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Hu row a small bump in China journey

THE detention of Stern Hu has brought into question a lot of assumptions regarding our trade relationship with China. Many see the arrest of Hu as retaliation for Rio's rejection of the Chinalco offer, as well as a reaction to Australian Government dealings more generally with Chinese investment in Australia. Some question whether the Australia-China relationship will be permanently damaged by this affair.

In my view this affair will turn out to be a small bump on the long road to China's full integration into the world economy through trade and investment. Part of that will be a continuing fruitful and prosperous trade and investment relationship with Australia.

China's continuing economic growth, as well as social and political development, is very important to us and to reverse course on our trade and investment relationship is simply not possible.

It is all very well to point to China's murkiness with regard to the arrest of Hu and to the murkiness surrounding the iron ore trade and China's state-owned enterprises. But our Foreign Investment Review Board processes would seem just as murky to outsiders. One thing that seems clear is that our foreign investment rules need to be more transparent... more.

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  1. haunting's Avatar
    Worth a read, click me!

    The iron ore trade became a national humiliation for China. Chu Tian wrote on the front page of this week's Chinese Melbourne Daily: "First, Australia played China as a monkey [on the Chinalco investment]. Second, when iron ore prices boomed, it clasped China's neck and took a big bite." Australia, Chu said, failed to give a hint of concession, and events unfolded inevitably.

    Chu said China's hardline actions will be seen in Beijing to have collateral benefits.

    "The Government's detention of Hu and the other three is more for deterrence and warning than for punishment," he wrote. "This is killing four birds with one stone: Kevin Rudd, Rio, the overseas Chinese who betray China's interests, and senior executives at state-owned enterprises."
    ** thought this observation is quite spot on. Frankly this is just the beginning of more changes to come in China, vis-a-vis their various commodity market. Iron ore is just one of the metals that is in a "mess" from the Chinese context. The others like copper, zinc, nickel, etc are probably in a bigger mess. Once the Chinese has tidied up the iron ore market, I won't be surprised at all to read about their next move onto the other metal markets, with copper within their aim.

    All these changes will be on their way without a doubt, which brings up the question of BHP/RIO's recent position - they should expect the Chinese is watching them in every move and they should expect the Chinese retaliation. For those who are still living in the past, as reflected by the many many news/market journos and their rear-mirrored-views, big cyclical profits as in the past 4 years will be a thing of the past.

    The major factor behind a runaway rise in commodity is the gross imbalance between its supply and demand, coupled with acute timing factor, the spike in price should be treated as an exception instead of treating it as a rule. The super cycle will continue with a gradual consistent rise instead of a parabolic acceleration.

    The last 5 years probably is a good example of why a parabolic rise is not desirable as it clearly illustrates the pain introduced as a result of the bursting of the bubble. Right now the job loss rate is closer to 8% than the reported 6% in my view. With potentially more to come if the global economy does not recover in time.

    It's much better to see a consistent rise of 10-15% per year for the next 10 years instead of 50% in the next 5 years follow by -50% or more in the next 5 - it's just too painful for everyone.

    Going for broke or going for a winner take all strategy in my view is the worst of all possible strategies BHP/Rio could take. Cornering the market would only invite the Chinese retaliation and pushing them harder to seek alternatives. It will never bring back a lot of dole for Australia because any huge short term gain will eventually be eroded or evened out in the long run, once the Chinese have tidied up their house and brought forth their new production (the recent new IO find in Northern China is rumoured to be ready for production in 2015). - that's when BHP/Rio are likely to face the possibility of being a loser and losing all their advantages - with a disastrous outcome for Australia, and bad news for everyone.

    That's one future outcome I am fearing, but then, and as usual, no one really cares a hood since it is so far and too far ahead. Who really cares if there's 5 years of good time ahead?

    We can't be worse off than the American, can we?

    ...so far they have already spent and sold their next couple of generations' total income and saving and that don't seem to bother them one bit. Why would we here be bothered by something that has yet happened?

    Let's party!
  2. haunting's Avatar
    Kicking Out Rio: China's Killer Strategy in Breaking the Iron Miners' Collusion

    Trace back to my other blog on Rio

    ** The Europeans conquered and colonised the Far East and the New World through a very simple strategy - divide and conquer to weaken the native resistance to their rules. Now it seems the same strategy is being suggested to the Chinese, ie, divide and conquer the IO producers, with the "under-class" target firmly aiming in Rio's direction...

    ... I guess Rio should expect this since even a simpleton such as moi can see it coming long time ago. Luckily this kind of talk is still in its infancy, there's still time provided someone, or Rio, starts taking action to remedy the deteriorating relationship before it gets completely out of hand.

    The bottom line is quite clear here... and it's not the time to play tough guy. Sanity should prevail... not ego.
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