Were Chinalco’s Intentions With Rio Always Honourable?

“Rio Tinto is like a dishonourable woman,” read a widely published Xinhua story this weekend. “Once she loved the money in Chinalco’s pocket but she actually did not love the man himself. Now she is breaking faith and kicking down the ladder.”

This definitely sounds like a spurned lover. But what will the revenge be? Let’s hope she doesn’t have a knife. Or a blue water navy. Or an inter-continental ballistic missile.

Alas, for the new capitalists of the Chinese state this is a lesson that capitalism is not a romantic business. It makes for realistic bedfellows, not true love. Chinese deal makers may currently view the Australian resource sector has a harlot or a shameless “lady of the night” that has turned down a helpful offer the minute something more lucrative came around.

But that is assuming Chinalco’s intentions with Rio were always honourable. And that is ignoring the fact that the “white knight” offer, made in Rio’s hour of need, was also extremely favourable to Chinalco, given Rio’s weakness at the time. But let’s not take sides in this lover’s quarrel, shall we?

And let’s not lay blame, either, except, perhaps, with Tom Albanese, who deserves it. We suspect realism will prevail in the future relationship between China and Australia. A “let’s-still-be-friends relationship makes sense for both parties, one of which has resources, the other of which needs them.

Time and necessity heal all wounds. But in the meantime, don’t forget the flowers Mr. Rudd!

By the way, no one should assume that Australia will always have China to fall back on, whether it is for capital in a pinch, or long-term resource demand. China’s apparent economic recovery is “mild” and “unstable” according to a study from The Development and Research Centre of the State Council in Beijing. “Although the economy has bottomed out, it was touching a flat bottom, instead of a V-shaped bottom,” says the Centre’s deputy director Zhang Wenkui.

With our unseemly interest in bond yields lately, we’ve completely neglected the idea that China may not inevitably rise to replace America as the world’s dominant economic power or Empire. Its possible China itself could collapse. More on that subject tomorrow.

Dan Denning
for Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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6 Comments on "Were Chinalco’s Intentions With Rio Always Honourable?"

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Ben Gee
If I heard correctly, Vale from Brazil would love the opportunity to replace the Australian suppliers with supply of iron ore to China. Canada want a piece of the action too. And do not forget Afica and Russia and India. There will not be a great deal of people turning money away. Will China act like a spurn lover? Not a chance. China an Austrlia will remain good friends as long as Australia want to be a friend. To China, stability come first, friendship second, business comes after the first two. If you have stability and friendship, business will look… Read more »
Biker Pete
I agree with that view, Ben. But the proposition you raise, of Brazil taking our major markets, is interesting. Back in ’76, my wife’s family had very large holdings in Liberian Iron Ore, which her grandfather founded, among other companies. At the time each share was worth $19.20. The family income was largely drawn from dividends. Canadians, they’d never heard of Lang Hancock, who had recently discovered countless billions of tonnes of iron ore in WA’s northwest. My advice to my wife was to sell her holdings… and fast. She did. The stock quickly fell to nine bucks, before her… Read more »
Greg Atkinson
Not just Brazil. The Japanese and Russians are getting on with business as well. The Russians can supply LNG and Uranium and joint ventures are in the works. Ned S also sent me an interesting link regarding China ramping up their iron ore imports from Russia. As for clean coal Australia might be have big plans for this technology but it is quite clear from the number of planned new nuclear power plants that nations from China to France are heading down another path. Could we see Australian coal exports decline over the next 20 years? It would seem a… Read more »
rick e

Instead of mining the coal for power stations
They could use coal seam gas
Maybe as a gas it might not be as a bad co2 emitter
And might not bring a big co2 tax
Hedge your bets
Stay tuned the white paper is coming

rick e

If China is not happy with BHP and RIO it might pay to back FMG ($3.29) and AGO ($1.70) lets see how it goes
These things take time to pan out

Chinalcos feels like Coke. * Rob Cox, China’s thumbs down to Coke is no Smoot-Hawley but is worrying breakingviews.com, March 18, 2009: Which matters more: the flow of capital across borders or the flow of juice to consumers’ lips? The latter looks to be the unfortunate choice China has made by blocking Coca Cola’s $2.4bn purchase of domestic juice-maker Huiyuan. Without a convincing explanation as to how the deal would hamper competition in the country’s booming beverages business, the decision looks like blatant protectionism. Shielding local companies – and perhaps the influence of the Chinese government apparatus – from the… Read more »
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