"State Owned is Not State Run"

"State Owned is Not State Run". Its the one line I remember the most from the China Ambassador's Speech in mid-2009 at the height of the Chinalco 18pc bid for Rio Tinto. As he said it, his look up and around the room was telling. It reeked of embarrasment, knowing he had to say this but the believability was zero. Such is the life of a Chinese diplomat.

China is on the verge of being the second largest economy in the world. Its a strong possibility it will overtake the USA in the next 20 years. Australia will always be a minnow in comparison. Yet, we have the commodities they need to meet their growth. We are strategically important to them.

Australia is an incredibly stable nation. We invest in, and therefore enjoy, a strong military-based relationship with the USA. Our trade relationships are robust. We are a highly regarded place to do business. We are not going to stop supply to China. Or economic future depends largely upon it. Given this, the argument that China wants to invest in strategically important supply companies as some sort of nation protection policy is spurious.

China wants to control prices. If they can't control the land that contains the commodity then they will try to control the supply company. The Chinaco bid for Rio was designed to drive a wedge into the price negotiations for iron ore. BHP and Rio realised that the very long term interests of shareholders of both companies is better served by not letting the customer own the company, so they merged their iron ore interests and sealed China's fate of having to pay proper price for a scarce commodity.

A China-State-Owned business trying to buy the CSL sugar spin-off is the same thing. They wish to control the price of sugar.  State Owned IS the same as State Run. The opposite suggestion is, frankly, ludicrous. Its almost embarassing for the Chinese that their ambassador to Australia was allowed to include the suggestion in his speech. The owners of the business appoint the managers, who are duty bound to fulfill the desires of the owners. So, when the owner is the Chinese government, then it is pretty obvious what the game is.

Australia's long term interests are not served by letting China take control of strategic corporate assets. This is a time of great test for Rudd and Steve Smith and their willingness to take the right stand for Australia's economy. Rudd's comments after the Chinalco bid failed left it well and truly open to China to bid for more. He panders to China.

We can and will get capital flow from other parts of the world as needed. Anyone trying to claim that we need China's capital to buy up our key supply assets should have their motivations carefully looked at.