On the 31st of January 2008, the largest ever hostile share acquisition in the history of the London Exchange was launched by a Chinese Sovereign-Owned Enterprise (SOE) , Aluminium Corp. of China (Chinalco). Valued at $AU15.5 billion, Chinalco’s team of brokers at Lehman Brothers acquired 12% of the London-listed Rio Tinto shares—9% of the total listed shares—of the dual-listed Australian–British iron ore producer (Bream et al., 2 February 2008). The funds came from the state-owned and -directed China Development Bank (Uren 2012, 70), with an American aluminium producer, Alcoa, providing 10% of the stake as well. The raid was a response to an offer in November 2007 from BHP-Billiton to merge with Rio Tinto, a proposal to bring the two largest Australian mining companies under one roof. In China, this prospect was not received well. Fearing a situation where a single firm supplied 40% of China’s iron ore imports (Uren 2012, 67), He Liangzhou, head of the Foreign Capital Department in the most powerful state economic agency in China, the Development and Reform Commission (NDRC) , convened a meeting between himself and the leaders of China’s largest coal producer, Shenhua, steel producer, Baosteel, and aluminium producer, Chinalco to discuss “countermeasures” (Uren 2012, 69). The “Dawn Raid ” was the result.
Chinalco did not notify the Australian government of their intentions before the coup. Instead, having succeeded in reaching his target by 10 p.m. London time, the President of Chinalco, Xiao Yaqing, waited seven hours until the Australian market closed and then called the Australian Secretary of the Treasury, Ken Henry, to inform him of the raid and signal Chinalco’s intention to submit an investment proposal to the Australian Foreign Investment Review Board (FIRB) (Uren 2012, 70; Leaver and Ungerer 2010, 17). He advised the Australian and British media that the investment was entirely Chinalco’s own decision (Roberts and Tschang, 6 February 2008) and that the stake was a “strategic financial instrument” rather than a precursor to a full takeover bid by the Chinese Government, or a manoeuvre aimed at blocking the BHP-Billiton takeover (Freed, 5 February 2008).
Seventeen days after the raid, the Australian Government responded. Treasurer Wayne Swan announced six explicit guidelines for foreign investment proposal reviews (outlined in detail in Chapter 2, Sect. 2.3). Though the government claimed that these did not introduce any changes to the policy but merely clarified it, the “February Guidelines ” were nonetheless widely interpreted as signalling a new concern about and scrutiny of SOE investments in light of risks associated with state ownership (Wilson 2011, 287). Contributing to this impression, the Treasurer demanded that ten Chinese investments in the mining sector that had been approved in the three months the government had been in office were resubmitted to the FIRB for approval with extra information pertaining to the role of the Chinese state in their operations (Hewett, 25 April 2008).
In fact, the main effect of the Guidelines was to confuse commentators (Kirchner 2008a, 8; Golding and Bassil 2008, 177–178; ITS Global 2008, 12–13). It was not clear why the Guidelines had been released at all. While the Australian Foreign Direct Investment (FDI) screening regime had been criticised for many years as opaque and inefficient (for example, Financial Times 2005), the Guidelines not only failed to respond to these criticisms, but actually added further ambiguities. The first guideline signalled a renewed emphasis of scrutiny on the relationship between a foreign investor and the government of the state from which they originate, but this had been a part of the Policy for at least two decades (Uren 2012, 234). Guidelines two and three—that investors must adhere to the law and that investments would be examined in terms of their competition-hindering effects—were redundant; the second obviously so, and the third already enforced by the Australian Consumer and Competition Commission (ACCC) operating under the Trade Practices Act 1974. The fifth guideline—that the government reserves the right to prevent investments that may threaten national security—could reasonably be assumed given similar provisions that exist in every equivalent economy. Finally, the fourth and sixth guidelines—that investments may impact upon Australian Government revenue or the operations of Australian businesses—were so vague as to be virtually meaningless. Any investment is likely to affect the Australian government revenue and is likely to affect the operations or direction of an Australian business. The inclusion of these points provided no basis for a prospective investor to decide whether or not to register a proposal. It could be argued that this ambiguity empowered the Government to conduct investment screening with greater flexibility, but as I will show in Chapter 2, but even then, the institutional arrangements the Rudd Government inherited already afforded the government a remarkably large degree of flexibility. The question remains: why draw the issue on to the public agenda at all?
Once the issue had been placed on the agenda, it was difficult to remove. Whether intended or not, SOE investment came to be one of the defining controversies of the Rudd Government’s interaction with its Chinese counterpart, and a number of interest groups and political factions swooped on the issue as a rallying device. On one side of the debate was a loose coalition bemoaning the inadequacy of the Government’s efforts to protect Australian interests from sinister foreigners. The coalition drew together the federal Liberal-National Opposition and the federal Green Party—an unusual alliance in Australian politics—as well as the West Australian Premier, Colin Barnett (Wilson 2011, 287; see also the contribution from BHP-Billiton CEO Don Argus in Uren 2012, 95, and Wines 2009). On the other side, a more wonkish coalition of the Australian Business Council, commentators in thinktanks like the Lowy Institute and Centre for Independent Studies (Cook and Thirlwell 2008; Thirlwell and Shearer 2008; ITS Global 2008; Larum 2011), consultants in the “Australia’s Open Investment Future” Group (Rae 2008; Makin 2008; Novak 2008), as well as many mining firms and Chinese investors themselves (Wilson 2011, 289) argued that the economic activity was over-regulated, and that Australia and its firms were paying real costs in terms of foregone capital as a result of the inefficient regime (see also Kirchner 2008a, b, 2009a, b, 2012, 2014; Drysdale and Findlay 2009; Drysdale 2011; Berg 2012). Finally, the Chinese ambassador in Canberra published an opinion piece in The Australian, insisting that the Chinese investments were not politically motivated, or indeed controlled, by the state (Zhang 2009). In short, the policy, at first glance appears to be an own goal: an unnecessary intervention that was both economically and politically costly.
In this book, I will argue that the changes made to the FDI screening policy by the Rudd Government policy occupied a central position in the Australian Government’s engagement with China, and a constituted a central plank in its response to the geopolitical changes occurring in the region as a result of China’s rise. The key research questions that guide the study are: first, why did the Australian Government pursue the policy, in spite of widespread criticism and in the face of an orthodox view that the economic costs to the country were high? Alternatively phrased, why did the key policymakers understand Chinese SOE investments as so much of a threat that such costly intervention was deemed necessary? Second, what does the policy imply about the Australian understanding of its relationship with China and its interests in relation to the changes occurring in the region? Third, given the creativity of the Rudd Government in using a tool of economic regulation to pursue foreign policy aims, what does this innovation imply about the trajectory of Australian statecraft? Finally, how can we theorise the problems faced by the Australian Government in light of a deepening integration of the liberal Australian economy and the much larger illiberal Chinese one? My account of the policy suggests that the key policymakers in the Rudd Government understood these problems as having profound importance for Australia’s interests, and its position in the world. I analyse and evaluate this claim, and employ Foucauldian governmentality as a theoretical framework to do this.
1.1 The Existing Accounts
There are currently five schools of explanation of the Rudd Government’s FDI screening policy. The first account of the policy is the one that the government itself provided. It was claimed the policy changes were not substantive; they were in line with the practices of Australian governments before them (Swan 2008a, b; Rudd 2008a). This is not convincing and an extensive description of the changes that did occur is available in Chapter 3.
The second school of thought holds that the FDI policy was an ad hoc response to an unexpected politicisation of the issue of foreign investment in Australia (Drysdale and Findlay 2009). This line is accompanied by the criticism that the “additions” to the national interest test that appeared in the February Guidelines unnecessarily added uncertainty to the FDI screening regime and policy debate. The most immediate problem with this account is that even if the February Guidelines had been an ad hoc response, there is the subsequent two and a half years of execution of the policy still to be explained. The explanation carries an implied addendum that the government refused to adjust the initial ad hoc settings for the twenty-eight months following February 2008 out of stubbornness. The account is also unconvincingly narrow. Both Kevin Rudd and Wayne Swan spent significant time in China personally; Rudd devoted high-profile speeches to the Australia–China relationship, and invested significant political capital to negotiation rounds of the prospective China–Australia Free Trade Agreement . As I will show in Chapter 5, Rudd had a sophisticated and coherent agenda for Australia’s engagement with China. It is not believable that either Rudd or Swan would not appreciate the significance of the issue of foreign investment to the overall relationship, or determine this policy only in relation to domestic concerns.
The third school of thought is that the policy was resource nationalist in character. Wilson (2011, 285) defines resource nationalism as natural resource-endowed states using their legal jurisdiction over resources to achieve national development goals t...