Just a few months ago, the talk was all about the failed Rio-Chinalco deal, but the sudden surge in Chinese/ Australian investments that followed has left jaws hanging.

“The failed Rio-Chinalco deal has caused many to expect a slowdown in Chinese interest in Australia, but it has been proven otherwise,” said Andrew Hensher, co-head of Chang Pistilli & Simmons’ PRC business unit. “The business relationship between China and Australia is strong enough to withstand one mere setback.”

China’s investments have recently come under the spotlight with the arrest of four Rio employees, causing a widespread belief that tension exists between the countries. This was quickly diverted by the biggest Australia-China trade deal ever announced – ExxonMobil and PetroChina’s US$41bn liquefied natural gas deal.

The gas sale agreement came only weeks after Yanzhou Coal’s acquisition of Brisbane-headquartered Felix Resources, which will be the largest-ever Chinese deal in the Australian coal sector once completed. In this deal, Yanzhou engaged Corrs Chambers Westgarth, King & Wood and Baker & McKenzie for legal advice in different jurisdictions. Felix was advised by Allens Arthur Robinson.

Growing Chinese corporate activity in Australia has encouraged law firms there to develop their Chinese practices, with Australian firms engaged on IPO work having significant bilingual capabilities.

Minter Ellison Adelaide has a dedicated China team, Gilbert + Tobin has developed a strategic alliance with King & Wood, and another top-tier firm – Freehills – has formed an alliance with TransAsia Lawyers. “The increase is due to a number of factors, including the ability of the Chinese to provide capital and funding, the value of the Australian dollar and the policy of the Chinese government to encourage offshore investment,” said Campbell Davidson, head of Allens Arthur Robinson’s M&A practice in Hong Kong.

Hungry for deals
In 2006, Chinese investment in Australia was worth about A$3.5bn, while last financial year investment applications rose to A$10bn, and they may hit A$30bn in 2009. While the majority of China’s outbound investments are in the resource sector, other industries also feature.

For example, take the recent A$800m investment in Australia’s property trust Goodman Group, by China Investment Corporation (CIC). The fund engaged Freehills for legal advice, while Goodman Group hired Allens Arthur Robinson for advice. “CIC is very sophisticated ... its successful investment in Australia will give Chinese enterprises greater comfort,” said Leon Pasternak, who is a Freehill’s partner and corporate advisory team member.

Earlier this year, China’s Haier Group acquired a 20% stake in the struggling New Zealand white goods manufacturer Fisher & Paykel. The strategic investment will boost Haier’s profile and ambition to grow internationally. Freehills advised Fisher & Paykel and Clayton Utz advised Haier on Australian law.

Allens lawyers also note increased interest in agriculture, dairy and fisheries industries from Chinese investors. This surge has already prompted Australia’s Federal Treasurer to release new guidelines setting out principles considered, in relation to investment proposals by and from foreign governments.

Investment policy
In addition to the influx of direct investments, Chinese companies are looking to raise funds from listing on the Australian Securities Exchange (ASX). Three manufacturers from the mainland have launched IPOs in Australia this year.

Having to wait for up to two years to list on the domestic stock exchange, the ASX is considered a fast track by Chinese companies. This policy also benefits companies looking to raise funds locally for potential future Australian investments. “Listing ... gives Chinese companies a presence in Australia, [where] they might find it easier to make further investments within Australia,” said Hensher.

“The relatively straightforward ASX listing requirements makes it an attractive proposition for smaller Chinese companies,” said Pierre Lau, a senior associate at Melbourne firm Chambers & Co. “To smaller companies in Asia, Australia’s business environment ... and market track record over the last decade also makes the ASX a more viable option, without sacrificing sophistication.”

Still, only a few Chinese companies have opted for an ASX listing. “It is hard to say if there is a window of opportunity – everyone is probably waiting on more positive and consistent signals coming from the equities market in general,” said Jonathan Murray, a partner at independent Perth corporate firm Steinepreis Paganin. The firm was responsible for the 2007 listing of YTC Resources, which is backed by the Yunan Tin Group of China.

It seems Rio-Chinalco has done little to dampen Chinese enthusiasm for the Great Southern Land.