SWFs: Mining for Trouble?

Somewhat on the fly (we’re in production for January’s issue), apparently the Australian Treasury has discovered that vague wording is a powerful tool in blustering about a new Asian menace: the sovereign wealth fund. Behold: “Attempts by foreign interests to purchase controlling stakes in strategic industries or iconic domestic companies can sometimes cause broadly based domestic concerns,” the study says. Why? Because these SWFs could be purchasing for “strategic or other non-commercial reasons.” (From The Australian)
Is it a coincidence that this is getting traction while a rumored bid from China’s SWF, China Investment Corp (CIC), for mining company Rio Tinto is flying around biting ears? Or, more specifically, while Australia’s BHP Billiton is foundering in its bid to secure a hostile USD 122 bln takeover of Rio Tinto? Apparently not:

“The Treasury paper follows concerns raised by BHP Billiton chairman Don Argus at the company’s annual general meeting about Asian sovereign wealth funds buying mining assets.”

To be fair, I can see why the Treasury is concerned: transparency with SWFs is often clouded by what could be interpreted as political concerns due to an absence of information. (Though it could also be a result of the failure to hire a good web designer — a problem that Australia’s SWF site, known as the Future Fund, has avoided with the artful use of leafy trees). However, given China’s vested interest in keeping iron ore prices affordable — it is the biggest consumer, as well as producer, of steel in the world — I doubt that its motives merit the paranoid bromides about “strategic and non-commercial reasons.” When it comes to mining, at least, China’s about commerce. That may be why it’s the biggest foreign investor in Australia’s mining sector (if I’m not mistaken). That’s not to say that transparency isn’t something that CIC (and other cloak-wearing SWFs) should strive for. It is. Until they do that, people will continue to wonder if their motives are “non-commercial” — and to rile their citizens (read: constituents) up with the specter that they are whenever it’s convenient.

Oh yeah and that “iconic domestic company” stuff? That’s exactly what Western companies like to groan about with China’s M&A rules. Best to stay away from enshrining nationalism in your trade policies, particularly when what’s considered “iconic” is not usually, well, transparent.

Gwynn Guilford