Wednesday 18 Jul 2018 | 20:54 | SYDNEY
Wednesday 18 Jul 2018 | 20:54 | SYDNEY

BHP-Rio: What might China do?


Stephen Grenville

15 April 2008 16:42

It is surprising how little serious discussion there has been on the political economy of the proposed BHP take-over of Rio. The commercial negotiations wind their tortuous way forward, and the purchase of Rio shares by Chinalco is seen as a response by China Inc to the threat of an iron ore near-monopoly, but we seem to be content to let the commercial forces play out. There are, however, some national interest issues here. From a narrow short-term perspective, it ought to be good for Australia to have a dominant position in price negotiations: better terms of trade are unambiguously a good thing for us. If, however, this makes China nervous about its resource security, then we might expect a response, and it might be one we don’t like.
Perhaps the longer-term issue this raises is even more important. Over time, it seems likely that China will want to assure its resource security through greater ownership of supply sources. They would have to get the OK from the Foreign Investment Review Board (which recently rejected a Chinese bid to buy a greater share of a small iron-ore supplier), and there is the precedent of the rejection of the Shell bid for Woodside, refused on national interest grounds by the then-Treasurer.
We’ve been relying on foreign capital to fund our current account deficit for two centuries, and we should start from a presumption that free capital flows are a good thing. If, however, our main buyers come to own so much of our resource sector that it's hard for us to know what the market price should be, and what the right royalties are, then we might wonder if the family farm should have been sold off to the highest bidder.
Who’s thinking about these issues, and where is the debate taking place?