THE DISTILLERY: Chinese discovery

Each day, Distillery selects the three or four best ideas that have been put forward by the nation's leading business and economic commentators (and lists other items they have covered). Readers are invited to comment on the Distillery selections in The Conversation.

The importance of Australia's economic relationship with China is undeniable, but the actual investment between the two countries is terribly small. That's the counter-intuitive conclusion offered by one of this morning's commentators – that China is not investing in Australia as much as we tend to assume, and vice versa. Our most important relationship is still with the US, which is still reflected in diplomatic relations and investment, and further underlined by BHP Billiton's enormous move into US shale gas; a point addressed by another of this morning's commentaries. Meanwhile, a few onlookers are queuing up to give executive remuneration an easy kick, but only one seems to be interested in the underlying problems.

But first we start with The Australian's economic columnist David Uren, who addresses the reality that Australia's business relationships with its biggest neighbours, particularly China, have a long-distance feel to them. Uren points out that direct investment and interaction is way overblown; even BHP Billiton's China marketing arm is based in Singapore.

"Australian companies have more money invested in Denmark than they do in China, which ranks only 15th as a destination for Australian business venturing abroad. Canada and Switzerland have more at stake in Australia than does China, which ranks 12th as a source of foreign investment. It makes one wonder why the Foreign Investment Review Board got so worked up over some relatively small Chinese investments in Australia's minerals industry. Yet the relationship with the US has not received any substantive discussion in any Treasury speech or working paper for at least five years.”

Appropriately, a true home for BHP investment is the US, as explained by The Australian's Matthew Stevens, who listened in on the briefing from BHP petroleum boss J. Michael Yaeger. Some investors have been caught somewhat offguard by BHP's move into shale gas and it was Yaeger's job to quell those rumblings. Stevens points out that it's interesting that BHP is poised to pump $US80 billion into its growing petroleum business, largely in the US, just as former takeover target Rio Tinto is dramatically jettisoning many of the assets swept up in the Alcan acquisition.

"The debate over Alcan versus petroleum was one of the central investment themes to Rio's defence against BHP's takeover. The mining house argued, effectively, that petroleum was a wild card in the investment pack and one that introduced uncertainty. But in the end, it looks a whole lot like petroleum has won that argument hands down.”

Most of the commentaries on Woolworths' move into hardware retail through its joint venture with US giant Lowe's have focused on the likelihood of success and the costs incurred on both sides. But The Australian's John Durie has looked past the competing giants and found beneficiaries that aren't Bunnings customers.

"Dulux's Patrick Houlihan is one beneficiary of the hardware wars as the three big retail operators spend up to establish their place in the industry. Houlihan has 40 per cent of the paint market, nearest rival Valspar is tied to rival Masters and, not to be outdone, Metcash is trying to keep Mitre 10 in the race. When you are the leading supplier, warring retailers help, because they want your product to help boost their sales.”

Turning now to the always touchy topic of executive remuneration and it appears Michael West has sparked quite a campaign over at Fairfax, with the Sydney Morning Herald's Michael Pascoe and Ian Verrender taking some time to hit corporate Australia for their loose rules on the subject. The Herald Sun's Terry McCrann shares the frustration of his fellow commentators – and no doubt the vast majority of their readers – but also explains the two greatest problems with the whole process rather than just focusing on the big pay cheques.

"The structure of remuneration that has grown up though, is, I'd suggest, completely unsound. It creates the veneer of scientific method, where there really is none; and as a consequence excludes all `non-experts' from any involvement in the process and its outcomes. This then intersects in a (mostly) very unproductive way with the requirement for the `rem report' to go to a non-binding shareholder vote at the annual meeting. And now we've got the added factor of the `two strikes rule.' The shareholder vote opened the door to proxy advisers to `advise' the instos on their vote. Not surprisingly the proxy advisers raced through that door with glee. Frankly, their aggressive assessments have been too crude; to paraphrase, the pay's too high.”

Starting off with companies to round out the commentaries and The Age's Garimpeiro columnist, Barry Fitzgerald, also listened in on the BHP briefing, while The Australian's Tim Boreham found some improving prospects at Incitec Pivot under the watchful eye of CEO James Fazzino, despite sluggish growth in the US explosives market.

Meanwhile, The Australian's John Durie says the market is reserving judgment concerning recent movements from Leighton Holdings designed to create the impression it's functioning more independently from its majority shareholder Hochtief.

Turning to M&A activity and the Australian Financial Review's Chanticleer columnist Tony Boyd says Spotless Group will have to play the reportedly pending takeover offer from Private Equity Partners carefully, given the shareholder frustration from its flat-out refusal to engage with previous suitor Blackstone Group. The Australian's Bryan Frith examines the looser M&A laws that Britain is currently dealing with and ponders whether similar changes will find their way to Australia.

Finally, The Australian's Jennifer Hewett argues that the mining tax will be an easier sell for Labor than the carbon tax, but it's also based on equally dubious numbers. And the Australian Financial Review's Glenn Mumford rallies against the short-term fiscal austerity wave that's sweeping through Europe, masquerading as a simple fix to the region's debt problems.