Australian pension and superannuation funds are accumulating funds at a blistering rate -- contributions are rising by 9% a year -- and they need somewhere to put the money, says Jason Ng, head of the Asia-Pacific funds group at law firm Baker & McKenzie in Hong Kong.

Still, they don't seem as eager as large institutional investors in Europe or the US to take the plunge into China and other emerging Asian markets, he says.

"Australia is the fourth largest pension pool in the world, and that weight of capital has to find a home," agrees Mark McNamara, Sydney-based global head of the private equity practice at the same firm. "The question is: are there more attractive homes than China and North Asia?"

The legal and contractual concerns over those markets require careful weighing against the opportunity for returns, say the two lawyers.

The fact remains that Australian institutions are still making very little investment into, for example, China either via private equity or the onshore listed securities market or directly. 

However, signs of change are gradually appearing. McNamara says one of his clients -- a portfolio company owned by a well-known private-equity fund -- has just acquired a Chinese business with Baker & McKenzie's assistance in China and Australia. "This was a first for them, and it was a significant opportunity, so they were anxious about the regulatory and contractual environment and on how they would do the deal."

Larger institutions such as banks are looking to get into the mainland market by taking stakes in Chinese banks and financial institutions, adds McNamara, but a big sudden rush into China is not going to happen tomorrow.

"To make a broad generalisation, the Chinese regulatory and legal environment is not something an Australian investor would naturally gravitate towards," he says, "and is probably one of the reasons we haven't seen a great deal of action."

The regulatory environment is not as clear as Australian investors would normally expect were they simply investing in Australia, the US or Europe, adds McNamara. "There is often a lot left to interpretation with regulatory announcements and rules, and that often requires a leap of faith for the uninitiated."

Still, there are undoubtedly opportunities in private equity, adds McNamara. He cites fund managers such as Blackstone or Carlyle actively investing in the mainland from their Hong Kong and China bases. But fund managers and institutions further away from China are often at the other end of the scale of activity.

With regard to the listed securities market in China, it is capital-controlled and not totally open to foreign participation, says Ng, although participation is to some extent allowed through, for example, the qualified foreign institutional investor (QFII) regime. Investors are also taking stakes via the strategic-investment route, he adds.

But the distinct lack of Australian companies that have obtained a QFII quota reflects their low level of investment into Chinese listed securities, at least in terms of the A-share market, says Ng. There is only one Australian firm -- AMP Capital -- out of 88 firms with quotas thus far; there are many Asian, European and US companies that have obtained one.

Meanwhile, to what extent might the current political and commercial tensions between Australia and China -- manifested, for instance, by the conviction of Rio Tinto staff over stealing commercial secrets -- have affected investment flows?

"I'm not sure the political tensions play out all that strongly in the day-to-day investment world," says McNamara. "The weight of capital will generally always find a way to prevail to its best destination regardless of political tensions that may exist at the time." The recent issues around Stern Hu, Rio Tinto and so on may have been a short-term shock, he adds, but are unlikely to have a long-term impact.