Kidman 100 percent Australian-owned.”
The Kidman properties account for 2.5 percent of Australia’s farmland and include a pastoral lease across a weapons range classified as sensitive by the Australian government.
The Rinehart group’s bid excludes the areas abutting the weapons range.

The mining magnate Gina Rinehart in 2015. A group led by Ms. Rinehart bid $294 million to buy S. Kidman & Company, owners of more than 38,600 square miles of land. 

Mr. Morrison, the treasurer, had already rejected bids for Kidman from two Chinese companies. When Ms. Rinehart emerged with her Chinese partner, Mr. Buntine and his fellow cattle ranchers quickly countered.
“My father carted cattle for Kidman for many years,” Mr. Buntine said. 

Other consortium members, the Oldfield family and the Brinkworths, were cattlemen on Kidman properties or drovers. 

Malcolm Harris, the fourth member, runs cattle farms in Western Australia and the Northern Territory.
Ms. Rinehart’s camp dismissed the idea that the presence of a Chinese partner would take valuable Australian land out of the hands of locals.
“You don’t get much more Australian than fourth-generation Australian Gina Rinehart,” said Garry Korte, the chief executive of Hancock Prospecting, Ms. Rinehart’s investment vehicle.
Shanghai CRED did not respond to requests for comment.
Ms. Rinehart, who is well known in Australia for her strong conservative political views and legal fights with other members of her family, has stressed her connections to the Kidman properties. 

Her grandfather, she says, ran several businesses with the properties’ late owner, Sidney Kidman. “They respected each other and were friends,” she said.
In a poll before national elections, which were held on July 2, the Lowy Institute, an independent research center, found that 87 percent of Australians were against foreigners owning Australian farms and that 59 percent did not approve of Chinese investment.
“Most Australians have little or no direct connection with Kidman,” said Simon Venus, a lawyer acting for the landowners. 

“But culturally, it is very significant. There’s a romantic nostalgia around the properties.”
So far Chinese investors hold only modest amounts of Australian land. 

Investors from the United Kingdom are the largest foreign holders, with 27.5 million hectares, followed by those from the United States, according to Australian trade officials. 

Investors from China ranked fifth, holding 1.5 million hectares.
Critics of the growing anti-China stance from some politicians say it amounts to pandering. 

Indeed, many Australians believe homeownership is out of their reach because Chinese investors are pushing prices higher.
“The process for the sale of big-ticket assets is utterly politicized,” said Jeffrey Wilson of the Asia Research Center at Murdoch University in Perth.
But the government is grappling with rising discontent among junior and independent lawmakers who are uneasy about foreign investment. 

Two lawmakers, Nick Xenophon, a senator from South Australia, and Bob Katter, a lower-house lawmaker from Queensland, said on Monday that the government should stiffen the rules governing the entry of foreign buyers.
Mr. Xenophon said he supported foreign investment but was considering pressing for new laws that would give tax breaks to Australian pension funds to help them buy Australian assets. 

“It means profits stay here, jobs are created here,” he said.