Clive Palmer's dangerous Chinese misstep

Clive Palmer, the federal member for Fairfax and a mining billionaire, used to be Beijing’s best friend in Australia. Back in 2011, he infamously called the Foreign Investment Review Board a “racist” body that discriminated against Chinese investors. “They’ve brought in things like the FIRB in Australia, which is an outstanding racist legislation designed to slow Chinese growth and it is a national disgrace,” he said.

Fast forward three years and Palmer is accusing his former business partner CITIC Pacific, which operates Australia’s largest magnetite iron ore mine in Western Australia, of taking the country’s resources without paying its proper dues (ie not giving him enough money).

The dispute is centred on how to calculate the so-called Royalty B, which includes, among other things, the now defunct long-term benchmark price for iron ore. CITIC Pacific has also claimed that Palmer siphoned off the company's funds to pay for his election campaign costs.

Against the background of constant sniping between the eccentric mining baron and a powerful Chinese state-owned enterprise, Australian political and business leaders are ringing alarm bells about the consequences for the bilateral relationship.  

Colin Barnett, the WA premier, fired off the first shot, saying “Clive has damaged our relationship with China. To put it bluntly, the Chinese hate Clive Palmer. In their view, and I think they are right, he’s taking unfair advantage of an agreement … and he is trying to get more money out of them than was originally negotiated.”

Queensland deputy premier Jeff Seeney also slammed Palmer’s antics, saying he has damaged the all-important economic relationship with China: “Clive Palmer is an embarrassment to Queensland and an embarrassment to Australia.”

So, is Palmer’s public spat with CITIC damaging Australia’s relationship with China, which bought $100 billion worth of goods and services from this country last year?

That question was put to a number of leading Australian executives at last Friday’s Australia in China’s Century conference. Andrew Michelmore, chief executive of Chinese-owned MMG, said the legal stoush casted a negative light on Australian business people.

“The general impression in China is, ‘Gee, you know, you have to be very careful with those people in Australia -- look what happens,’ and the litigation in the public arena, loss of face -- there’s a whole lot of issues,” he told the conference. Michelmore said the highly publicised dispute could potentially drive Chinese investors to search for investment opportunities elsewhere, such as Africa.

Andrew Forrest and Ryan Stokes, both of whom have extensive business dealings with the Chinese, also raised concerns about Palmer’s behaviour towards Beijing. “If someone is talking in their book as being China’s absolutely best friend one moment and worst enemy the next … China’s over 21, it can see straight through that,” Forrest said.

Most concerning however is the negative press coverage in China about CITIC’s misadventure in Australia. The country’s leading business publication, Caixin, describes the situation as “when the state-owned enterprise meets the troublemaker”.

An unnamed CITIC executive was quoted as saying “Clive Palmer is exploiting legal technicalities under the Australian laws to swindle money from us and it will have grave consequences for foreign investors and in particular Chinese investors.”

Luckily, a senior CITIC executive said the company still retains its faith in the Australian legal system but also added it would have to reconsider how it invests in the future, including better understanding of the legal system.

The really important question to extend is: do Chinese investors see Palmer as part of the government? So far, he has largely been viewed as a maverick mining baron with a seat in parliament. But this is about to change.

Palmer’s senate bloc is predicted to share the balance of power in the federal upper house after July, with the likelihood of being able to influence legislation and policy. Given his past erratic behaviour, there is no guarantee he will not use that power to his advantage. It would be seriously concerning for an Australian politician to use his political power to strengthen his commercial position against a foreign investor.

So far, Palmer’s dispute has not deterred Chinese investment, as evidenced by the recent flurry of activity, including Baosteel’s bid for Aquila. But this could change with Palmer’s political ascendency in the new parliament after July.

Palmer’s legal dispute with CITIC is doing Australia a disservice as a stable and welcoming investment destination at a time when commodity prices are under further pressure and countries around the world are competing for Chinese capital.