News Wrap

IN THIS morning’s wrap: China investments on FIRB’s agenda; power market in danger of
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Lou Caruana

China investments on FIRB’s agenda

The newly appointed chairman of the Foreign Investment Review Board, Brian Wilson, will travel to Beijing next week in an effort to better explain Australian government policy towards Chinese investment, according to the Australian Financial Review.

Wilson, a former investment banker, will be part of Treasurer Wayne Swan’s 30-strong business delegation, but will hold some of his own briefings.

Swan will visit Hong Kong on Wednesday and then spend two days in Beijing where he will meet Chinese leaders and promote Australian business interests.

The visit will finish with a dinner to celebrate 40 years of Australia-China relations.

China has repeatedly claimed that Australia treats its investments differently, while Australian politicians argue that more than 95% of all Chinese applications to FIRB have been approved.

Xstrata merger vote postponed

Xstrata has formally delayed its shareholder vote on a proposed merger with fellow commodities giant Glencore as investors continue to demand an improved offer for the mining group, the Sydney Morning Herald reports.

The Xstrata AGM for shareholders to vote on the deal was due to be held on July 12 but on Thursday was adjourned.

The merger proposal has not been well received by Xstrata investors, who say the deal undervalues shares.

Qatar, whose sovereign wealth fund has an 11% stake in Xstrata, making it the second-largest shareholder, on Thursday reconfirmed its intention to stand firm for a better offer.

Glencore, which holds a 34% stake in Xstrata, is offering 2.8 shares for every share it does not own.

Trade balance to improve, say economists

Australia trade balance remained in deficit in May but is expected to return to surplus as exports pick up over the coming months, the Sydney Morning Herald reports.

The balance on goods and services was a deficit of $A285 million in May, seasonally adjusted, compared with a deficit of $26 million in April, according to data released by the Australian Bureau of Statistics on Thursday.

Commonwealth Bank senior economist John Peters said the growth in exports during the month had been offset by domestic demand for imports.

"The higher dollar is facilitating strong imports growth by making imported goods a lot cheaper."

However, he said the trade balance was likely to return to surplus as exports rose over the coming months.

"We expect that to turn around as demand in Asian economies picks up over the coming months."

Power market in danger of ‘death spiral’

The electricity market is in danger of a “death spiral” as wealthy households use less power and install solar panels, according to economists at AGL Energy and reported by the Australian Financial Review.

Research out today by Australia’s biggest gas and electricity retailer, co-written by the company’s chief economist, Paul Simshauser, and head of economics, Tim Nelson, highlights what it calls a far bigger problem in the national electricity market.

The pair urge state and federal governments to consider controversial measures to help the energy market become more efficient, including charging more for electricity during high demand periods, household smart meters, and monthly bills.

The study underscores the Gillard government’s political problem from rising electricity prices, which are ­creating resentment among middle-income and poor families with children and often blamed on the carbon tax.

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