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Free trade in resource assets: No way

I am opposed to free trade in Australian natural resource assets.  I am not specifically opposed to China obtaining significant stakes in our natural resource industries – I am opposed to any resource-hungry customer of Australian resources buying a significant stake in the enterprises that supply them.

The general issue here is set out nicely in the NYT.  China is seeking to buy significant stakes in Australian resource assets at a local trough in the commodity price cycle.  China buys more than half of our iron ore exports and more than half of our wool.

Chinese interests as a large scale (indeed monopsonist) purchaser are not coincident with Australian interests as a supplier with monopoly power.  It is times like this that one wishes Australia had a half-sensible federal government rather than a bunch of bogans like Rudd who substitute verbiage for clear thinking.

8 comments to Free trade in resource assets: No way

  • Sinclair Davidson

    It is times like this that one wishes Australia had a half-sensible federal government rather than a bunch of bogans like Rudd who substitute verbiage for clear thinking.

    Okay, that is very funny, but you don’t know that Rudd is going to approve Chinese control of Australian resources firms. My perception is that the government is stalling and hoping the Chinese will drop the issue.

  • hc

    I don’t think Rudd has a clue on most things and is susceptible to poor advice. It’s not that I think he will take a particular stance on this issue I just don’t back his judgment.

  • Sinclair Davidson

    Yes, I agree with that point. But I also suspect most of the people advising him were also advising the previous government.

  • Uncle Milton

    It looks like the Chinalco deal is off anyway. By sitting back, Rudd has come out of it well. He hasn’t offended the Chinese by blocking the deal, nor has he compromised the national interest by letting it through.

  • hc

    I noticed that and I am surprised. I would have thought Chinalco would have been able to offer Rio a good deal because of the market power it would regain. But, from what I can read, Rio pulled the plug.

    Rough rationalisation. BHP and Rio get surpluses S1, S2 from their monopoly power. Chinalco would be prepared to bid more than S2 to get the monopolist of its back because it also reduces BHP’s monopoly power. But BHP (which will now probably bid for some Rio assets) would only big S2.

    Hence I would have though Rio would do a deal with Chinalco.

  • Uncle Milton

    Harry, following today’s announcement that Rio was jumping into bed with BHP rather than Chinalco, Rio’s share price is up 10% and BHP’s is up 8%. The market must think their world monopoly power just got bigger.

    So rather than the Chinese screwing us, we get to screw the Chinese even more.

    You can be sure there was a quite a bit of government action behind the scenes to make this happen. It’s an excellent outcome. I think you may owe Rudd an apology.

  • hc

    Its a good deal for Australia – I wonder if Rudd was clever enough to engineer this. This is Rio’s statement of the deal:

    “…Rio Tinto and BHP Billiton today announced that they have signed a non-binding agreement to establish a production joint venture encompassing the entirety of both companies’ Western Australian iron ore assets. The joint venture will include all current and future Western Australian iron ore assets and liabilities and will be 50:50 owned by Rio Tinto and BHP Billiton. In order to equalise the contribution value of the two companies, BHP Billiton will pay Rio Tinto US$5.8 billion for equity-type interests at financial closing. The establishment of the joint venture will be subject to execution of binding agreements as well as regulatory and shareholder approvals”.

  • Uncle Milton

    We may find out the extent of Rudd’s involvement in 30 year’s time when the cabinet papers are released.