The Deal Is Simple. Australia Gets Money, China Gets Australia

http://www.businessweek.com/magazine/content/10_37/b4194044972388.htm

by cwan • 16 years ago

90 83 16 years ago

barredo• 16 years ago

Alternative Title: Chinese (amongst others) companies make money on Australian soil. Also known as "Multinationals multinationing"

ww5202• 16 years ago

Alternative Title: Capitalism at work, trade instead of war, each got what they want.

Estragon• 16 years ago

I don't think it's that simple. Consider, for example, that the Australian Prime Minister, Kevin Rudd, lost his leadership largely because mining companies were upset by his plan to tax them further. From the article:

  Economic and diplomatic advances, however, have not 
  fueled a warm national glow. Australia's proposal to 
  increase taxes on mining became a national issue, 
  precipitating a three-month barrage of anti-government 
  campaigns paid for by the mining industry, which in part 
  led to the removal in June of Prime Minister Kevin Rudd, 
  a Chinese-speaking former diplomat. In the August federal 
  election, the ruling center-left Australian Labor Party 
  lost its majority due in large part to massive swings  
  against it in the resource-rich states of Western 
  Australia and Queensland. Supporters of the tax argue 
  that the resources are not coming back and that Australia 
  should participate more fully in the outsize profits. 
  Those against include the mine operators and the many who 
  work in the mines; mining salaries are, on average,  
  Australia's highest, according to the Australian Bureau 
  of Statistics.

stretchwithme• 16 years ago

The only 2 options, really. We can trade with our fellows and produce total results that exceed our wildest dreams. Or we can take what we want and eventually be reduced to fighting over scraps.

metamemetics2• 16 years ago

The original title is best. It conveys the point that China is literally and physically getting Australia.

The country of Australia is an object decreasing in size and mass, due to the super-barge-2mile-long-train-robo-dumpster IV China has paid to stick in it.

jakarta3• 16 years ago

It's pretty interesting to see how intertwined China is with Australia.

If you ever want to short China, your best bet is to target Australia which already has a bit of a property bubble, mining companies that are dependent on Chinese demand, and a currency that is buoyed by commodity prices.

If China is indeed a bubble (at least in the medium-term) Australia is going to experience a world of hurt.

nl11• 16 years ago

If China is indeed a bubble (at least in the medium-term) Australia is going to experience a world of hurt.

Yes, but...

Australian is a commodity exporter. If China is a bubble, then yes, Australia will be hurt unless another country (US/India/Japan/Korea) picks up demand.

Also, it's not a property bubble when there are less houses than people who want them. Because the population growth rate in Australia is (comparatively) high for a developed country we have high intrinsic demand for new housing.

jakarta3• 16 years ago

Do you realistically expect the US, Japan, or Korea to somehow fill the gap if China suddenly drops its demand for Australian commodities? India might pick up some of the slack, but I would bet against it.

Household debt / disposable income in Australia is 157% versus 133% for the US shortly before the financial crisis. That level of debt combined with ever increasing home prices should create a pretty volatile situation.

wisty2• 16 years ago

The problem with commodities like iron is they mean-revert.

Iron ore traditionally sells for under 40 cents. It's over 160. There is a big price bubble, because there was such a large spike in demand (thus a shortage, so customers bid the price up).

But if demand drops, those mining trucks can't just sit idle. They run 24 hours a day, whether they are raking in money or just eking out a profit. The same goes for the 2 mile trains, container ships, loaders, and so on. Quantities won't drop a lot, so price will, right down to the cost of production. Once it hits the cost of production, companies will start scrapping trucks, but that's a very bad way to lower quantities.

justsee3• 16 years ago

It is quite simply a myth that there is a housing shortage in Australia.

This idea has been conceived and perpetuated by vested interests in the property market in Australia, particularly the Housing Industry Association (HIA). A recent article does a good job of exposing this:"Housing industry's missing persons report pure fiction" http://is.gd/eXZT5

It's not the first time this kind of tactic has been applied either: in the lead up to the property crashes of the US and UK the press ran numerous stories about housing shortages. These quickly turned to stories of housing gluts after the bubble popped.

Look to the Australian census data of 2001 and 2006 and you'll see we've been building at an increased rate, and have an increasing number of empty houses on the books (around 800 000 in 2006).

A contrarian site gathers a bunch of this information here: http://bubblepedia.net.au/tiki-index.php?page=HousingShortag...

mrtron2• 16 years ago

I don't see how China's demand for commodities could be a bubble.

They are building in huge volumes, but they have a huge volume of people. There is a middle class developing. Check out Hans Rosling's talks about it.

There may be a temporary bubble in the stock market, but China is undergoing an incredible shift towards becoming North American in every way. Beijing is the best example of this - the entire city has been bulldozed and redeveloped in a North American big box way. Shanghai is even further 'ahead'.

Traditionally Chinese have been very conservative with spending, preventing quick economic growth. Credit cards are almost non-existent. You pre-pay your bills, even electricity! But for some reason - perhaps the Internets media influence, perhaps the one child policy, people are now spending money quickly. Starbucks is extremely popular and more expensive than in Toronto, NYC or SF! For the price of a coffee you could easily get a great meal with a few drinks, yet coffee shops are filled.

If all of it is a bubble - it is so firmly entrenched at ground level that the momentum of this bubble will burst through and last for decades. New industries are developing rapidly. The insurance industry was almost non-existent a decade ago, and is growing quickly in different ways there.

One thing is part of what is fuels the growth is international companies spending a lot of money trying to establish new business in China. These companies are risking money and bringing expertise into a really unknown market and often losing money. China in the end benefits as they just sit their with their vast market and allow foreign companies to try to create new industries. If anything starts doing really well, the government could always regulate that industry and take it over themselves.

I don't see anything stopping both China and India both developing a large middle class. That will snowball growth for decades. Premium brands will likely dominate - these folks want iPhones and Mercedes.

I think this Australian iron ore example is just the beginning of the scale at which we will see commodities shifting to China. I expect timber to happen at an enormous scale as their foresting practices seem quite unsustainable.

btilly• 16 years ago

The first problem that China has right now is that government policy has made it easier to bring money in than to take it out. This has caused a significant asset bubble. If that asset bubble pops, it will be painful. That's exactly what happened to the Japanese juggernaut that everyone was scared about 20 years ago.

The longer term problems are demographic. The one-child policy means that the upcoming generation is smaller than the previous. Their work-force will soon be shrinking. Furthermore many parents chose to abort girls to make their one child a son. But a generation with a significant surplus of men is bound to have interesting social problems.

If I had to bet, I'd bet that 30 years out we'll be hearing more about India than China.

jakarta3• 16 years ago

http://www.scribd.com/doc/28824145/GMO-White-Paper-China

Here's a white paper with some possible red flags that point to a bubble in China.

c1sc0• 16 years ago

Most of what you are writing was true, like a year ago. Never forget that China develops at internet speeds. Here's an update as far as I can tell.

Credit-cards are very much existent right now, to the extent that I know people who got into nasty trouble with them. That's a thing of the last year or so.

Overall credit is a lot easier to get now, which makes the real estate market feel pretty bubbly, but there does seem to be a never-ending demand for new property. First reason is that in the cities you don't marry without an appartment. Second reason is that people are still moving in from the countryside & those that get lucky end up in a position to buy after a few years.

I thought Starbucks was 'out' and the Coffee Bean was 'in' last time I visited. Same story that happened with McDonalds a few years ago: a western brand gets popular just because it is 'new', then people realize that they are eating/drinking crap & come up with their own alternative. Ever noticed how western fast-food joints sinicize (is that a word) their menus? That's not about concessions to the chinese tastes, it's about survival.

You're totally right on the copycat factor though & I actually think that's a great asset of chinese entrepreneurialism. It's a cut-throat world with lots of competition & they know how to stack the cards to their benefit. And why should they not? Unlike the western world they have a massive internal market to develop and cherry-picking 'the best from the west', then copying is a very valid strategy.

There's lots of cash to be made in luxury products I think. Just like the Japanese developed a taste for expensive watches 2 decades ago, I see the same happening in China. Over here in Switzerland jewellers / watchmakers are now openly catering to the asian market. I was in Luzern last weekend and just for fun started looking at the customers in the watch shops: almost all asian faces. And that makes sense, because most of my Chinese relatives will smuggle back a multiple of the allowed $10K worth of watches/jewellery every single time they visit europe. And those people are by no means 'fuck-you' rich in the Chinese sense of the word.

iamelgringo• 16 years ago

re: China Bubble

In building http://Newsley.com, I've been reading a lot about the Chinese economy, and the potential bubble there over the last 9 months.

No hard numbers, I just know this must be true, because my gut tells me it is true. #tongue_in_cheek

My gut tells me that 10% GDP growth year on year is simply not sustainable over the long term for any country. There will be an economic contraction at some point. I'm also very leery of the lack of transparency in the economic numbers that are coming out of China. It's hard to build a capitalistic society without financial transparency. Perhaps China will pull it off, I have my doubts.

And... <shameless plug> http://newsley.com/k/Tag/economic-bubble/8167/ http://newsley.com/k/Tag/economy-of-the-peoples-republic-of-... </shameless plug>

I'm building results pages for Newsley, before I have the search piece of the site built out. But, as I eat my own dog food, I find these results pages to be rather interesting for drilling down into specific topics.

ryanwaggoner• 16 years ago

The geopolitics are interesting, of course, but this was really interesting to me:

He now oversees a test project of driverless Komatsu trucks that cart out 300 tons at a time, moving 80,000 tons over two 12-hour shifts. When the drilling is good, he says, they can shift 120,000 tons in 24 hours. Without drivers, the trucks are more reliable, with radar sensors stopping them from crashing. They roll 24 hours a day.

teyc2• 16 years ago

some drill rigs are semiautonomous, with GPS. The control systems were priced around $120k the last time I looked about 10 years ago. Any HN'ers want to disrupt this? I know some drillers out this way.

nl11• 16 years ago

They have similar technology for farming, too.

If you wanted to disrupt this, I suspect you don't want to make it cheaper (the mining companies have plenty of money), but to do a better job somehow.

(Where are you?)

Hexstream• 16 years ago

I can only guess $120k is less than pocket-change for an operation like this.

brc10• 16 years ago

I'm not sure of what the point this article is trying to raise? Is it that Australia is not in recession? Is it some sort of suggestion of xenophobia on the part of Australians?

Australians have all seen this before in the 1980's when the Japanese were buying real estate, companies and generally splashing cash around. I think this time around most people are more relaxed about it, and a feeling of 'make hay while the sun shines' is probably the most prevalent.

While the imagery of large parts of Australia being dug up forever are evocative, it's not very realistic for anyone who has visited this part of the world to think it's all going to run out soon. It's a massive, virtually uninhabited area and the ground you walk on is literally red from iron ore.

kentosi• 16 years ago

I have to agree with you. The title itself feels like the author's taking a biast stand that s/he wants to vent. But the article itself is completely indecisive. Almost as if the author wants to speak ill of Chinese hands in Australian soil, but can't.

Either way, I found the article's facts interesting. I don't think many people know the scale of these operations, not the history of similar events with the Japanese. Both of these were news to me.

brc10• 16 years ago

If you want a fascinating readup on the impact of Japanese investment in Australia, the effects and outcomes, read up on the Multi-Function polis.

http://en.wikipedia.org/wiki/Multifunction_Polis

In short, it was a plan to build a high-tech city in order to better integrate Australian-Japan relations. In the end, a complete farce, but at the time regular front-page news. It did expose an ugly side to foreign investment in Australia, but things are very much different now - probably as a direct result of nothing very much at all occuring from all the Japanese investment. Mostly the Japanese did their dough, went bankrupt and left behind some big shopping centres, resorts and golf courses which Australians of all colours continue to use and enjoy to this day.

A good companion would be the re-reading of the Micheal Crichton novel "Rising Sun" - written at the peak of the 'Japan to take over the world' thought bubble, before the Japan bubble popped.

metamemetics2• 16 years ago

It's not an editorial, it's a well written news article. It's goal was to cover multiple points of view of a massive event without explicitly endorsing one of them as canon.

zmmmmm3• 16 years ago

> make hay while the sun shines

If only we were actually making some hay, or put some of what we do make in the barn instead of gorging on it. I think a better analogy is "let's party while the champagne is flowing".

Instead of long term investments in permanent infrastructure and educating our citizens we are largely just padding out the middle class with spurious welfare benefits. That's almost worse than just throwing the money away because it is creating an enormous future liability and false expectation among average folks.

brc10• 16 years ago

I mostly agree with this. While I don't think we should increase mining profit taxes, I do think some of the mineral wealth should be locked away into a sovereign wealth fund - the type that can't be gotten at by sticky fingered politicians of any persuasion. The wealth fund could be used for apolitical purposes, like education funding (scholarships?), national dual lane freeway construction, large-scale water projects. But only after it reached critical mass and was throwing off a couple of billion per year in investment returns.

sliverstorm• 16 years ago

Exporting all your resources, particularly a staple like iron, seems like a bad plan for Australia in the long run. Particularly because it is a raw material.

scn3• 16 years ago

"A 20-year-old off the street can come up to the Pilbara and earn A$92,000 a year," says Boxy. The median household income in Australia is A$67,000.

Talk about inflationary pressures.

nl11• 16 years ago

Those jobs are well paid for a reason.

They are in the middle of nowhere (unless you've been there you have no idea how isolated the Pilbara is), and the climate is less than ideal:

The climate of the Pilbara is semi-arid and arid, with high temperatures and low irregular rainfall that follows the summer cyclones. During the summer months, maximum temperatures exceed 32°C (90°F) almost every day, and temperatures in excess of 45°C (113°F) are not uncommon. The Pilbara town of Marble Bar set a world record of most consecutive days of maximum temperatures of 100 degrees Fahrenheit (37.8 degrees Celsius) or more, during a period of 160 such days from 31 October 1923 to 7 April 1924.[5] http://en.wikipedia.org/wiki/Pilbara

In the non-open cut mines, many jobs are underground and a lot of people don't seem to cope well with being 1km underground.

A few well-paid jobs don't create inflation on their own. The inflation rate remains a steady 3%.

scn3• 16 years ago

I'm not saying they're easy jobs but two weeks on one off with no expenses for the two weeks on makes for a lot of disposable income even without those salaries.

Inflation remains a steady 3% with a cash rate of 4.5% way above comparable economies, with a high chance of further raises. People not in the mining industry can't expect to compete with the salaries they're earning and the high interest rates and Australian dollar are hurting households and other exports.

Housing prices in Perth: http://reiwa.com.au/res/res-salesgraph-display.cfm Does that look sustainable?

scn3• 16 years ago

Between the start of the mining boom to the onset of the global financial crisis: annual price inflation in Perth averaged 4.0 per cent, compared to the national annual average of 3.3 per cent; Perth rents increased by two-thirds more than the national average; and Perth house prices grew by 14 per cent a year, almost triple the national average growth rate. http://www.pm.gov.au/node/6884

JabavuAdams• 16 years ago

What's the catch? I mean do they actually have trouble finding people to do these jobs?

brc10• 16 years ago

It's a free market for jobs. Anyone can choose to do it. There's plenty of people in IT making good salaries, but you don't hear about anyone trying to stop that. The age of the recipient is unrelated.

It might hurt for some, but worse would be some kind of intervention to prevent what you see as a problem. That would end up hurting all.

You see inflation, I see strength in the job market, a strong economy, a prosperous nation.

There is far more risk of inflation from continued government borrowings than from some people making good money in the mines.

The worst outcome would be to try and rein in the mining industry somehow. That would create all types of unintended consequences, all bad.

maxklein• 16 years ago

The first page of the article uses various journalistic tricks to make the Australians seem like nice homely people, while the Chinese seem like faceless big corporations.

adrianwaj3• 16 years ago

The key issue for me here is that Australia's not getting the same infrastructure projects that China's African resource partners are getting (eg roads, schools, hospitals.) Australia's probably getting more money instead.

For example: "Abuja — The Chinese government has concluded arrangements to spend about $50 billion on development of infrastructure in Nigeria through SINOSURE, the Export Credit Guarantee Agency of China." http://allafrica.com/stories/200803310705.html

"Of some 900 projects China built in Africa, more than half are aimed at improving local people's livelihoods." http://www.china.org.cn/opinion/2010-07/04/content_20416315....

etherael• 16 years ago

Why would you think that Australia would have the same demand for basic infrastructure that Africa does, considering the relative economic positions of the vendors in each instance?

adrianwaj3• 16 years ago

Unpredictability brings anxiety and hope in equal measure to the 8,000 Aborigines in the Pilbara, who hope their third-world living conditions might be raised by the China boom. Tony Wiltshire, an indigenous mechanic who runs a guild of Aboriginal businesses and tradesmen in the Pilbara, says the mining boom's benefits could sidestep the local population.

adrianwaj3• 16 years ago

"My total salary and superannuation is A$145,000 a year, and when I'm in the Pilbara I don't have to put my hand in my pocket. I have a house in the city and an investment property and a 1972 Falcon pickup. I couldn't have had this life without mining."

and devastating the environment (and human and animal health) with all the land-clearing, power consumption, water consumption, massive pollution and toxic waste that comes with this and connected industries.

nicko2• 16 years ago

I worked in the Pilbara for one of the big miners in an 'automated' laboratory for a couple of years after graduating. AMA.

Couple of quick points for anyone tempted to make the move: As an employee you get to interact with some pretty amazing tech, but most of it is created by other firms. Direct employees typically end up operating, maintaining and fixing things when they break. It's a great place to get hands on experience solving problems under time pressure. If you want to work heavily in the code base of automated robots/ trucks / trains, find a firm that does the contracting work to work for.

Secondly, don't do it just for the money, the job becomes your life. The article wasn't really about employee benefits but they did mention a salary without saying exactly what it was for.

Michael, after 35 years earns 145,000 p.a. including superannuation.A typical truck driver on a FIFO (fly in fly out) roster will fly up to the mine and work 7 12.5 hour day shifts, followed by 7 12.5 hour night shifts, and then fly back to the city to recover for a week (6 1/2 days). This is repeated about 17 times a year.

14days * 12.5hour shift * 17 stints = 2975 hours. $145, 000 / 2975 = approx AU$48 dollars per hour, including super. For that 20 year old on $92,000 it works out about $31 an hour, assuming the same roster. getting that job is not exactly easy either. The money is not bad, especially since you have nowhere to spend it on while at the mine, but the guys who do this long term have it in their blood and live to work at the mine.

Your social and dating life ( if you have one at all) gets fairly messed up on that roster, and fatigue from night shift can get to you after awhile.

Fun Fact: The mines tend to prefer female truck drivers as they are more gentle on the equipment.

adsyoung• 16 years ago

Hi nicko. Do you have an email address I could ping you on. Would love to quiz you about your experience :)

nicko2• 16 years ago

No probs, I just updated my profile with my email.

Volscio• 16 years ago

I know this is not exactly a new phenomenon for those who live in mining areas (northwestern Canada, Australia, etc.) but I found it interesting when going on a trip in the Outback that 3 of the men with us were miners (one from Canada, one from the UK, one from Australia) who do the tough mining tour of duty for part of the year and then travel for fun the rest of the year, rinse repeat.

It's an odd life.

c00p3r• 16 years ago

It is better to say - Australia gets all those Treasures (American debt) and China gets Australia - resources. It is really a good deal!

cletus• 16 years ago

Honestly this kind of article annoys me.

It's split across 5 pages (more page views anyone?) and meanders through largely meaningless anecdotes without ever really getting to the point.

The whole stream of anecdotes style of journalism is one I abhor. It's lazy, can easily be abused (you can use anecdotes to prove anything) and is often just cheap theatre to try and humanize something otherwise without substance.

bl4k• 16 years ago

Blame Malcolm Gladwell and Chris Anderson. Those guys sold a ton of their books (airport books) and now their style is creeping into journalism.

The stories are not used as supporting evidence, references or as facts to build an overall conclusion to some new idea - but rather as infotainment, where the anecdotes are the whole point of the story and there is no real firm conclusion or over-arching theme that is proven.

The anecdotes are easy to digest and repeat, which helps not smart people sound smart when they tell the same stories to a group of people.

helmut_hed• 16 years ago

I was struck by this quote (in regards to Rio Tinto): Until last year, China was trying to buy more of the company

As far as I know "China" does not buy things. Their government, maybe. I'd like to know if a Chinese government entity or connected company was truly involved in this. If not, the reporter is speaking carelessly...

Charuru• 16 years ago

A less sensationalist title: Australia gets Chinese Money, China gets Australian Ore.

The Deal Is Simple. Australia Gets Money, China Gets Australia

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