WA PREMIER SOOTHES CHINA, COURTS INVESTMENT

C O N F I D E N T I A L SECTION 01 OF 02 PERTH 000036

SIPDIS

STATE FOR EAP/ANP, EAP/CM, AND EEB

E.O. 12958: DECL: 8/5/2029
TAGS: PREL ECON EINV EMIN CH AS
SUBJECT: WA PREMIER SOOTHES CHINA, COURTS INVESTMENT

REF: (A) CANBERRA 537, (B) CANBERRA 631, (C) SHANGHAI 321, (D) BEIJING 2144, (E) 08 PERTH 42, (F) PERTH 19

PERTH 00000036 001.2 OF 002


CLASSIFIED BY: Kenneth Chern, Consul General, AmConGen Perth,
State.
REASON: 1.4 (b),(d)




1. (C) Summary: Western Australia (WA) State Premier Barnett
used a previously-scheduled eight-day China visit to turn down
the heat after the collapse of a bid by the state-owned Chinese
Chinalco firm to boost its share in Anglo-Australian mining
giant Rio Tinto and the subsequent arrest of Rio Tinto executive
Stern Hu in Shanghai. Barnett told the Consul General it had
been a tough visit, especially at first, with terms like
"treachery" in the air, but that the mood had lightened as the
trip progressed, and that business leaders like Chinalco's Xiong
Weiping were ahead of Chinese government officials in moving
beyond the controversy. Barnett raised the Hu case briefly with
the Mayor of Shanghai but exerted himself throughout he visit to
persuade the Chinese that WA welcomed their investments. He
publicly criticized the Australian Commonwealth Government and
the WA bureaucracy for failing to facilitate such investments.
End Summary.

POLITICAL TRIAGE


2. (C) On a July 18 - 26 visit to China originally set to build
bridges, WA State Premier Colin Barnett was forced to do triage
following the rejection of a bid by Chinalco to boost its share
in Rio Tinto in favor of a Rio Tinto deal with BHP Billiton (ref
A) and the subsequent arrest of Rio Tinto executive and
Australian citizen Stern Hu by Chinese authorities for espionage
(refs B and C). Barnett told the Consul General that it had
been a tough visit. At the beginning, the Stern Hu case,
although not brought up in most meetings, had been "the elephant
in the room." The rhetoric in newspapers and broadcasts had
been reminiscent of anti-U.S. rhetoric Barnett had heard while
traveling in China when the U.S. accidentally had bombed the
Chinese Embassy in Belgrade a decade ago. Terms like
"treachery" and "back-stabbing" were floating around. People
were bringing up Tibet, and the planned travel to Australia by
Uighur Muslim activist Rebiya Kadeer.

A PIVOTAL TRIP?


3. (C) Barnett noted to the CG that he had raised the Stern Hu
case only once, by agreement with the Australian Commonwealth
Government, in his meeting with Mayor Han Zheng of Shanghai (Ref
D). He had cautioned the Mayor that if the case dragged on, it
had a potential to cause a rift in bilateral relations. At his
subsequent meetings, Barnett had stressed WA's welcome for
Chinese investment and the need for good bilateral ties. He had
coordinated the trip with Canberra, working closely with
Ambassador to China Geoff Raby. Barnett told us, with some
animation, that it was just by chance that he had gone to China
at a pivotal time; he could not say whether his visit had made a
difference, but he thought things might have gotten much worse
between China and Australia if he had not made the trip. He was
not trying to "play diplomat," but Chinese rhetoric had eased
and the mood had lightened as the trip progressed.

WARM WORDS FROM CHINALCO CHAIR


4. (C) Barnett told us that Chinalco Chairman Xiong Weiping had
spoken with him about Rio Tinto's rejection of the deal with his
firm, telling him, "We're disappointed, but we still have a
large investment in Rio, and we're ready to move on." Barnett
commented that this willingness to move on and work together was
characteristic of the business leaders he had encountered - in
contrast to political leaders who continued to display anger
about the Chinalco rebuff. After meeting Barnett, Xiong
proclaimed that with its abundant resources, well-run economy,
stable environment and geographic advantages, Australia was "an
ideal place for investment." For his part, Barnett publicly
acknowledged Chinese displeasure with the Rio - BHP deal and
said that while Australia-China relations were increasingly
being defined by companies, governments also had a role: "I
will be taking a far stronger hand in how the companies relate
to their major customers and the relationships between them," to
ensure "the transition from customer to investor to economic
partner is done smoothly." He remarked that the prospective
Chinalco - Rio deal had not been handled well by the
Commonwealth government, which had avoided a decision on whether
the deal met foreign investment guidelines until Rio had pulled
out in favor of a BHP alliance.


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SINOSTEEL HICCUP


5. (SBU) Further complicating Barnett's trip was an unusual
protest read by the Chinese Consulate General in Perth at an
official pre-visit briefing, complaining about delays by the WA
Environmental Protection Authority in approving iron-ore mining
investments by state-owned Chinese company Sinosteel in WA's
Mid-West region. Sinosteel, which has been caught up in
environmental approvals for three years, wrote Barnett that
delays were costing the firm A$4 million (US$3.2 million) a
month, adding that the firm had invested A$140 million (US$112
million) in the Mid-West. After arriving in China, Barnett said
Sinosteel's treatment had been disgraceful, adding that his
office was intervening, not to limit the EPA's independence, but
to negotiate better outcomes: "We should not be leaving our
major trading partner alone trying to work its way through the
maze of our environmental protection processes."

WELCOME FOR CHINESE INVESTORS, SKILLED WORKERS


6. (SBU) Later in the trip, Barnett expressed support for
China's involvement in the multi-billion-dollar Oakajee Port and
Rail project to bring Mid-West iron ore to the coast for
transport overseas - a sore point for China since WA awarded a
contract for the project to Japanese-supported consortium in
preference to a Chinese-backed consortium (ref E) - and signed a
memorandum of understanding with Ansteel to conduct a
feasibility study for an integrated iron and steel plant and
rolling mill at the Oakajee industrial estate. He also invited
China to take part in greenfields gas developments and
irrigation farming in WA's Ord River region. Addressing critics
of Chinese investment in WA, he told them to "get over it," to
recognize how much further China will go in the next 30 years,
to "deal with the reality of today," and to remember when
thinking about the nature of Chinese state-owned businesses that
the WA government itself owned electricity, water, and transport
businesses, concluding: "It is Chinese investment and we should
embrace it." After arriving home, Barnett said he would raise
with the Commonwealth government the need to facilitate visas
for skilled Chinese workers in anticipation of a construction
boom spurred by Chinese investments, prompting criticism from
labor unions, the WA ALP, and Immigration Minister Chris Evans.


COMMENT


7. (C) Barnett's China visit spotlighted his ambition to exploit
Chinese economic dynamism in the service of continued WA
development, along the lines followed with Japan by legendary WA
Premier Sir Charles Court in the 1970s. Like Sir Charles's
exploits, Barnett's plans have a visionary quality which not all
WA business leaders find compelling. One resources specialist
commented to us that the notion of an Oakajee steel mill or a
Chinese-driven Ord-Region agricultural renaissance had a
"build-it-and-they-will-come" quality of doubtful economic
viability. But such visions also reflect an increasingly strong
welcome articulated by Barnett since becoming Premier for
Chinese involvement in the WA economy (ref F). One journalist
commented that Barnett has ramped up his pro-China rhetoric to
its strongest level yet - something that will surely be
controversial in the context of growing strains between
Australia and China over issues ranging from investment and
strategic planning to human rights. Barnett is betting big that
for the long haul, his ambitious agenda with China, reflecting
the independent spirit and economic vitality of WA, will pay
off. End Comment.
CHERN