China adds to global recession by turning off overseas mining investment

Beijing’s decision to halt all overseas mining investment once again highlights how Government intervention continues to pose insurmountable risks for those who seek to do business with China. It also makes a mockery of the win-win rhetoric frequently espoused by those who promote engagement with China through trade.

Asia Sentinel reports that Beijing has issued a directive to mining and mineral processing companies in China to freeze all overseas investments, citing a need to focus resources on investing at home as an excuse. It is not clear how long this ban will last.

This decision is widely seen as an attempt to contain damages incurred by Chinese companies that had paid top prices for overseas mines before the outbreak of the global financial crisis. Among them is Chinalco.

Chinalco’s Dawn Raid on Rio Tinto Shares – More than a Business Deal

Over the next few months, the Australian Financial Investment Review Board (FIRB) will have a tough job deciding whether it is in Australia’s best interest to approve Chinalco’s acquisition of more than 14.9% of Rio Tinto shares.  A crucial task for the Australian regulator is to determine whether or not this share acquisition is a genuine business decision.  So far no one is convinced that this Chinese Aluminium Group is just after some aluminium asset.  There is strong evidence to suggest that the bid is designed to influence the outcome of a possible BHP and Rio Tinto merger.

Australian Media Warns China May Retaliate Against a BHP-Rio Merge

Australia’s national broadcaster, the Australian Broadcasting Corporation (ABC), quoted in length an expert’s warning that the BHP-Rio Tinto merge might bring along an end to Australia’s resources boom, due to possible retaliation from China.  This is the first time that mainstream mass media in Australia openly lobby against

the merger deal, citing a perceived conflict to Australia’s national interest.  This ABC report immediately followed a widely publicized Hong Kong South China Morning Post report, which said that the Chinese government had retained financial consultants to study the BHP proposal and to come up with options to block the deal.  The close proximity of the two reports makes one wonder if China’s diplomatic pressure is already finding its way to the Australian public.

Here is a transcript of the ABC Radio report “China lobbies against BHP’s bid for Rio” by Daniel Hoare:

Rio Tinto Takeover Update

As it turns out, I’m correct in being cautious about the Blackstone rumour. In this morning’s The Australian:

BLACKSTONE Group said overnight it isn’t involved in a bid for mining giant Rio Tinto, which has already rejected a $US150 billion ($A170 billion) bid from rival BHP Billiton.

The US private equity company was responding to an earlier report in London’s The Daily Telegraph newspaper that it was in the process of assembling a consortium to launch a bid.

“Blackstone confirms that it is not involved in this transaction in either an investment or advisory role,” the company said in a statement.

Meanwhile according to Reuters:

The Shanghai Stock Exchange said on Monday that the shares of China’s biggest steelmaker, Baosteel, would be suspended on Tuesday without giving a reason.

The stock exchange said on its website that shares would resume trading again on Wednesday.

So after all, something is indeed brewing, even though it is not what we think it is.

Blackstone: Trash or Gems?

The name Blackstone comes to my attention as I  follow news of the Rio Tinto takeover.  Blackstone, according to the Telegraph, is on centre stage this time as a possible rival contender for a controlling stake in Rio Tinto. Rumour also says that Blackstone is acting with full financial backings from “a Chinese sovereign wealth fund”. I’m treating this piece of news with extreme caution, after witnessing how a seemingly firm expression of intention by Baosteel’s Chairman could be dismissed as “a fabrication of the media”. It is also interesting to watch how the mass media in the West have been dancing to the tune of speculators at China’s Stock Exchanges. The price of Baosteel shares had been in decline ever since the company posted a much worse-than-expected 50 percent slide in third-quarter profits late October. I am sure some smart cookies would have made the best of the rumour to ripe some quick profits from China’s largely self-regulated stock market.

Is China Panicking over Ore Prices?

I am very aware of how news can be unreliable in the middle of a merger deal, as stakeholders often attempt to flood the media with stories that are favourable to their ends of the bargain.  That is why I have been putting off writing about China’s interest in BHP Billiton’s takeover bid for Rio Tinto, let alone predicting whether Chinese companies will put in a counter bid.  The deal is still far from conclusive, even though market observers are generally dismissing the possibility that Chinese companies will play a significant role in the merger.  This does not mean, however, that China is not aware of the implication of the merger or not concerned about how this is going to limit its access to affordable iron ore.  China’s anxiety over the outcome of the takeover is reflected in an interview that a Chinese Foreign Ministry spokesman Qin Gang had with Stephen McDonell, Australia Broadcasting Corporation (ABC)’s China correspondent.  This interview was broadcast during ABC’s AM radio program on Wednesday, 28 November 2007.  The following is a transcript of Stephen McDonell’s report.