In an effort to bolster its move towards economic recovery, China has continued to invest. As part of a 4 trillion RMB ($600 Billion) stimulus capital infusion – larger proportionally than the one in the United States – the Chinese based infrastructure giant, Hunan Valin Iron and Steel purchased roughly an 18% stake in Australian company Fortescue Metals on Tuesday.
The move carries more than just economic stakes, but political ones as well. Canberra allowing the purchase instills a bit of confidence in Sino-Aussie investment relations. However, this must also be a politically viable move and Australia is doing its best to make sure it works out. Wayne Swan, Australia’s treasurer, demanded “formal and strict undertakings” from Valin and Fortescue.
Swan went on to cite restrictions on how far Valin could go in appointing members to Fortescue’s Board of Directors, however, Fortescue CEO Andrew Forrest welcomed the right of the Valin chairman to join the board. It was made clear that any Valin appointee would have to comply with the existing firm’s code of conduct as well as disclose any potential conflicts of interest with the existing structure of Fortescue’s directing, marketing, and operations, something Swan called “information segregation arrangements.”
Mr. Forrest summed it up by saying “I believe FIRB’s (Australia’s Foreign Investment Review Board) approval will be very welcome in China and it will strengthen the bipartisan relationship that exists between Australia and China, and Fortescue and the Chinese steel industry.”
Fortunately, for China, the banks are very liquid and the Administration determines how and to whom that liquid money is transferred. Right now the money is being transferred to infrastructure improvement. The hope is that by cooperating with other large economies that China can begin to repair some of the damage that has happened at home. An official in Dongguan stated that 1 million Chinese workers had lost their jobs and estimates another million to follow in the manufacturing province of Guangdong.
In response to these issues, China has made a point of first-step relief efforts to take place in infrastructure through its manufacturing sector. There stands to be a lot of construction work done in the country to improve its lackluster transportation system and build new research centers to prop up its universities. Steel production plays a large part of Chinese infrastructure plans moving forward with a lot hinging on the agreement between Valin and Fortescue, which, if successful, stands to be a huge boon to the Chinese steel industry and its economy as a whole.
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