OPINION> Brendan John Worrell
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OPINION> Brendan John Worrell
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Getting to the core of ore
By Brendan Worrell (chinadaily.com.cn)
Updated: 2009-06-11 17:41 When the deal between Aluminum Corp. of China, or Chinalco, and the Australian-British mining company, Rio Tinto collapsed last week, outside elements deserved mentioning. At the heart of the debate ideally should be a shared commitment to trade and how this can best be managed to leverage individuals, communities and nations towards better quality of life outcomes. The proposed deal originally struck in February and designed to help cut Rio’s then US$39 billion debt attracted significant baggage at a time of great constraint for decision makers Down Under. They recently lost a Defense Minister, Joel Fitzgibbon for having questionable dealings with a Chinese business woman. Add to this a serving Prime Minister who has long connections with China, speaks fluent Chinese and has relationships with top level Chinese government officials. All taken, it only served to add to the opposition party's arsenal to stir up a disgruntled populace staring down the barrel of a gloomy economy. Just how volatile the Chinalco offer became could be seen when a local business entity paid a reported AU$200,000 to run a television smear campaign, querying China's human rights record while condemning the Rudd Government for even considering allowing China a stake in Australia’s assets. What they failed to mention was that Chinese investments in the Australian resources sector account for less than 1% of the nation’s total, according to the Australian China Business Council. The US, UK and Japan actually occupy the largest share, totaling around 55%. Nevertheless it was going to be the largest overseas investment ever by a Chinese firm, US$19.5 billion, and would have raised Chinalco's share in Rio from 9.3% to 18.5%. This would have given them more of a presence on the board, and softened the blow during an ore price hike in terms of return on equity. As a state owned firm and with senior mangers in key positions oft connected to the government this did however complicate proceedings. After the meeting last week in London the Rio board, remembering that over 40% of the company is held by UK interests, announced their plan to issue stock and form a venture with long term rival BHP Billiton Ltd. who had first eyed Rio back in 2007. Along with Brazilian miner Vale, these three mining companies very much dictate global ore prices, of which China is very much dependant upon for her development. Now what the collapsed deal means for the future price of iron ore for the Chinese market and relations between buyer and seller - who knows? Rio first must pay back Chinalco a fine of US$195 million for reneging. Amid this backdrop just yesterday China's Minmetals quickly upped their offer for a stake in OZ Minerals by 15% to $1.73 billion which shareholders approved today. It is part of a wider backlog of other potential investments into Australia's mining industry by Chinese firms awaiting review by Australia’s Foreign Investment Review Board. Up to 2007 there was only AU$670 million worth of Chinese investment into Australia though in the last 18 months this had risen to AU$30 billion. Australia’s resources are a key to its prosperity and naturally they want to protect this interest and eyebrows have been raised by the recent equity acquisitions by Chinese firms, state owned or otherwise. No nation is immune to its own form of protectionism. In many respects this is one of the hurdles prolonging the Free Trade Agreement between China and Australia. What the Rio case does reflect though is an understandable anxiety towards cross investment shared by many that can be exploited politically. As for Rio time will tell and as for their workers and their families and what it means for them – this is not yet known. On another point, if we look at the composition of Rio and so many other publicly listed corporations, we realize that their holding interests are so extremely complex and diverse that they often belie local politicizing. Elsewhere for those critics who oppose Chinese investment using a ‘human rights’ argument they should note that in the last three decades according to World Bank statistics almost half a billion people here have been pulled out of poverty! Using their measurement of a consumption poverty line, China back in 1981 was pegged at a rate of 64% though in 2008 this was measured at just 4%. Moreover enhanced trade, which the present Chinese government is on the front foot trying to broker via many of its state owned enterprises, is providing an engine of growth for the world economy and western investors at present grappling with an economic crisis that could be argued is of their own making. An emotive human rights argument could also equally be made by indigenous groups whose homelands cover the huge iron ore deposits of Australia! Only in more recent times has the mining industry in tandem with local governments sought to engage such traditional stakeholders in negotiations. A quick visit to any regional Australian prison or indigenous community will also validate claims towards human rights performance. Similar arguments from ‘First Nations people’ could also be made towards most mining operations today, be they in Papua New Guinea, Brazil or South Africa. So before we get too righteous we need some perspective. Getting to the core of ore and most mining melodramas is far from simple and quite often at the heart of cross-cultural community development concerns. How we manage such investment in many ways will determine whether we leverage ever greater numbers towards future prosperity via trade - let alone get beyond this present populist protectionist quagmire. The article represents the opinion of the author only |
