China mine boss vents concerns

Julia Gillard has been afforded little time to bask in her recent diplomatic triumphs in China, with a major Chinese state-owned investor stressing his concerns directly to her over Australia's regulatory environment.

Speaking at the ADC Future Summit on Monday night, the Prime Minister was keen to hail the successful signing of a series of agreements on her visit to China earlier this month, headlined by a high-level strategic dialogue that she described as a landmark for bilateral relations.

But in a polite but firm speech soon after Ms Gillard's keynote address, Liu Xiang, the chairman of coalminer Shenhua Australia, showed the Prime Minister's foreign policy wins had yet to dislodge long-held concerns of Chinese investors active in Australia. Shenhua Group is the largest coal producer in the world, and has a market capitalisation of almost $65 billion.

Mr Liu said the regulatory framework, particularly around environmental approvals, had shifted from beneath him since his company first invested in the Watermark coal project near Gunnedah, NSW, five years ago.

"From our own perspective the regulatory environment is different today than it was when Shenhua first invested in the Watermark project in 2008," he said.

Chief among Chinese investors' concerns have been the introduction of the mining and carbon taxes, and a perception that Chinese investors are discriminated against by the Foreign Investment Review Board.

There are reports that Chinese negotiators are asking for transactions below $1 billion to be made exempt from FIRB scrutiny, in order for stalled free trade agreement talks to progress.

Urging policymakers to "eschew the simplistic policy choices of the past" and instead establish measures that would help Chinese investment to flourish in Australia, Mr Liu made repeated references to the importance of a stable and predictable regulatory framework in Australia.

"At a macro level, the investment environment in Australia remains attractive," he said.

"However, a degree of caution still needs to be exercised by policymakers so that unexpected changes in legislation and regulation do not impact investor sentiment about this market."

Shenhua invested more than $600 million in mining exploration and acquiring properties for the Watermark project. It plans to spend a further $1 billion to develop the mine to produce 10 million tonnes of coal a year to feed its power stations in China.

"Making such a large capital investment is never without risk," he said.

"Some of these risks can be mitigated with careful planning and appropriate financial diligence. The risk of unforeseen and unexpected legislation and regulation, however, is something far more difficult to plan for and mitigate."

Shenhua's main concern surrounds its Watermark project, which is in the early stages of federal and state approval processes.

It has been met with some environmental opposition and with an against-the-odds victory against Rio Tinto by the small Hunter Valley town of Bulga last week encouraging rural communities to test new developments, Shenhua's worst fears are that its 3000-page environmental impact assessment could be in vain.

Shenhua this month has also signed an agreement with Hydro Tasmania to invest $1.6 billion in Australian wind farms by decade's end.