CSR tops list for Chinese investors

A $1.5 billion bid for Australia's main sugar refiner, CSR, by one of the world's biggest food companies is a precursor to the next wave of Chinese investment in Australian assets, observers say.

But the bid by Bright Foods, owned by the Shanghai municipal government, will pose a political and regulatory challenge to the Federal Government.

The Herald understands the Government is exploring how to make its foreign investment regime less burdensome for Chinese state-owned companies, while preserving screening rights on genuinely strategic investments.

Advisers and executives say property, financial and other services, rare earths and other metals for electronics processing, and the giant natural gas fields off north-western Australia are likely to be targets for the rivers of Chinese cash that began flowing into Australian mining assets two years ago and which are now spilling into the wider economy.

The aggressive investment strategy is backed by Beijing. Last month the Central Economics Work Conference encouraged companies to ''go out'' and invest overseas.

Bright Foods, best known in China for making "white rabbit" lollies, revealed its bid for CSR yesterday. The 130-year-old CSR is a sizeable and low-cost player in the global sugar industry, producing about 4 per cent of internationally traded raw sugar.

Sugar prices are near 30-year highs as demand outstrips supply, driven in part by the growing wealth of the Chinese people.

Executives in Beijing say the CSR bid is evidence that Chinese investors are undeterred by the collapse of a series of big deals in Australia, including Chinalco's $US19.5 billion offer for Rio Tinto, a $2.8 billion bid by Sinochem for pesticide maker Nufarm, and a $45 billion gas export deal between Petrochina and a Woodside-led natural gas consortium.

The bid follows smaller Chinese investments in three of the four big banks, a property trust, a car component maker, and iron ore, coal and other mining assets.

China's overseas investments are typically driven by ambitious executives and their international investment bankers, and encouraged and co-ordinated by the Chinese Government. Investing globally is an economic necessity for China as executives and policymakers struggle to find higher-value investments for huge corporate profits and more than $US2000 billion ($2152 billion) in government foreign exchange reserves.

The build-up of foreign exchange holdings is amplified by China's policy of holding down the value of its currency.

Zhang Bin, an economist at China's main government think tank, the Chinese Academy of Social Sciences, said China had made a strategic mistake by investing most of its foreign exchange holdings in US government bonds rather than Australian assets.

"Ten years ago China should have been purchasing more Australian dollar assets because we needed to hedge against our resource imports," Mr Zhang said.

China's imports of Australian commodities have bolstered Australian export volumes and triggered a second resources boom, boosting the Australian dollar and the value of Australian assets.

Customs data yesterday showed China's imports of copper last year were 63 per cent higher than in 2008. Aluminium imports were up 164 per cent and iron ore 42 per cent.

source: smh