Australians unsettled

If outlanders tend to associate Australia with kangaroos, broad-brim leather hats and an opera house, many Australians are different. They think of iron ore and bauxite, copper and coal, nickel, gold and uranium, a trove of mineral riches that is their nation’s birthright and the bedrock of its prosperity.

Which explains much of the breast-beating that has ensued since the Chinese announced plans this year to buy a big chunk of it. Since three state-owned Chinese companies said they would buy stakes in Australia’s storied mining industry totalling $22 billion — as much as China’s entire investment here in the preceding three years — some of this nation’s 21.3 million people have reacted with aggrieved nationalism.

The government of Prime Minister Kevin Rudd, which generally favours the sales, has been savaged as naïvely cozy with China, a view that some in his own military appear to share. Opposition politicians have flogged the spectre of an Australian future more or less as a giant open-pit mine in which the locals toil, but Beijing takes the profits.

“It’s the Communist People’s Republic of China, 100 per cent Communist-owned, buying up sections of the country and minerals in the ground which they will then sell to the Communist People’s Republic of China,” said Barnaby Joyce, who leads the small National Party in Australia’s Parliament. “And we’re going to live off the commission on the way through. They’ll try to make sure we get as little as possible.”

But a few months after the first of the deals was announced, a sharp initial backlash has given way to a more subtle queasiness over whether Australia’s place in Asia, anomalous but secure for so long, is about to be altered by the new Chinese giant looming over its horizon.

Nor is Australia alone. From the Philippines to Vietnam to South Korea, China’s neighbours are recalculating the benefits — and potential deficits — of life in the shadow of a newly dominant nation.

New relationship

Australia has always been the West’s outpost in Asia, the British penal colony with American spunk and European joie de vivre. But seemingly overnight, China has become Australia’s biggest trading partner, one of its biggest tourism customers, the largest single buyer of its government debt, a major buyer of farmland and real estate.
China’s hunger for steel gobbles up half of Australia’s iron ore exports, and its textile factories buy more than half of Australia’s wool. Over 1,20,000 Chinese students throng Australian schools and universities.

Now China is starting to buy Australian assets, and, though its purchases remain dwarfed by cumulative investments of the Americans and British, they are growing much faster.
And suddenly, Australians are stepping back, realising that their new best friend is someone they really do not know very well, much less trust.

“The momentum has shifted from being broadly receptive to these deals to having a hard think at this,” said Alan DuPont, who heads the Centre for International Security Studies at the University of Sydney. “This is not just about China and Australia. It’s about how the world sees China playing its role in the future as a great power.”

This is not a new question. More than a century ago, Australians fretted about becoming vassals of the resource-hungry British empire; then, in the mid-1900s, they feared becoming an American subsidiary. When Japan Inc began snapping up Australian companies in the 1970s, suspicion of Tokyo ran rampant.

The British and Americans proved good corporate citizens, however, and Japan’s expansion faded amid economic problems. Now, Australians are asking whether China will be different.

In one way, it assuredly is. western companies, if at one time equally ravenous for Australia’s resources, are not direct appendages of their national governments. The dominant shareholder in major Chinese resources companies is the Chinese government.
China has 1,15,000 state-owned companies; the cream are more than 150 giants controlled by the central government. Those corporations — in mining, steel, finance, communications and other crucial areas — seek to make profits much as western companies do. Government boards audit them, appoint their top executives, and evaluate their performance, but in general, the companies insist, Communist Party leaders do not meddle in business strategy.

Even if that is true, China has long insisted on maintaining state control over companies in strategic industries, blurring the line between national and corporate interests.
Take steel. China makes more steel than any other nation, but is highly dependent on iron ore imports to keep its mills humming. That raises suspicions that China may want big stakes in mining companies now to help ensure stable prices in the future.

Towards monopoly

But if China works to keep iron ore prices stable, that might benefit steel producers more than it does Australian mining companies. That concern has only grown in recent months, as China’s largest steel producers have rejected as insufficient offers of lower prices from Australian mining companies.

There is also the question of whether China’s stake in strategic industries — like its investment in US Treasury bonds — could one day morph from a business deal to an instrument of diplomatic influence.

The Chinese bids for parts of the three Australian mining firms — Fortescue Metals, Oz Minerals and Rio Tinto Limited — have been raptly watched for Australia’s answers.
So far, they are mixed. The smallest deal, an $840 million bid for Fortescue, a struggling iron ore miner, won Australian regulators’ quick approval. But Australia’s foreign investments review board, the central gatekeeper for overseas purchases, vetoed part of a $1.8 billion bid for Oz, the world’s second largest zinc miner. The reason: Australia’s military raised the prospect of Chinese espionage at an Oz mine not far from an aerospace test site. A pared-down deal was approved after the suspect mine, the core of Oz Minerals’ assets, was excised from the deal.

But it is the proposed purchase by the Aluminum Company of China of $19.5 billion in Rio Tinto stock, bonds and mining rights — China’s biggest investment in a foreign company — that has caused the most angst.

China Aluminum, which bought 9.3 per cent of Rio Tinto in 2008, proposed taking a much larger stake after the global economic collapse drove Rio into financial straits. If approved, the new investment would give China an 18.5 per cent share of the world’s third largest mining company.

Modern Chinese corporations are state-run in name only, Ross Garnaut, an economist, former Australian ambassador to Beijing and himself the head of a gold-mining company, said in an interview. In practice, he said, they are just like their western counterparts — fiercely competitive, and focused on profit.

Even Australia’s antitrust regulators have concluded that the Chinese would be unable to influence the price of iron ore, a crucial Rio Tinto product, were the Rio deal to go through.