While suspicion and fear is driving some governments’ responses to state-owned enterprises, Australia’s response has been measured.
In January 2012 the economist released a special edition in relation to State-owned enterprises. Its quote was that State capitalism and its rise and the emergence of a new business model was going to cause problems for the world. The question is in 2013 has the rise of State-owned enterprises operating in economies and in businesses throughout the world caused problems.
For some countries it’s perceived that it has. Some countries view State-owned enterprises as exercising and wielding political influence rather than acting as an ordinary corporate would in relation to competition and the making of profit.
For example, the United States has recently rejected an application by Sany to acquire a wind farm in Oregon despite the fact that Sany is indeed a privately owned enterprise. As a privately owned enterprise it is not subject to political interference however the United States has been unable to differentiate between the two believing that any company coming out of China must be a State-owned enterprise. And, despite a Federal Court appeal the government has still rejected Sany’s acquisition of that wind farm.
Canada recently passed new laws in relation to what is a State-owned enterprise. Again in response to media and public criticism about the Chinese investing, in particular, in their oil sands industry. This new definition of State-owned enterprise is very expansive and basically allows the government to determine what is a State-owned enterprise on the basis of whether or not a government wields or might hold some sort of control or influence - very difficult to determine in practice and one that the Canadian government will be able to apply retrospectively under its new laws.
Mongolia which sits right at the northern tip of China and is reliant on China for a vast amount of its foreign direct investment recently passed laws which mean that any Chinese investment by SOE into Mongolia will require cabinet approval – basically restricting Chinese investment into Mongolia.
So what’s Australia done in response to State-owned enterprises? In Australia we’ve seen State-owned enterprises coming into our country basically since 2007. In response to that Australia has been very measured. Rather than view all State-owned enterprises as political operations, Australia has instead imposed behavioural conditions which address any perceived threat. Behavioural conditions which ensure that State-owned enterprises will operate as any business would in pursuit of profit.
In addition, earlier this year the Foreign Investment Review Board released a foreign investment policy which defines State-owned enterprises as an enterprise in which the government holds 15%. A trigger that is exactly the same as the definition for a foreign person and in no way discriminatory against State-owned enterprises.
So what does this all mean for Australia and Australian businesses? What it means is in a capital constrained market – one where debt markets are constrained and equity capital markets are constrained and indeed consumer markets are constrained – State-owned enterprises from China offer a vast opportunity. They offer deep pockets with long patient capital. They offer access to over 1.1 billion people – not only in China but also their vast channels of access to consumers throughout Asia.
Australian businesses can reap the opportunities offered by State-owned enterprise. But to do so they need to appreciate that these opportunities aren’t without its challenges. There are cultural differences, there might be differences in objectives and as the Chinese would describe it as being in the same bed but having different dreams.
So how do you manage those different dreams? You manage those different dreams by appreciating the differences between State-owned enterprises and Australian companies recognising the cultural difference and managing them as part of your negotiations and ongoing as you implement the business. So whilst there are challenges with this opportunity in our view you need to grab that opportunity with both hands and move into the future with Chinese state-owned enterprises.
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