SYDNEY—Chinese state-owned companies are moving to acquire stakes in three major Australian mining companies, sparking concerns of a Chinese raid on the Australian resources sector.
Three of Australia’s largest miners have been targeted—Rio Tinto, the world’s second largest producer of iron ore, Fortescue, Australia’s third largest iron ore miner, and Oz Minerals, Australia’s third largest diversified mining company.
As the global financial crisis deepens, the mining companies have welcomed the proposed deals. All three Australian miners are struggling with lower commodity prices, falling share prices and heavy debts. The deals offer them a chance to raise capital and offload debts into the open arms of Chinese state-owned companies Chinalco, Hunan Valin, and Minmetals.
In a statement, Rio Tinto Chairman Paul Skinner said Chinalco’s investment would deliver growth, strengthen share values and “position Rio Tinto for the next decade and beyond”. Rio has warned the government that over 2000 jobs could be cut if the deal with Chinalco does not go ahead.
But key players question whether the sales are in the long-term interest of the nation.
Under the proposed deal with Rio Tinto, Chinese state-owned Chinalco would double its holdings to 18% of the company, and be able to appoint two of the four company directors.
Union officials are concerned about the consequences for the Australian economy, if the deal goes ahead. While not opposing the deal outright, Australian Workers Union National Secretary Paul Howes said that under the proposed structure, Chinese government officials could use the access to inside pricing information to drive down the prices of iron ore, to the benefit of Chinese steel producers. Such an outcome would hurt the Australian mining industry, he said, and could have a carry-on effect into the wider economy.
Observers were spooked last month when the secretary general of the China Iron and Steel Association said in a Bloomberg interview: “[The Rio-Chinalco deal] will help China break the duopoly in Australian iron ore supply over time.”
Greens Senator Scott Ludlam called on the federal government to block the deals, warning Treasurer Wayne Swan not to let the corporate imperative overtake the national interest. As Australia approaches an era of mineral shortages, said Mr. Ludlam, it would be “foolish” to hand control of key commodities to the Chinese government.
Senator Ludlam questioned the ability of the federal government to regulate the miners, if they gain the backing of the Chinese state: “The Australian government already has a poor record of regulating mining companies in this country. If you add to that the influence of a foreign government, things don’t look good for human rights or the future of the environment in this country.”
Liberal and Labour leaders have been cagey about committing to a position, but both Treasurer Wayne Swan and Opposition Leader Malcolm Turnbull have called for close scrutiny of the deals by the Foreign Investment Review Board, and have urged an exploration of alternatives to the Chinese-backed acquisitions.
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