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Federal Government mulls Chinese investment i -

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Reporter: Sue Lannin

ELEANOR HALL: Federal Minsters also have their minds on the future of the nation's resources
industry as they consider a number of applications from Chinese companies wanting to buy into
Australian mining companies.

Some investors and analysts say Australia should not agree to the applications from a major
customer who could put pressure on the price of key commodities like iron ore.

But others say the deals are injecting much needed capital into the sector.

Finance reporter Sue Lannin has more.

SUE LANNIN: Over the past year there's been unprecedented interest from Beijing-backed firms in
Australian mining companies.

Rio Tinto is at the top of the list and is seeking Government approval for its $30-billion tie-up
with Chinese aluminium producer Chinalco. Smaller iron ore miner Fortescue Metals is in talks with
a Chinese steelmaker. Zinc producer, OZ Minerals, has agreed to be taken over by China Minmetals

Chinese officials have been lobbying the Federal Government to allow more Chinese investment.
Federal Treasurer Wayne Swan told reporters yesterday he's looking at the merits of all deals
before the Foreign Investment Review Board.

WAYNE SWAN: I established at the beginning of last year guidelines which I announced and we will
follow in establishing whether these investments are in the national interest or not, and I'll take
our decision in the normal way. We will analyse these proposals seriously and in a considered way
and take our decision in the Australian national interest.

SUE LANNIN: Many investors and analysts say Australia is selling off the farm for short term gain.

Resources analyst Mark Taylor from Morningstar:

MARK TAYLOR: Our resource base is one of the key foreign income sources we have and resource mining
is one of the things that this country does best and in which we have a competitive advantage.

So every time we have a look at selling down a portion of that inheritance that we have, we should
look at it extremely carefully because it does have long-term implications for our financial
wellbeing as a country.

SUE LANNIN: What does it mean for say iron ore prices? Because we're seeing reports now that some
of the Chinese steel firms are trying to negotiate cuts of between 30 to 50 per cent in iron ore

MARK TAYLOR: The magnitude of those cuts in themselves I don't think are particularly meaningful
because we had such a huge rise in iron ore prices in the lead-up to this. It is significant in the
sense that it could be an example of what happens when Chinese companies have more influence over
what future prices might be.

The reason we had such a large rise in iron ore prices in the lead-up to this is because Australian
and Brazilian iron ore producers effectively had an oligopoly in iron ore supply. It gave them a
very powerful position in terms of pricing and if you're going to allow an erosion of that to occur
then the obvious outcome is that the customer will have a stronger say in what the price will be in
the future.

SUE LANNIN: But Asandas investment advisor Mark Nuitta says many companies like OZ Minerals are
cash strapped and need the money. He says companies like Mount Gibson Iron have only survived
because they've been bailed out by their Chinese partners.

MARK NUITTA: Investors in general will have to put money in. OZ Minerals is the obvious one at the
moment. So if people aren't willing to put their money where their mouth is, we have to accept the
Chinese money. I don't see any way around it at the moment.

SUE LANNIN: The Western Australian Premier Colin Barnett says there should be more controls over
Chinese investment in Australia.

COLIN BARNETT: What I would like to see, and I think what is important for Australia and
particularly Western Australia, is that we do have Chinese investment in our mining industry. But
it be similar to what has happened with Japan from the 1960s, that we get small, stable investments
from Chinese steel mills, Chinese investment groups, and that becomes the basis of a long-term
relationship. And I am keen to see China invest in new projects or expansion projects rather than
simply ride on the back of what has already been there.

There is no doubt Western Australia is probably the most important source of raw materials to Japan
and increasingly to China. We have a strategic and global significance that sometimes I think even
we overlook.

SUE LANNIN: Last year there were dozens of applications by Chinese companies to the Foreign
Investment Review Board. Analysts say there will be fewer but bigger deals this year.

ELEANOR HALL: That's finance reporter Sue Lannin.