Nothing has managed to dampen Chinese investor interest in Australia - not the Rio Tinto saga and not even the hefty Australian tax regimes. While many were clouded with uncertainty by the proposed resources tax introduced by former Prime Minister Kevin Rudd, China and Australia still signed commercial deals worth more than AUD$10bn.

Witnessed by visiting Chinese Vice President Xi Jinping in June, signings between the two countries included deals for state-owned China Development Bank (CDB) to provide financing for several major mining projects, including a US$1.2bn loan for an iron ore development.

But while this uncertainty failed to halt Chinese ambitions, the clarity of newly announced tax regimes by the Gillard Government will now be impetus for interest shown from smaller corporations.

The new Minerals Resources Rent Tax (MRRT) was announced last Friday, with a levy to apply only to iron ore and coal projects. The separate Petroleum Resource Rent Tax (PRRT) which is currently applicable to offshore oil and gas projects will now be extended to onshore oil and gas projects.

China remains as Australia’s biggest trading partner and a major investor in its vital resources sector. Advisors have their eye trained on major projects, where they believe work will continue to increase. Tony Damian, a Sydney-based partner at Freehills said that the new tax regime clears up the clouds of doubt that were plaguing investors. “The MRRT reduces uncertainty and some of the deals that may have been holding back no longer need to hold back, leading to an increase in M&A activity.” 

Sino-Australian deals signed in June 2010
1. US$1.2bn facility agreement between Karara Mining Ltd and CDB
2. MOU on project development between South Australia and CDB
3. MOU on project development between Aquila Resources and CDB
4. JV agreement between China National Offshore Oil Corporation and Arckaringa Energy
5. Cooperation agreement of China First Coal Development between Resourcehouse, Export-Import Bank of China, Metallurgical Corporation of China and China Power Holdings
6. MOU between the Department of Resources, Energy and Tourism of Australia and the National Energy Administration of the PRC on enhancing cooperation in the field of energy

MRRT changes
  • Iron ore and coal will now be subject to a new tax at 30% rate instead of original 40%
  • Tax will kick in at the government bond rate plus 7%, which would be about 12%
  • Oil and coal-seam-gas to be rolled into the existing Petroleum Resources Rent Tax and taxed at 40%

Related stories: