The first wave of China's outward direct investment (ODI) went hand-in-hand with its urbanization and industrialization, which called for enormous quantities of raw materials for steel and energy. These are industries which are still dominated by China's state-owned enterprises, and so initial Chinese outward investment was state led. Since the decline of commodity prices, a new wave of Chinese foreign investment has extended beyond hard commodities, largely geared to meet the consumer demands of China's burgeoning middle class.
This book studies the first wave of investment into resource-rich economies, the largest recipient of which was Australia. The reception of large-scale Chinese investment has become a major political issue in Australia, as in other countries, making the question of how to manage Chinese ODI highly pertinent. This book draws on interviews, case studies and detailed market information to provide detailed sketches of Chinese companies in Australia that have already made the decision to invest. The book will also be useful as a historical record, given the access that researchers gained to key figures in the relevant companies while events were still fresh.
The detailed case studies paint a diverse picture of Chinese investment strategies and corporate behaviour, which can help dispel the caricature of Chinese investors, particularly state-owned ones, being simple instruments of the Chinese state. Chapter three's detailed account of CITIC Pacific's disastrous Sino Iron Project – with its four-year project delay, 300 per cent cost blow out and ongoing management mishandling – contrasts well with the glowing assessment of fellow SOE Minmetal's 2009 acquisition of OZ Minerals and its successful management integration within Australia and skills transfer back to Beijing (chapter four). The detailed lessons in stakeholder and community management within a Chinese–Australian joint venture provide some substance to oft-platitudinous rhetoric of corporate social responsibility.
These case studies are very useful for their detail and content, but their theoretical contribution is limited by the absence of a common theoretical thread or conceptual framework. Setbacks of the Sino Iron Project are explained in terms of the “liability of foreignness,” but the concept is not followed through in the next chapter to explain how this liability was overcome in the OZ Minerals acquisition, nor is it related to the goals of community engagement within the joint venture.
The book does provide some useful generalizations for the mining sector. Reviewing corporate governance arrangements in ten publicly-listed Chinese investments (chapter five), the authors find a preponderance of Chinese involvement at the board level, but with predominantly Australian management teams. However, the authors also reveal the formalistic nature of corporate governance structures in some cases; one company complied with the letter of investment conditions imposed by the Australian treasurer requiring its key management to be Australian residents, but subverted it in spirit by making the Chinese-resident deputy chairman effectively responsible for major operational decisions.
Despite the title's emphasis on “managing” Chinese investment, the perspective of Huang and Zhu's book is almost entirely that of Chinese companies that have established direct investments in Australia. There is no substantive discussion about how a host country might consider adjusting its own foreign-investment policies in response to new Chinese investment. The historic 1987 joint venture between Rio Tinto and the Metallurgical Import and Export Company is mentioned, but the collapse of the $19.5 billion takeover bid for Rio Tinto by Chinalco in 2009 is not.
The book's quantitative analysis of share-market performance of resource investments is less persuasive than its detailed case studies. The number of listed Chinese-invested companies that the authors track until the end of 2011 is simply too small (16) to support robust econometric analysis, particularly in an industry as risky as mining. Moreover the benchmarking of company performance against the general Australian sharemarket index makes it difficult to interpret the finding that the majority “underperformed” (p. 34). Given that a Chinese resource SOE would be unlikely (and unwise) to diversify into retail, a more informative comparison would be with other mining investments.
A more fundamental question is how to interpret “underperformance.” All investment involves risks, and cross-border investments (whether the investor is Chinese, American or Swiss) entail higher risks than those faced by domestic competitors. That many should fail, and that high profile cases might fail spectacularly, is to be expected. Provided the failure is not the direct result of capricious administration, it should be interpreted as a sign that the market is working. The best way to manage Chinese outward investment may be for market participants and governments on both sides to watch and learn.
