Peer reviewed analysis from world leading experts

How do Australia's foreign investment rules apply to China?

Reading Time: 2 mins

In Brief

Australia's government announced on August 4 an easing of foreign investment rules. The rules have apparently come under criticism recently for causing delays that may be overly burdensome to foreign investors.

One recent deal, the proposed purchase of a controlling interest in Aussie miner Rio Tinto by Chinese metals company Chinalco, was cancelled during Australia's review process. According to Reuters, some critics have complained that the delay caused by Australia's review process injected doubt and uncertainty, possibly causing Rio to cancel the deal before a decision was rendered. There is, of course, no evidence to support this speculation.


  • A
  • A
  • A


  • A
  • A
  • A

The Reuters story also points out that the changes to Australia’s rules only affect private investment. Sovereign investment (that is, investment by foreign governments,) is still subject to the same rigorous review process. So in fact, this change in rules would have had no effect at all on the Rio Tinto purchase. Chinalco is owned by China’s central government, and its proposed controlling purchase of Rio was only a small part of the $12 billion in Chinese state investment into Australia proposed during the first five months of 2009.

One question not addressed is how exactly Australia will distinguish between ‘public’ and ‘private’. Among most countries with market economies, the question is not so difficult to answer.

For example, if Ford Motor Co. from the US wanted to buy an Australian parts company, this would be considered ‘private’ investment. But if General Motors wanted to buy the same parts company (and assuming it were able, which I know is a bit of a stretch) this would be considered ‘public’ since GM’s majority shareholder is the US government.

But how would these rules apply to Chinese companies?

For example, Lenovo, maker of the Thinkpad on which I write this post, is a publicly traded company. If it wanted to buy an Australian software firm, surely it would be considered private, right? Not exactly. When you follow the trail, you find that Lenovo’s controlling (though not majority) shareholder is the Chinese Academy of Sciences, a government-controlled thinktank.

What about Geely Motors? Geely is traded in Hong Kong, and its controlling shareholder is the company’s Chairman, Li Shufu, a private Chinese citizen. I think this case would be more clear-cut, and indeed, apparently Australia thought so when they allowed Geely to buy DSI, an Australian maker of drivetrains.

However, as I pointed out in a recent post about Geely, the line between ‘public’ and ‘private’ in China can be blurry. Despite the private ownership of Geely, China’s State Council apparently maintains the right to sign off on Geely’s strategy for expansion.

G.E. Anderson is China specialist, former CFO, and PhD Candidate in Political Science at UCLA. This post originally appeared here on his ChinaBizGov blog.

3 responses to “How do Australia’s foreign investment rules apply to China?”

  1. What does the ownership in terms of public versus private make to owning some shares of a firm in an another country? All firms in a country are subject to the regulations of that country, whether they are owned domestically or by foreign investors. A country can always regulate the behaviour of the firms operate in its land. So what are the concerns or fears of a firm is owned by a public firm of another country? It defies logic to understand the reasons behind.

  2. The above is a comment that needed to be made. I go even a step further: as far as control is concerned, the home country fully controls ultimately the behavior of the business firms in its jurisdiction, regardless of stock ownership. Privately owned Ford Motor must comply with all US provisions regarding corporate behavior abroad, from not paying bribes to not trading with certain countries, just like govmt. owned GM. It is only the power of the host country to countermand any orders from the home country that it does not agree with that limits such rules. Classic example: during WW II, GM US built trucks and tanks for the US Army, GM Germany (Opel) did the same but for the German Army!
    Sovereign action always overrides private property rights.

  3. Mr. Fung’s question very poignantly addresses the key issue as it concerns Australia (or indeed, any sovereign country): why the distinction between public and private when any external investor would naturally be subject to Australia’s laws?

    To address Mr. Fung’s question as to the logic for such a distinction, I wrote a longer post on my blog that can be found here: In short, my answer is that there are other “logics” guiding such a distinction. We may not agree with them, but they are nevertheless real for those who hold them.

    Professor Dufey’s comments are much appreciated — particularly the example of GM US and GM Opel during WWII! The examples of Ford and GM I used above, however, were more to point out the fact that the line between public and private is much clearer in the US than it is in China. Since China is Australia’s largest foreign investor, this lack of clarity will inject additional difficulties into the enforcement of Australia’s new rules.

    Thanks very much for your questions and comments!

Support Quality Analysis

The East Asia Forum office is based in Australia and EAF acknowledges the First Peoples of this land — in Canberra the Ngunnawal and Ngambri people — and recognises their continuous connection to culture, community and Country.

Article printed from East Asia Forum (

Copyright ©2024 East Asia Forum. All rights reserved.