Guanghan in Sichuan is a long way from the big steel mills and Beijing-based Chinese mining giants who have spent endless time and many billions of dollars in recent years shoring up stakes in Australian mining companies and earlier stage projects.
It’s about 300 kilometres from Chengdu the booming, bustling capital of Sichuan – a provincial outpost of the far flung south western province that includes a large swathe of Himalayas and millions of native Tibetans.
It was here that Liu Han started his company Hanlong, as far as we can ascertain. Liu’s path to his subsidiary, Hanlong Mining, bidding $1.3 billion – a bid that was previously as high as $1.7 billion – for Australia’s Sundance Resources which owns a $5 billion iron ore project in Africa’s Central Congo, is colourful but typically opaque.
Liu made his early money trading steel futures in Sichuan and locals say that he hit it big building a securities trading platform. The next steps are blurry and not documented either by the company or the Chinese media. After his initial success, Liu diversified into property – the first port of call for most cash rich Chinese companies – and a bewildering range of other business including bio-tech, hydro power, photovoltaic cells, communications, and tourism.
And now here is the good stuff: in 1997 Liu survived an attempt on his life in his home town arranged by a local billionaire Yuan Baojing, who was arrested and subsequently executed for his efforts. Now you would think that if someone had contracted someone to murder someone else that may give you pause for thought before going into business with them.
In 2008 the China Securities Regulatory Commission suspected a number of the Hanlong group listed companies for breaching trading laws and placed them in share trading bans. There are internet rumours – including a brief that was dumped online – as well as newspapers reports about tax investigations into the company.
To top it all off, this week another persistent rumour about Hanlong/Liu that could not be printed in the Australian media appeared to gain veracity – that Liu’s brother Liu Yong was indeed one of China’s most wanted murder suspects. The bother has been arrested for the alleged killing of three men and Liu Han has been detained in Beijing according to Chinese newspaper reports.
If that weren’t enough China’s Economic Daily newspaper quoted sources who said Liu was suspected of laundering money through casinos in Macau – a tactic that is suspected to be widespread in the former Portuguese colony whose gambling revenues now outstrip Las Vegas fourfold.
Liu’s apparent detention, or at least house arrest, along with the serial accusations that have appeared this week has punched a mighty hole in the hopes of Sundance shareholders that they could finally nail down a deal two years after Hanlong grabbed 19% of Sundance.
Bear in mind that this latest wave of scandal attached to the company comes after five Hanlong executives were refused permission to leave Australia and had their assets frozen in September 2011 after they were charged on suspicion of insider trading.
One of the men Steve Xiao, Hanlong Mining’s managing director fled back to China after the Australian Securities and Investment Commission foolishly gave him permission to go to Hong Kong for alleged health reasons. Another Calvin Zhu pleaded guilty in July last year and in February this year was sentenced to 2 years and 3 months jail for, amongst other things forming an insider trading syndicate with other Hanlong executives.
There is little doubt that China Inc remains vitally interested in Africa and its resources, The country’s new leader Xi Jinping is in Tanzania and South Africa on his first overseas trip as President, scattering tens of billions of dollars in interest free loans across the continent like confetti, as China keeps well ahead of the West in both securing African deals and winning at least some of their hearts and minds. But despite this China’s critics on the continent are mounting with increasing concerns it is exploiting Africa for natural resources, flaunting labour laws in many countries and importing too many Chinese workers at the expense of locals.
Now serious questions need to be asked of both the Australian and Chinese authorities and in particular the Sundance board as to how, exactly, it has come to this.
The important thing to remember is that none of this has come as any surprise at all, the questions over Hanlong have been aired in both the Chinese and – as far as is allowed by Australia’s egregious libel laws – in Australia’s media too.
The National Development and Reform Commission has, up until now been very careful if not circumspect about which companies it lets invest in Australia – a country with strong rule of law. Hanlong took a while to get sign off with China’s most powerful economic ministry, which signs off on any substantial offshore investment, but it did. It also appears to have passed muster with the smart operators at China Development Bank. It’s almost as if the bank saw the deal as African (rather than Australian) where in many countries, laws don’t matter nearly as much as connections and cash.
These events cast Australia’s Foreign Investment Review Board in something of an unflattering light, they clearly ignored signs in the Australian media that something might be wrong at Hanlong or did not have the resources – staff that can read and write Chinese – to follow this up on the Chinese internet and in China itself.
Still, Hanlong had about 4 per cent of Sundance when it bought the stake of former chairman Ken Talbot who was killed in a tragic light plane crash en route from the African mine that also saw another six directors die. With the Chinese firm now owning 19 per cent of the company Sundance had little choice but to negotiate with Hanlong. The company’s chairman George Jones is well-regarded in the mining sector certainly not a fly by night cowboy. Still, once the insider trading case emerged there were clear signs that something was wrong at Hanlong.
It would also be interesting to know what Sundance’s advisers investment bank UBS and law firm Clayton Utz think about Hanlong and if they are comfortable doing business with the Chinese group. We asked Sundance and they say the firms won’t comment.
The two companies are now in a week long process to try and finalise a deal – the deadline is April 3 – but with the problems swirling around Hanlong things look precarious.
Chinese private companies are used to operating in far looser – and systematically corrupt – business environments, very different to Australia’s at least nominally tightly regulated system and this poses Canberra a fresh set of problems.
As more and more private Chinese companies come knocking on the door seeking to invest in Australia it would seem we need better resources in order to ascertain which ones we might be comfortable with owning some of the farm.