Keeping tabs on China

HOW come Canberra gets worried about BHP Billiton, but not China‘s growing hold on our resources? The Outcrop by Robin Bromby.
Keeping tabs on China Keeping tabs on China Keeping tabs on China Keeping tabs on China Keeping tabs on China


Staff Reporter

The last we heard of Kevin Rudd, he was heading for a break in China.

Within days of his supposed arrival, Premier Wen Jiabou announced that China would impose a new tax on coal, oil and gas extraction in the western provinces, raising funds to develop its most restive region which, in Xinjiang, has seen rioting and other unrest.

Could there be a connection? Did Kevin whisper in Wen‘s ear, using his flawless Mandarin, something about “resources companies paying their fair share of wealth that rightly belongs to the people of western China”

Alright, that's enough nonsense for one day.

But this rather lame joke does raise, in connection with other developments, the issue of China’s strategy when it comes to its presumed aim of dominating the world economy, mining and energy commodities being an important part of that plan.

China can tighten the screws on companies operating domestically, while showering money in other places to achieve its global resources hegemony.

By contrast, Australia can/will do neither. Internally, the government has settled for a deal with the iron ore and coal producers that essentially lets them slip the worst of the tax noose while having no apparent interest in curbing foreign control of our resources as Chinese state-controlled entities move in.

Externally, our companies have made their own running and most successful ones will be swallowed by much larger global ones or emigrate to Toronto – think Red Back Mining, with (no doubt) companies like Perseus Mining to follow.

In the end, we'll have precious little to call our own. Unlike China.

When you think of it, wasn’t there something bizarre about Messrs Rudd and Swan lambasting operators like BHP Billiton and Xstrata for being “foreign” and emit nary a whimper as more and more of our resource wealth falls under Chinese influence?

Of course, the new deputy prime minister seems to have developed a bad case of amnesia about his role in the super profits tax idea.

Anyway, back to China.

Beijing will penalise companies like PetroChina, coal producer China Shenhua Energy Co and China Coal Energy Co with a levy based on prices for their output in the western provinces of the country in order to achieve its political ends – that is, subduing domestic unrest by swamping it with money.

Now, here’s the other side of the China coin.

The China International Fund is planning to invest $US7 billion in Guinea, including a port and a railway to one of the country’s largest iron ore deposits.

There was a report in the Financial Times showing how there’s an almighty struggle going on to get control of Guinea’s mineral wealth, and China is going to make sure it gets its share.

This is on top of the $US6 billion of Chinese money going into Zambia.

So, tighten the screws internally, throw money around abroad.

The other big news out of China this week was the statement by the country’s foreign exchange regulator that Beijing was not planning to make gold a key component of its foreign reserves. That flew in the face of the gold bugs’ certainty that China was, indeed, accumulating gold.

Strange, though, that we don’t quite know what happens to all the gold that China – the world’s largest miner – produces.

On top of that, we have just begun to see Chinese companies buying stakes in gold explorers, a sector they had previously ignored.

As one commentator has pointed out, Beijing increased its official gold reserves over four years before revealing the new numbers in 2009.

One should always keep in mind that China has used its muscle to influence prices before – just ask any tungsten producer who went out of business as metal suddenly flooded the market in previous decades.

Now that Prime Minister Gillard has ruled that it’s not being “redneck” to discuss immigration issues, Outcrop will similarly decree that it is now politically correct to question whether we are leaping into bed rather too quickly with Chinese money.

China does not respect or obey market forces.

Why shouldn’t we be looking in other directions for the capital to develop our mining assets?

Today, for example, the Singapore government’s investment arm, Temasek Holdings, is releasing its annual report and there has been some speculation that the fund may signal a move into resources investment.

This writer knows of a few companies that have successfully got Singaporean investors on board. Just this morning we have seen that a Singapore-based investor, Swift Venture Holdings, has taken an option over GBM Resources' phosphate assets in north Queensland.

The great thing about Singapore is that the rule of law holds (except when you traduce the republic’s first family) and they stick by their deals, they have plenty of money but also have the access to and understanding of China, the main market.

If this writer were running an exploration company – not something that any miner would ever want to contemplate, it must be added hastily – then he would be spending a bit of time in Singapore. (Add Toronto, London, Frankfurt, Zurich and other places where you can sure that a deal will stick.)

Sure, China is the main game. But it works to its own rules.

So let’s not put all our financing eggs in Beijing's basket. It is not in Australia's long term sovereign interest.

*Outcrop is a weekly column on ILN’s sister publication