The global credit crisis can be boiled down to one very simple proposition: the major western democracies have been living beyond their means and are saddled with too much debt.
The solution is also pretty simply: sell assets to cashed up undemocratic countries such as China, Singapore and various Middle Eastern regimes that have ridden the energy boom.
We’ve seen a classic example of the problem and the solution in Friday’s deal between the struggling Timor Sea energy play AED Oil and China’s largest energy company, China Petroleum Corporation.
If Kevin Rudd and the Chinese Government approve, AED shareholders will sell 60% of the Puffin assets in a deal which values the project at $1 billion. Forget a passive 9% of Rio Tinto, this is direct Chinese government control of major Australian oil field.
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I bought into AED last July after seeing executive chairman and founder David Dix spruiking Puffin to Alan Kohler on Inside Business.
Alas, all those bullish predictions have proved to be an illusion, the stock plunged from more than $11 to almost $1 in just 4 months, debt was unsustainable, bills weren’t being paid and now the jewel in the crown has been flogged off to the Chinese Government.
The stock has recovered 41c to $2.26 this morning, but this is yet another humiliation for Australian management of our resources bounty. As this list shows, the vast majority of our major mining and energy projects are now controlled by foreign interests.
Indeed, as this second list shows, it is increasingly foreign governments doing the “farm purchases” which fund our ballooning current account deficit.
Here are three simple but sad facts about Australia:
- The Chinese and Singapore Government now both control more business assets in Australia than our own Federal government, which still doesn’t have a positive net worth.
- Despite the best terms of trade in decades, our current account deficit has blown out to a record 7% of GDP as foreign debt soars to a record $610 billion.
- Despite booming revenues and near full employment, our federal and state Labor governments are collectively net borrowers right now.
And with more than $1 trillion of household debt, we’re not exactly in a position of strength to deal with a global credit crisis and a US recession. There will be a lot more deals just like AED’s in the coming months.
Check out the list of more than 230 foreign companies turning over more than $200 million a year in Australia.