No role for the FIRB in Rio

Maybe Alan Kohler is right and, from a commercial perspective, Rio’s asset sale to Chinalco “stinks”. But it is not the role of foreign investment policy to pick between investments, or investors, on the basis of their commercial smarts. That’s up to the Board and the shareholders.

The half-stated concern over the Rio-Chinalco deal remains, as it was last year, that the Chinese investors have a sly, non-profit-maximizing agenda. That their real interest is in undercutting the iron-ore price. But is there any evidence that Chinalco will do less to maximize profits from Australian assets than the current owners and managers of Rio Tinto?

I know of none; any more than there is evidence that Japanese joint-owners of most of the big coal mines in Queensland are undercutting energy prices.

There is no reason to believe that Chinalco, which is apparently borrowing the capital, would plan to make a loss on its Rio investment. As for it’s Chinese government owners, they have too many bad investments in US treasuries right now to be hungry for more.

In fact, AK might argue that the current Board has lost profit-maximizing knack, for the moment, preferring safety and saving-face over future profit. Including by turning down a last minute offer from BHP. Let the shareholders punish them for that if it’s true.

The government will not help Rio Tinto or the Australian economy by allowing bureaucrats to make a judgement on a matter where they have no expertise, no more foreknowledge than the rest of the market, and less stake in the outcome of their guesses. Companies are well-regulated in Australia on a non-discriminatory basis both before and after they establish in the market, whoever their owners may be. We can be as open to investment by Chinese customers as by Japanese or UK customers.

Anyway… could there be a worse time for repelling investment in Australia? The secret tribunal of the Foreign Investment Review Board should leave this well alone.

I know of none; any more than there is evidence that Japanese joint-owners of most of the big coal mines in Queensland are undercutting energy prices.

Tags for this entry: policy china investment firb rio tinto