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ECONOMICS REFERENCES COMMITTEE
01/07/2009
Foreign investment by state owned entities

CHAIR —Welcome. I invite you to make an opening statement.

Mr Creese —We do welcome the opportunity to speak to this committee today and to the submission that we have made. We believe that we have a unique perspective to offer, given our experience of working successfully with state-owned companies for more than 30 years as well as with a broad range of foreign investors. It was with Japanese companies that Hamersley Iron was able to develop the Pilbara iron ore mines. We were one of the first companies to open an office in China, and we have been working with Chinese firms since the early 1970s. In 1987, as Professor Drysdale mentioned, we established a joint venture with what is now China’s Sinosteel to develop the Channar iron ore deposit. In 2001, we entered into a major joint venture Baosteel. These have been highly successful partnerships that have been trailblazers for the industry and for Chinese foreign investment in Australia. They remain fully commercial arrangements and mutually rewarding for us, our Chinese partners and Australia and China. People from Rio Tinto have also spent many years in China building relationships and their understanding of Chinese enterprises and how they operate. This perspective underpins our submission to this committee.

As you may know, Rio Tinto is a major contributor to Australia’s wealth, adding significant value in the form of jobs, taxes, royalties and dividends. We employ around 15,000 people in Australia and we are the largest private sector employer of Aboriginal people, who comprise some eight per cent of our workforce. Over the last decade, we have directly invested in Australia about $30 billion.

We believe that Australia’s challenge is to continue to attract capital to support economic growth in a world where capital is increasingly competitive to find. State-owned enterprises are an increasingly significant part of the financial landscape. Australia already has positive experience in dealing with state-owned enterprises and has a robust foreign investment review regime to address any concerns. For example, neither the investment in 1982 by the government owned Korean steelmaker POSCO in the Mount Thorley mine or the Singaporean government’s majority ownership of Optus through SingTel appear to have raised any concerns.

Rio Tinto supports the six principles set out by the Treasurer in February 2008 for screening investments linked to foreign governments applied on a case-by-case basis using existing decision-making processes. Clear and prompt decision making by government is critical in demonstrating that Australia is welcoming a foreign investment. In undertaking major capital transactions, time is of the essence. In our submission we suggest an approach of applying and assessing the independence criterion with respect to state-owned enterprises. Rio Tinto believes that it is crucial that these principles be applied in a way that creates a foreign investment regime that will be sustainable in a period where more capital flows are likely to come from government owned investors. The fact is that investment capital will go elsewhere, particularly in the resources sector, if it is too difficult to do so in Australia. This means that the Australian economy will miss out on growth opportunities and that Australian businesses will lose market share to global competitors. This has occurred in the past, resulting in the creation of substantial competitors to Australian iron ore, in the case of Brazil, and coking coal, in the case of Canada, and at great cost to Australia.

The fact is that state owned enterprises have been reliable, long-term, commercially driven investors, and we have firsthand knowledge of that. We believe that there is an opportunity for Australia in the current climate to gain a long-lasting relative advantage by securing capital on competitive terms through closer engagement with SOEs, particularly with those in China. Australia is a trading nation. China is one of our most important trading partners. Investment should follow and underpin a significant trading relationship. A positive approach that sees foreign investment as an opportunity rather than a threat could underpin Australia’s recovery from the current downturn and is essential for Australia’s longer term growth prospects. Thank you.

CHAIR —Thank you. I would like to open the questioning by asking you a question about the effect investment by sovereign wealth funds and state owned enterprises may have on corporate governance and competition. Given that these bodies tend to lack transparency, do you think they may adversely affect competition and pricing and become involved in market manipulation? It seems to be a fairly common source of concern.

Mr Creese —I will start the answer to the question and then ask my colleague Mr Ritchie to assist. I will first take the latter part of your question, which was related to the competition issues. Having read the transcript of the session that the committee had with the ACCC, I felt that those issues were covered very comprehensively in the discussion that took place with Mr Grimwade and Mr Bordignon. Australia has rigorous competition laws. Australia has rigorous transfer-pricing laws. As the point was made by Professor Drysdale before, Australia is a sovereign nation able to protect its interests through its existing laws. Doug might like to comment on corporate governance.

Mr Ritchie —I take your point, and it is well made, about the domestic laws and capabilities that exist in Australia. But I would like to add one other comment, and that relates to the nature of an SOE. Whilst there are many, many SOEs in China, there is certainly the equivalent of the ASX 100 in China, and that is primarily with whom Australia at the moment finds itself dealing. After a considerable amount of personal experience in dealing with these SOEs, I have to say that not only do I find them commercial in their approach but I find that their standards, in terms of employment, occupational health and safety and attitudes to environment, are every bit as good as those of equivalent corporations elsewhere. I would also say that I have found that the people who manage these corporations manage them in exactly the same way as people like me manage our own corporations and they are judged in exactly the same way. That has to do with return on investment and the standards that one maintains that relate to the standards that the corporation itself sets. So I think that a lot of these fears that you express, Chair, as being around the place come from primarily, and unfortunately, a lack of familiarity with these state owned enterprises by the people who are making these comments.

CHAIR —Thank you. The most important issue that seems to concern people is pricing. If you have an owner who is also a customer, will that mean that there will be downward pressure on pricing unless returned to Australia in terms of royalties, taxation and benefit to shareholders? Is there a conflict of interest there fundamentally?

Mr Ritchie —I do not think that is a question that can be answered simply. It depends upon a whole range of factors and primarily depends upon control and what the commercial motivations of the purchaser happen to be.

Senator HURLEY —I think, Mr Creese, you touched on the fact that the mining industry is generally fairly highly capital intensive and has long lead times. In that sense SOEs are useful because they are much more willing to look at long-term investments, so that is a very strong point in their favour. Can you elaborate for me on what problems there might be in terms of a change in government policy perhaps or a transfer to a different government section—are there any downsides in that respect?

Mr Creese —When Rio Tinto looks for a joint-venture partner coming into a project we focus on the capacity and capability of that partner to be a good commercial partner in that joint venture going forwards, so we want to try and make sure we have a reconciliation of the objectives under that joint venture. We also look at the financial security of that party. You are referring, Senator, to the lead times. With these resource projects we are talking about 15, 20, 30 or 40 years and a lot can change in that time frame. Before you embark on these you do have to have a very hard and close look at this. I think one of the things that Australia is actually good at, and we do know how to do these things, is writing joint-venture agreements. I think there is actually quite a lot of ignorance and the mining industry could actually get out there and explain a little bit more about what a joint-venture agreement is about. We have a great history as to how we go about doing these things making sure that we have the right checks and balances in those arrangements and that we put the right protections in place in terms of things such as you were referring. You will find in a normal joint venture that all those things will be covered off in some way.

Senator HURLEY —Of course I am right in assuming that a joint venture is covered by the law of the land in Australia, so it is the courts in Australia that would adjudicate on that.

Mr Creese —Absolutely and the assets remain and are part of Australia. Mining tenure is granted by the state or the Crown in the right of the particular state. Of course, everybody who takes that takes it by way of a licence or a lease subject to the terms and conditions of that. It is very closely regulated in terms of an overall industry. In fact, the mining industry is probably the most regulated of all.

Senator HURLEY —I think everyone says that! You are also very keen both in your submissions and in what you have said here today about dealing with foreign investments on a case-by-case basis. I am wondering if you could explain a bit more about your reasoning. Is that because you feel it is difficult to make a blanket comment on the types of investment to be wary of?

Mr Creese —I think it would be very difficult to come up with a regime which is sort of one size fits all because each of the proposals have unique characteristics. The flexibility of the structure that we have in Australia to be able to look at it on a case-by-case basis does allow for appropriate consideration to be given to factors in the particular circumstances of that particular case. A hard and fast application of a rules based process would risk coming up with the wrong policy results.

Senator HURLEY —You said you approve of the extra guidelines that were put in place by the Treasurer last year. Do you see any further scope for that?

Mr Creese —We think the guidelines are a sensible list of guidelines which broadly would apply to assessment of any foreign investment. Just to come back to one of the points that was made earlier, the vast majority of the resource companies and resource operations in Australia are in fact foreign owned. Rio Tinto is a foreign owned company. BHP is technically foreign owned. In fact, our submission gives some details of all of this. We think the principles are sound. The one that we do say should be looked at when you look specifically at the question of state owned enterprises is the question of independence.

We think there is a subset of questions that really need to be asked about independence from the government from which the state owned enterprise springs. We say you have to go down to the real nitty-gritty questions of control. Can the state owned enterprise actually control operating assets through its investment? Can it actually influence and control key business decisions about such things as capital investments, product mix, production levels, pricing, contracting strategies, marketing and those things? You need to go down to that level of detail. If you answer, ‘Yes, they can,’ then you have got to say, ‘Now we understand the detail of how that might work in the context of that particular transaction, is this contrary to the national interest in terms of the way that would operate?’ So we think there is a more detailed level of inquiry than simply looking at: is it ‘independent’?

Senator JOYCE —There are so many questions I do not know where to start, but let me start here. The Treasurer’s guidelines that you just referred to: are they guides or laws?

Mr Creese —I am not sure it is up to me to answer that, or within my capacity, but I believe that they are policy guidelines as opposed to laws.

Senator JOYCE —Was any of your proposal in the Chinalco deal outside the Treasurer’s guidelines?

Mr Creese —We believe not. We set out in our submission why we believed it came within the guidelines, and also in our confidential submission to the Foreign Investment Review Board in relation to the Chinalco proposal.

Senator JOYCE —I realise it is a decision predominantly from the St James’s Square and the shareholders of Rio that the deal came to a conclusion, but were you in constant correspondence with the Foreign Investment Review Board up to that date?

Mr Creese —In the normal course of any major application we are in regular contact with the Foreign Investment Review Board. That is the normal process.

Senator JOYCE —Had they informed you that you were inside the guidelines?

Mr Creese —In particular, Senator, the principal application that was being made here was the one being made by Chinalco. We had a subsidiary application, which was linked into this, which related to reorganisation of our assets in Queensland in order to be able to facilitate the transaction. So we were not the primary proponents before the FIRB.

Senator JOYCE —From your negotiations, were there any issues that Chinalco conveyed to you where you might be outside the guidelines?

Mr Ritchie —Maybe I can answer that, Senator; I was the person who was responsible for the relationship and the negotiation and the deal. To put this in perspective, Chinalco made its original acquisition of 12 per cent of the PLC, the London entity, at the beginning of February 2008 and from then on they obviously had a lot of interaction with the Foreign Investment Review Board. We have had interaction with them in other cases, so we have a good knowledge ourselves. When the time came to actually negotiate the transaction which, as you point out, ultimately failed, both Chinalco and us were acutely aware not only of the six principles announced by the Treasurer but also generally of customer practice and what issues we needed to deal with to ensure that nothing offended those guidelines or, indeed, other foreign investment principles.

Senator JOYCE —All right; there is no trick question. So you are happy that you were within the guidelines. To your knowledge there was nothing apparent that you were outside any of those guidelines?

Mr Ritchie —Absolutely.

Senator JOYCE —Can we go to the deal structure itself. Although you were talking about 18 per cent ownership by Chinalco, was that 18 per cent across the whole of Rio or in certain sectors a greater ownership and in other sectors a lesser ownership?

Mr Ritchie —It was 18 per cent of the dual listed company as represented by 19 and a bit of PLC and 15 per cent of limited itself.

Senator JOYCE —Were there any strategic assets that Chinalco had a greater hold on, that is, nominated within the structure of the deal that their specific hold over certain assets were greater than 18 per cent?

Mr Ritchie —The assets are a separate component. We had a deal on shares as represented by convertible notes. But there were then joint-venture arrangements with respect to some specific assets.

Senator JOYCE —And some of those specific assets went up to 50 per cent, didn’t they?

Mr Ritchie —One went up to 50 per cent.

Senator JOYCE —Which asset was that?

Mr Ritchie —Yarwun.

Senator JOYCE —Although the discussion in the media was 18 per cent there were some assets that were up to 50 per cent ownership by Chinalco. Would it have been possible to structure the deal so that you were underneath the Foreign Investment Review Board guidelines but Yarwun was still at 50 per cent?

Mr Creese —The answer is no. We would not have done that in any event. The Foreign Investment Review Board is Rio Tinto’s most important regulator. I have had personal accountability for dealings with the Foreign Investment Review Board since 1995; I have been with the company since 1980. We make applications to the FIRB for all sorts of things which might be regarded as quite bizarrely technical but we still make those applications. We would not have sought in any way, shape or form to have avoided the application—although, as we were saying before, the principal applicant here was Chinalco.

Senator JOYCE —Would Chinalco in China have been a purchaser of the resources extracted from the ground in Australia?

Mr Ritchie —No. In no way other than they currently may be now in terms of purchasing a little bit of bauxite or other commodities.

Senator JOYCE —Is Chinalco 100 per cent owned by the Communist People’s Republic of China?

Mr Ritchie —Its primary shareholder is SASAC, as I understand it.

Senator JOYCE —Is that just ipso facto the Communist People’s Republic of China.

Mr Ritchie —Yes, that is the system there.

Senator JOYCE —As a related entity structure, any other company in China that is 100 per cent owned by the Communist People’s Republic of China would be for all intents and purposes a related entity.

Mr Ritchie —I have heard you adopt the related entity—related party—test before, Senator. I am not sure that is an appropriate test to be applied in relation to any Chinese entity.

Senator JOYCE —What was the structure of Hamersley in your relationship? Was that with the Japanese government or Japanese corporate interests?

Mr Ritchie —Going back to when we originally had Japanese owners in Hamersley, they were Japanese corporate interests.

Senator JOYCE —Could I have gone to the Japanese share market and bought shares in those interests?

Mr Ritchie —I doubt you could have in those days. You might be able to these days.

Senator JOYCE —What year was that?

Mr Creese —It was in the late 60s.

Senator JOYCE —Was the law different at that point in time? Were you required by law to have a joint interest—that is, a 51 per cent?

Mr Ritchie —In the case of Hamersley we were required by the then Premier of WA to have foreign investment partners.

Senator JOYCE —Did in the Japanese convey to you that they were incredibly impeded or were not encouraged at all to participate in the deal because of the structure? What is the history of it? Was the structure a successful venture?

Mr Ritchie —Yes.

Senator JOYCE —Mr Ritchie, you said that the Chinese manage exactly the same way as anybody else. Once more I refer you to this document:

Further to reports this morning and yesterday of China’s growing interest in foreign takeover targets like Brazil’s MMX and possibly Xstrata and Vale, Beijing’s National Development and Reform Commission has put companies on notice that they must clear foreign takeovers with the central authorities first so as to combine corporate and “national strategic planning” interests.

That is interesting to me. Does Australia have a like form of central planning to that?

Mr Ritchie —I think the best way to draw an analogy about what the NDRC is in our terms is that it is like FIRB except it does not just regulate inward capital investment; it also regulates outward capital investment. That is a system that the Chinese value. I do not think it is an appropriate question—

Senator JOYCE —I am just asking if Australia has outward capital investment.

Mr Creese —It used to through the Reserve Bank and the foreign exchange regulations. We used to have to go get clearances through the Reserve Bank for any form of investment overseas.

Senator JOYCE —Does the US have these?

Mr Creese —I do not believe the US does, but I—

Senator JOYCE —Does the UK have them?

Mr Creese —could not guarantee it.

Senator JOYCE —Does Germany have them? Canada? Is there any other country you can nominate that has the form of control where you have a central planning of where that nation is investing throughout the globe?

Mr Ritchie —We would have to take that on notice, but in our own business dealings we are aware of a number of countries that do have outward controls on capital.

Senator JOYCE —So it is not really the same as any other country, is it?

Mr Ritchie —I would say that no country is unique when it comes to—

Senator JOYCE —But that is not what you said. You said it was just the same as any other country, and I have just quite evidently proved to you that it is not.

Mr Ritchie —In terms of the way in which a country has sovereign powers to regulate whatever it likes to, it is exactly the same as any other country.

Senator JOYCE —As a regulator—but it does not have a regulator that has a central plan on where every part of that structure will be investing overseas. No other country but China has that.

Mr Ritchie —I do not know that they have a central plan that regulates every dollar that goes overseas.

Senator JOYCE —You talk about rigorous transfer pricing laws, and I understand exactly what you are saying there. Do you believe that in the nature of international relations there are conditions that might not be explicit but instead quite implicit, especially when there is a large discrepancy in the power structures between the two? Do you believe, to be quite honest, that there are implicit exemplifiers of that power structure which might be nominated by the defence force, foreign policy or financial power of a country?

Mr Ritchie —You are raising matters of foreign policy that I just do not believe that as a corporate we should be commenting on.

Senator JOYCE —That is fair enough. Have you ever heard of the concept of loss of face?

Mr Ritchie —Yes. I have lived and worked in Japan, China and various other places. I am very cognisant of it.

Senator JOYCE —I have seen quite a few emails that describe it to me. Obviously, with Asia there are implicit processes to a deal which are not explicit but must be understood. They are completely implicit in how you deal with them.

Mr Ritchie —I would say that is the same in dealing in many places around the world.

Senator JOYCE —On the position of reciprocity, if having a more open and robust form of foreign investment is such a great idea then why doesn’t China engage in that and invite Rio Tinto over to open up and develop coal mines in China?

Mr Ritchie —In China, as part of a restructure we just sold a half ownership of an aluminium smelter that we had owned for many years.

Senator JOYCE —That is an aluminium smelter. I am saying coal mining.

Mr Ritchie —Okay. We could, if we wished, as part of the proposed transaction that we had with Chinalco, participate with substantial ownership levels—perhaps in most cases in excess of what we were proposing as reciprocal arrangements in their joint venture arrangements with us—in significant exploration and development projects in china. This argument of reciprocity, I must say, I am struggling to understand in the context of what we were proposing with Chinalco.

Senator JOYCE —Can you direct me to a major foreign owned coal mine in China?

Mr Ritchie —I know that Occidental built and developed one in the eighties. Whether it is still foreign owned I do not know, but that was a major coke and coal mine. In those days the total investment probably cost about $300, which in today’s dollars would be a massive mine.

Senator JOYCE —So you would say that there is the capacity for BHP or anybody else to get an entree into the Chinese coalmining market? There would be no sort of impediments put up against them?

Mr Ritchie —In relation to coal specifically, I really cannot answer you. I know that the joint ventures that we were proposing related to coking coal and to copper. In respect of other commodities, I really cannot tell you anything.

Senator JOYCE —So it is a joint venture.

Mr Creese —I can add to that. I was working with an Australian consortium that was going to get involved—and did proceed—in an onshore gas and oil exploration deal on Hainan Island in 1983.

Senator JOYCE —If Minmetals completes their OZ Minerals takeover, which I imagine they will, what percentage of Minmetals will be Australian owned at that stage?

Mr Ritchie —I cannot answer that.

Senator JOYCE —The answer is zero.

Mr Creese —If I may, I have heard that there was some discussion of a possible relisting and refloating of that company in Australia.

Senator JOYCE —‘Possible’. Where did you hear that?

Mr Creese —I read it in a newspaper.

Senator JOYCE —What percentage of the shareholding would that be?

Mr Creese —There was no mention of that.

Senator JOYCE —Was that to do with Prominent Hill and other interests or was that to do with the Minmetals purchase of the goldmines in Tasmania and what was formerly Century Zinc?

Mr Creese —I do not recall.

Senator JOYCE —You also referred to SingTel and Optus. I suppose the difference there is that, if we lose a telephone company, we can build another one. That is completely different to minerals in situ, in the ground, and life-of-mine contracts. Do you equate Optus and SingTel with the ownership of what has been the predominant provider of wealth for this nation—that is, our ownership of and connection to the mineral base of our nation?

Mr Ritchie —Again, I think that, with respect, it is an overly simplistic question—

Senator JOYCE —You can be as hard on me as you want. It is your right.

Mr Ritchie —on a very difficult issue. One of the reasons that this has attracted so much prominence is the transaction which we were proposing with Chinalco. In all honesty, it contained no control, direct or indirect, of Australian resources being vested in the Chinese. To try and run an argument that has as its basis control issues when in fact there were none is illogical.

Senator JOYCE —You drew the analogy with SingTel. What portion of the telecommunications market does Optus have?

Mr Creese —We are not able to help you with that, Senator.

Senator JOYCE —I think it is about 10 per cent; it is pretty minor.

CHAIR —Eight, I think.

Senator JOYCE —It might even be that; it might be less than that. What portion of the minerals market in Australia is Rio?

Mr Creese —You really have to look at it commodity by commodity.

Senator JOYCE —Well, let us talk about it. Let us start with coal.

Mr Ritchie —I can answer that, because I used to run our coal businesses.

Senator JOYCE —I was hoping you could, Mr Ritchie.

Mr Ritchie —About 24 per cent.

Senator JOYCE —About 24 per cent of the coal market. Mr Creese, if Chinalco had ended up with 18 per cent of Rio, even though we have now discovered—well, we have always known it; I just wanted it on the record—that there were certain assets that they would have 50 per cent ownership of, who would have been the next biggest shareholder under them?

Mr Ritchie —One of the major institutions.

Senator JOYCE —What percentage of shares would they have held?

Mr Ritchie —Five or six.

Senator JOYCE —Is that Legal and General?

Mr Ritchie —Let us take it on notice. In the same way that you are suggesting a number for market share, we are just going to generalise.

Senator JOYCE —Roughly, I remember looking through the share registry and to the best of my knowledge Legal & General or somebody came in at about three or four per cent. In essence Chinalco would have been three to four times bigger than the next biggest shareholder. Did they have any discussions about who would be elected to boards and who would not be elected to boards? Did they have an interest in who was going to be a board member?

Mr Ritchie —I think it was published.

Mr Creese —Yes, the whole thing was published in terms of the details.

Mr Ritchie —What was published was that they would have the ability to nominate two directors to the nominations committee and for the nominations committee to determine whether to accept one of those directors it had to be an independent director and meet the independence tests as per the ASX and the LSE listing rules.

Senator JOYCE —But they could have voted for the rest. They did not lose their voting rights for all the other directors did they?

Mr Ritchie —No.

Senator JOYCE —It is a pretty powerful voting bloc.

Mr Ritchie —I suppose if you have invested a very large sum of money into a company, which by that stage would have been something like $38 billion, then some stewardship would be appropriate.

Senator JOYCE —At the last shareholders meeting what actual percentage of shareholders voted?

Mr Ritchie —I cannot answer that.

Senator JOYCE —Because they do not always vote do they? In fact in a lot of times shareholders do not vote.

Mr Creese —It depends on the nature of the resolutions put up. The average shareholder turnout is in the order of 60 to 65 per cent. It depends on the particular resolution.

Senator JOYCE —That is interesting because now your 18 per cent is actually in effective terms getting to 25 to 30 per cent of the effective control of the company.

Mr Creese —That is if people do not exercise their rights.

Senator JOYCE —And a lot of them generally do not.

Mr Creese —Our statistics show that it depends on the nature of the resolution as to what the turnout is.

Senator JOYCE —This then turns it into a very powerful voting bloc with immense capacity not only to influence the two directors that they have but also to influence the other shareholders that—let us be honest—without whose vote they do not get in.

Mr Ritchie —I understand theoretically what you are saying. What I am struggling with is in what way this has some bearing on foreign investment.

Senator JOYCE —What I am saying is basically the strike limit at 15 per cent sometimes can be completely erroneous. A person can have a massive effect on the operation of a company, especially with the advent of Chinese sovereign wealth funds in the market. If I were Chinese, I would be doing exactly the same thing without a shadow of a doubt. I would be gunning for it. Fifty-one per cent is not the magic number. The magic number is when I have the capacity to influence the election of the directors and also the direction of the company because I am by far and away the biggest shareholder.

Mr Ritchie —With respect, again I just do not think you can pick one aspect of governance and presume, without looking at all the other aspects of the transaction or of the governance that goes towards it, that it has some disproportionate view. If they had, as they did, excused themselves from marketing and pricing decisions, if they had, as they did, excused themselves from various other forms of minority protection, which are just normal in joint ventures, then their level of influence in the organisation was an awful lot less, or would have been an awful lot less, than other comparable transactions. The fact of having one director out of a board of some 15 or 16 does not seem to me to give them very much control. The fact that they have no control over the day-to-day operating decisions, pricing decisions, marketing decisions or expansion decisions of the company sort of says that they have not got a lot of control there. I am struggling to pick one thing and to say that, because that is the case, then everything else is bad.

Senator JOYCE —Mr Ritchie, I disagree that you do not have a job unless I vote for you. I do not have to tell you anything; you just have to know that you had better behave yourself, otherwise you are going to be finding yourself another job at the next election of directors.

Mr Ritchie —I do not think that is the case at all.

Senator JOYCE —Just for the record, thank you very much for turning up. If the Chinese government genuinely believed in the corporate principle and that decisions be made on a corporate interest, they would float the companies and allow people to buy and sell shares as they wish and make decisions in the short term as to the corporate interest. But by reason of the government owning a company, they own it for a purpose—they do not own it for fun—which is the long-term, strategic outcome for the people of China as represented by the Communist People’s Republic of China’s government. If they believed in the short-term corporate interest, then they would surely float the companies, as every other nation around the world has done.

Mr Ritchie —I have two comments. One is that they have already said that as a matter of policy that is their intention with their larger SOEs. The second point I want to make—and this is just from my personal experience but I think that it is relevant for an inquiry of this nature—is that China well recognises its need to be able to engage with the Western world and with the Western capital markets. In their dealings in terms of putting the proposed Rio Tinto-Chinalco transaction together we were extremely cognisant that this would be viewed not just in terms of getting it across the line but also in terms of how they would interact with Western capital over a long period of time. It was only by then coming away and Western capital and Western governments having a decent view about the way in which they behaved, that further transactions were capable of being done. My view is that Australia, as well as other Western countries, needs China an awful lot and we need to be finding a way to engage properly and meaningfully with China going forward, because otherwise it is not going to be a very good thing for Australia.

Senator JOYCE —I have just one final question. You talked at the start about a $30 billion investment over a certain period of time. What was the period of time?

Mr Ritchie —Since 1998.

Mr Creese —The last decade.

Senator JOYCE —Can you tell me how much revenue you have made in that period of time?

Mr Ritchie —Sourced out of Australia? I would have to take it on notice, I am sorry.

Senator JOYCE —Thank you very much.

CHAIR —I thank the witnesses from Rio. Senator Bushby had to leave because he had a flight to catch. I would like to thank the secretariat, Hansard and all the witnesses for attending here today, and I close this session of this inquiry. Thank you.

Committee adjourned at 3.18 pm