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China scores own goal!?

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It's a goal!

** seems plausible. But I was of the opinion all the while that the Chinese stocking of all kind of base metals in the last few months is very much a defensive move, driven by multi-facet needs - political, monetary, financial, etc.

Thus far, if I can recall correctly they had been piling up all kind of commodities including oil and gas as a diversification away from the US$. In addition, she has been signing up deals with various commodity countries all over the globe including Australia (others are Russia, Brazil, Central Asian blocs, Mid East Oil States, etc).

Depending on how one chooses to view the whole scheme of thing, if you are a small minded person and see only small things from a singular perspective, may be there's some truth in this claim; but if you were to cast away this narrow view and instead "see" thing from the Chinese perspective, the Chinalco-Rio deal is just one battle in the whole "war".

In fact, in my view, Rio's walking away from Chinalco frankly is a stupid own goal to the company. It was given an opportunity to be the biggest mining company in the world, but instead it gave it away and handed itself on a platter to BHP. Just imagine what a steady stable long term demand from China in the next 20 or 50 years can do for Rio. And the prestige of the Rio management in the Chinese leadership eyes and the potential of almost unlimited capital for global resource exploration and expansion?

Too bad, the share holders got bogged down by all the vested interests through petty parochial short sighted emotional appeals. The politicians won the day but the real losers are the Rio share holders themselves.

In any case, the game is not over yet. As long as Rio intends to sell 50% or more of its iron ore to China, it will have to face up to this unpleasant truth - the Chinese can walk away from dealing with it any time, just like it did to Chinalco. It might not happen just yet but it's something that will always linger behind every encounter and negotiation and there is no telling if the Chinese will or will not return this favour.

What goes around comes around... this is a basic human trait. The best everyone including the media brains can/should do at this stage is keeping a "neutral" stance. Avoid rubbing more salt or raising the sensitivity of the Chinese. It won't help the Australian cause at all, for as long as China remained Australia's biggest customer.

Of course Australia can always choose the current path of antagonising the Chinese in every deal we have with them... and why not? Since this is a proud country and the people can always go hungry a little, eat a little less, face a little more economic hardship... all these are all secondary consideration, right? What is important is we can do what we like and kick **** as we like, right?

Sure... first we kicked the Chinese butt; next we kicked the Indian butt through how their students are being treated, next, who else?

Who needs friends from Asia?

... since we are such a proud people. Yea!

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  1. haunting's Avatar
    I mean whoever is reading what I am writing. Check out newsbit and ask this question: has the Chinese stopped their "defensive" move of divesting away from US$?

    Their quest is on going as far as I am concerned. And if you can cast your view further than just one year or two years from now... it's not hard to see if/when the global economy were to recover, there will be a whole new ball game awaiting those who are still living in the past US-Centric world...
  2. haunting's Avatar
    Learning from Teck...

    The deal will give CIC a 6.7% voting stake in Teck.

    The deal provides China with no guaranteed share of Teck's production. Teck said that CIC has said it is acquiring the shares "for investment purposes as a long-term passive financial investor." The fund has agreed to hold the stock for at least a year after the deal closes in mid-month...
    ** sound impossible that the Chinese are happy just to be a passive investor in Teck? But if you were to "see" the deal plainly as an asset diversification (away from US$), it would make perfect sense...

    How does this make the "hoohaa" surrounding the Rio-Chinalco deal look like? A beat up?

    Nevertheless, it was still a good call, according to some or many.
  3. MRC & Co's Avatar
    Yeh, China has been stockpiling inventories, but in relation to the first point about their stockpiling of oil, they don't have enough resevoirs to store.

    They have recently announced however, that they will be building them in huge quantities, as to ensure inventories closer to that of both Japan and the US.
  4. haunting's Avatar
    Hi MRC,

    According to someone who told me this - during the first oil embargo, the Japanese did something which was not widely known. They "rented" a large number of the empty oil tanker, loaded them with the commodity and used them as storage tanks. They parked these tankers somewhere in Brunei until they are needed. All they had to pay was the "parking fee" and the upkeep of these tankers. They did quite well from that venture.

    I suspect the Chinese might be doing something like that with their own fleet, although I have no info or proof of any kind as it's just my speculation.

  5. haunting's Avatar
    ps: the Rio's staffs arrested by the Chinese authority... it seems the recent Chinese commodity market had been under tremendous amount of speculation, so much so that they believe these speculations are "engineered" specifically for a purpose (like iron ore negotiation), hence they are turning hardcore going for the dirty by locking up their "suspects"... my take is these Rio's staffs will be locking up for a while and to prove their "innocence", they will have to sit out a few sessions - if the iron spot price drops, then they may have to subject to a few more interrogations to prove their innocence, but if the iron price stays the same, then, chances are they will be released since this proves they are not part of the conspiracy... this just my wild speculation as usual, but let's wait and see what will turn up.

    As I have been saying for quite a while, the Chinese are taking this damn seriously and they are feeling really hard done by, esp when the price was fixed between Rio and the Japanese - neither are in their good book. I just hope this won't deteriorate to the level as to affect the Aussie exports as a whole, but with development such as this, I don't think it is in anyone's interest, be it short term or long term for it to drag on.

    I can't imagine what will happen next year with Rio/BHP combined their production and negotiate with a single price... if there is any glory as a result of this venture, it will only be short term because China has already made it abundantly clear through their action that they will do anything to get away from being threatened by anyone... let's pray China doesn't find any other alternative sources that are large enough for all their needs because if they do, it will almost spell doom, ok too strong a term - it will almost be certain that they will hit back without any reservation. That will mean either Rio or BHP or both will be getting the pointed end of the Chinese spear of angst, and in turns, their demise will be Australia's demise.

    Going for broke can hurt both ways esp when you are dealing with an elephant who needs to be handled with care.

    Let's wait and see as usual.
  6. haunting's Avatar
    Other's opinion

    ** can't say I agree fully with him in linking what is happening in Xinjiang with the Rio-Chinalco deal.

    There is no doubt Xinjiang is very important to China as reflected by Hu's quick departure from the G8 summit. But the more important concern behind the Chinese move is their fear of internal dissent in a large scale such as the Xinjiang riot. To the communist leadership, their topmost priority and concern is a unified China. To them, any open dissent to challenge their authority would never fail to generate that phobia, hence their high handed reaction.

    They did that in Tiananmen. They did that in Lhasa and they are doing it now in Xinjiang. To them, a strong China is a united China. There's no if, but or may be in this objective as far as they are concerned and they see this totally as an internal matter.

    Another point I disagree is to treat the Rio-Chinalco deal as a Chinese attempt to grab control of Rio. The interpretation of the 600 pages of document has been quite diverse and has been justified on individual's political perception and persuasion which at best I would say the Chinese has been dealt a hand of their own medicine, that is, they are found guilty by assumptions on future event that has yet happened. So it's not that credible as far as I am concerned.

    I would stick to what is happening thus far with regard to the Chinese intention, their investment in real assets and resources through out the globe as a diversification away from the US$. An urgent wealth preservation move due to their oversize exposure to US$.
  7. haunting's Avatar
    China crisis...

    ...in an ominous signal from Beijing, Foreign Ministry spokesman Qin Gang yesterday made no concession to outside demands for their release.

    "Competent authorities have sufficient evidence to prove that they have stolen state secrets and have caused huge loss to China's economic interest and security," he said.

    He warned Australia against making a big issue of it. "It's improper to exaggerate this individual case or even politicise it, which will be no good to Australia," Mr Qin said...

    ** as I was saying in other blog, don't make them Chinese play hard ball... but I have absolutely no idea their hard ball will turn into this kind of Hard Ball. Duh!

    As this is sensitive juncture, it's best not to say too much, who knows who has been listening?

    But regardless, I would take this seriously: "It's improper to exaggerate this individual case or even politicise it, which will be no good to Australia,".

    (do I read there's some kind of finger pointing at the politicising of the Rio-Chinalco deal by the opposition party here? hmmm...)

    May be... but it makes sense that before the politicians open their mouth further to score points against the govt of the day, they should keep this in mind - if this case is mishandled again, the consequence, both financially and economically, to this country and her people, esp those who are involved/working directly in the mining sector, and their livelihood could be jeopardised by these cheap political pot shots and they ain't worth it!

    ...not when the price to this country's economic health is this high!
  8. haunting's Avatar
    More bitter words...

    "Rio Tinto has no business credibility as a company, it is not unlikely that a few staff are suspected of breaching law,"
    ... I just hope the media would leave Chinalco out of the latest Rio's incident as comment such as this will definitely not help Rio in extricating itself out of the mess. I can't imagine what the Chinese will do in retaliation, esp CISA, if there is evidence to support the accusation of Rio's executives are involved in kickbacks and side deals to "screw" the negotiation. There is every chance that Rio would have to sell all its ore in the spot market or to the Japanese/S.Korean if CISA were to boycott Rio. (Those who are invested in Rio should ask some serious question on Rio's outlook and prospect of further deal with CISA/China. I would!)

    And then this reality...

    Some Australian officials say the Chinese investigation has exposed the brittleness of Australia's political relationship with its largest trading partner, with potentially serious consequences for economic dealings.

    "This sort of thing can only happen if the top political leaders on both sides do not trust each other," said an Australian official involved in managing the China relationship.

    The official said the dangers were far greater to Australia than to China. "China can do without Australia, but at a cost," he said. "But Australia cannot do without China."
    ** still remember FIRB and some of its more pointed decisions against some Chinese investment in Australia? The Chinese are pragmatic to a point, but they are human too. To them, respect is always mutual. Face has to be given... to be taken. Now to them, Krudd and Swan's face don't mean nuthin'... it will be tough, esp when so much is at stake.

    It will be a long way home from here. Not good at all.
  9. haunting's Avatar
    More from the media...

    "What does the much touted Australia-China relationship add up to if Beijing treats Canberra with such conspicuous discourtesy and indifference?" wrote the Australian newspaper's foreign editor, Greg Sheridan.
    "There is an air of contempt in the way the Chinese authorities have failed to respond to Australian government requests for information and for consular access to Mr Hu," The Australian newspaper said.
    - good question and observation, but Greg and the Australian should learn to ask question "both ways" - like back when Krudd was giving the Chinese a lecture on Tibet and democracy whilst he was invited to China as a special guest of the Chinese President. Comparing with the current Chinese treatment to Canberra, THAT was a gross discourtesy. A complete No No! I think the Chinese are just returning a small favour...

    Hard to agree? Simple, just reverse the position of each party, say, put Australia in the Chinese position and weigh out your reaction and get a "feel" on how the other feels.

    We need two hands to clap. In any conflict, there is never the fault of one side. In this case, I believe many people have forgotten the wider Australian interest is being ignored. What is happening today is not the result of an overnight reaction. It has been culminating for quite a while. If we can't learn from all these, then, too bad. I just hope that Aussie official Chinese minder is wrong by saying Australia needs China more than China needs us.

    Link here.
  10. MRC & Co's Avatar
    Haunting, I am starting to sense a huge bias in your blogging.
  11. haunting's Avatar

    If that's your conclusion, I would not argue against that. It's no point blogging what everyone is agreeing with, that's the mainstream media's job. And when come to the Chinese venture in Australia, almost every media brain is "seeing" thing from the Aussie perspective, some did it behind "national interest"... and now we are seeing what it meant in real term.

    Do I have a bias? It depends, but in general I am always forcing myself to observe as a contrarian. If 90% of the people are agreeing with your view, you can bet I will be on the other side arguing against it.

    The most useful views usually comes from some one who disagrees with you strongly, they tend to open your eyes and force you to expand your scope of thought.

  12. haunting's Avatar
    BHP next?

    Those developments reduce but do not eliminate concerns that this week marks a downgrading of China's political and business relationship with Australia. They argue against the crude conspiracy theory that Beijing is paying Rio and Australia back for the Chinalco snub, and for the Rudd Government's cool approach to Chinese investment...
    ** I don't really think these (retaliation) are the main "core issues". The real issue here is the Chinese clearly stated goal of "economic security", in this case, its the supply of iron ore for their ongoing infrastructural development. The last 4 years rapid rise of iron ore price I believe has caused a great deal of concern to them and I am quite willing to bet they do not want to see a runaway iron ore price rise with year on year increase of 50%-100%, as that will surely put their nation building plan in jeopardy. (For that matter, no nation or any commercial enterprise in this world could withstand 50-100% price increase year over year).

    I believe their objective is to put some kind of manageable control on iron ore pricing just so their nation building will not be threatened - and Rio sits right in the centre of this threat and hence they are doing what is necessary to remove such threat.

    One can argue the right or wrong, like this, till the cows come home, but, realistically and pragmatically, can Australia afford to abandon the Chinese export market?

    This is one question that needs to be asked because China is not going to change in the foreseeable future to suit the Australian aspiration. They are changing but slowly, towards a more open society; but as long as the Chinese Communist Party (CCP) is in power, opening up will be a slow and painful process.

    So how? Asking the Chinese to change probably is much harder than for the Australians to do some own soul searching - do you want to deal with the devil?

    Start thinking. Be prepared. Because by the time BHP has merged its operation with Rio, and begin to pose a more serious threat to China, you can bet their reaction will be much more draconian than what they are doing currently.

    Does Australia want to go for broke?

    There is always a price for everything - including principle and ideal - so choose while there is still time - money or your principle and ideal?
  13. haunting's Avatar
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