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

BHP iron mine

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:

There is a new twist in BHP Billiton’s bold bid for its rival, Rio Tinto, with China now lobbying to prevent a merger going ahead.

There are reports that China is lobbying banking and legal advisers in London and Sydney, in an effort to protect its position as one of the world’s leading consumers of iron ore.

And it may even offer up a Chinese-backed white knight for Rio to block BHP’s proposal.

It seems that for each week that goes by, BHP Billiton faces yet more opposition on the global front for its proposed takeover of rival Rio Tinto.

Last week, Britain’s Takeover Panel gave BHP until February to mount a formal bid for Rio or walk away from the bargaining table.

The deal has also attracted opposition from Japanese metal companies, and the Japanese Fair Trade Commission has begun talks with counterparts in Europe and Australia about a possible investigation into the proposed merger.

Now, the Chinese have emerged as strong opponents of the deal, as that country seeks to protect its position as one of the world’s biggest users of iron ore.

It is being reported in the UK that China has begun concerted action in a bid to stop the deal, including approaching investment bank Lehman Brothers to discuss ways to block it, either through political or financial channels.

Robert Gottliebsen, financial commentator with website Business Spectator, says any merger between Rio Tinto and BHP Billiton could, in time, trigger the end of Australia’s resources boom.

“History tells us that when a major customer of commodities is unhappy about a big event like a merger like this, then they go and seek supplies elsewhere,” he said.

“And the great danger of the BHP, Rio Tinto merger is that it will spark an effort by China to promote iron ore resources in other countries, and that means that the iron ore boom that we’ve been experiencing won’t continue forever.”

He says China’s best hope of scuppering the deal comes from the European Competition Authorities.

“They are pretty aggressive people. And we don’t sell a lot of iron ore into Europe, but both Rio and BHP sell a lot of other goods into Europe, so they’ve got to have the European Competition Authorities onside,” he said.

“Now, China could very well help a number of European steelmakers, or other groups in Europe, to mount a major campaign, and it could well be effective.

“I think that the old timers, the traditional people who understand commodities, are warning us that the reaction from China, and possibly also from Japan, to this merger could, yes, it could come through the European Competition Authorities and other things like that.

“But far more dangerous is that they will see this as a trigger to go out there and get Brazil and others to substantially increase their iron ore production, and but let’s assume that BHP and Rio don’t merge, and quote your odds on that, but presume they don’t merge, then both of them are going to have major iron ore expansion projects.

“So we could have a three-way expansion of iron ore. Take that down the track five, 10 years and you’ll have a glut, even though Japan … even though Japan and China’s demand will be very strong.

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