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
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
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
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
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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