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.

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The Chinese government has welcomed Kevin Rudd’s election victory and some are predicting that Australia’s economic relationship with China could now become even stronger.  But China’s government spokesman has also hinted at an early point of contention – BHP’s attempt to takeover mining competitor Rio Tinto.  The Chinese are worried that the merger will hurt Chinese steel mills.  China correspondent Stephen McDonell reports.

At last night’s Foreign Ministry Press Conference, AM asked China’s government spokesman Qin Gang for a response to the weekend’s election of Kevin Rudd as the new leader of Australia:

McDonell:     Stephen McDonell from Australian Broadcasting Corporation.  From this week, Australia has a new Prime Minister.  He is the first Mandarin speaking leader in the Western world.  What impact will this have on China-Australia relations?

Qin:     First, our congratulations to Mr Kevin Rudd, who was elected as Australia’s Prime Minister.  China pays close attention to Sino-Australian relationship.  We would like to join with Australia to further friendly exchanges and promote bilateral cooperation.

Qin Gang also paid tribute to the effort of former Prime Minister John Howard in strengthening China-Australia relations.  But it was in response to another question from the ABC that he hinted a possible tension in the near future.  The backbone of Australia’s economic relationship with China is the sale of raw materials that feed its booming economy.  Australian iron ore is crucial to Chinese steel production.  But there is a possible corporate takeover looming, which could give one of China’s key suppliers enormous power to control world commodity prices.

McDonell:     At the moment, BHP is trying to takeover Rio Tinto.   If they succeed, it’s likely they’ll be able to have great control over the supply price of iron ore.  What does the Chinese government think of this?

Qin:     The combining of two companies is supposed to be a business activity.  So we don’t normally pay close attention to it.   But what we care about is the issue of price in the international resources market.  We want the market price of international resources to reflect supply and demand.  The price should be long-lasting, stable and beneficial to everybody, not just exporting countries.

In other words, Australia had better not think that China would be happy with an empowered BHP Billiton increasing the price of its raw materials.  This is Stephen McDonell in Beijing for AM.

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One Response to Is China Panicking over Ore Prices?

  1. Doctor Zhang says:

    Well, someone has got my name here, so I may as well give my two cents of opinion. Supply and demand does drive the market price. If the price is set artificially, it is a loss for everyone concerns.

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