Rudd policy on China 'set by BHP'

Stephen Joske says BHP bent the ears of senior ministers and exploited the Government's "policy dysfunction" to get its way on China.

Mr Joske, who was the Government's top China economist until July last year, said the Australian bureaucracy abrogated its responsibilities and Treasurer Wayne Swan opened the door for lobbyists to fill the policy vacuum on China.

"My very strong view is that the key things that got the foreign investment problem going was Government indecision and listening too much to the vested interests of BHP," said Mr Joske, who is now with the Economist Intelligence Unit in Beijing.

"Emails from BHP were circulating at the highest levels, copied in to ministers' offices, about all the 'China Inc' stuff."

Chinese investment in Australian mineral resources has grown from a trickle two years ago to a deluge from when Chinalco bought 9 per cent of Rio Tinto's shares in February last year. Chinalco agreed to invest a further $US19 billion this year in a deal that broke down when Rio walked away and joined iron ore operations with BHP. Both Chinalco moves had upset BHP's strategic plans.

The failure of the second Chinalco deal and Australian Government moves to reject, amend or delay other Chinese investments have contributed to strains in the relationship.

China sent a signal yesterday that it is ready to restart top-level engagement when Vice-Premier Li Keqiang was unexpectedly made available to meet Climate Change Minister Penny Wong in Beijing. Ms Wong said they discussed the Copenhagen climate summit, but declined to give details.

She also denied the Government was more predisposed to being captured by business interests than its predecessors.

Wang Wenfu, an Australian Chinalco executive, said he had "admired" BHP Billiton's strategic discipline but thought it "unusual" that the company kept its lobbying activities secret.

Mr Joske, who was an economic adviser to former treasurer Peter Costello in the 1990s, said Australian officials had failed to understand the economic costs of missing out on Chinese investments. "We're seeing clear signs of policy dysfunction where regulators are being let loose to over-regulate.

"There's no one in Treasury who can tell up from down on China, beyond what they read in the newspapers."

Mr Joske said Prime Minister Kevin Rudd specifically instructed Treasury to devote more resources to China but it never happened. "China is too important to mismanage, he said.

A spokesman for Mr Swan last night suggested that Mr Joske's tenure in Mr Costello's office had tainted his credibility. "The Treasurer takes his decisions in the national interest, without regard to the political views of a former Howard government staffer," the spokesman said.

Clinton Dines, who headed BHP's China business until July, said Australia was entitled to screen investment applications.

"The Chinese themselves have mastered the art of declining to approve investments where they wish to protect their own interests," he said.

"There is nothing wrong with that, and the Australian Government should preserve the same policy prerogative."