Sunday, February 14, 2010

Aussies Getting It Right with China

The Washington Post has a great article today about the Australian approach to China - trade and investment liberalization, with no accompanying diplomatic coziness:
A surging China has become Australia's No. 1 trading partner. It has pumped $40 billion worth of investments into the Australian economy in the past 18 months alone. China's 70,000 students help bankroll Australia's education system, and a half-million Chinese tourists a year keep Aussies employed as lifeguards, blackjack dealers and real estate brokers. Chinese trade and investment have insulated Australia from the global financial crisis more than any other developed nation. Australia is even speaking Chinese: Prime Minister Kevin Rudd is the first Western leader to speak fluent Mandarin....

But all those ties haven't bought China much love Down Under. Opinion polls over the past five years show Australians are increasingly wary of the behemoth to their north. Rudd, while embracing Chinese trade, has moved to balance relations with Beijing by bolstering military and diplomatic ties with Australia's longtime superpower ally, the United States.
I've always wondered why well-intentioned folks who were very (and often rightly) concerned about China's military ambitions, human rights abuses and other global/domestic shenanigans couldn't separate between bilateral trade/economic engagement and becoming diplomatic BFFs.  The Post article makes it clear that this dichotomy is precisely what the Aussies have in mind - sort of a "Trade, but Verify" approach to China.  And the benefits of that trade and investment liberalization for Australia and its citizens are undeniable:
No city better illustrates the China boom than Perth, the capital of Western Australia, a state five times as big as Texas that holds the bulk of Australia's mineral wealth. The state's average income has jumped $10,000 in five years to more than $70,000, thanks to China's purchases of iron ore, natural gas and other resources.  In Perth, the median price for a home just broke $500,000. Its unemployment rate is a measly 2.6 percent; the national rate is just 5.5 percent and predicted to drop this year -- thanks mostly to China.

Beyond the numbers, Perth looks Chinese, with a skyline filled with skyscrapers and cranes. The city is bristling with more than $1 billion in new construction, including a hospital, museum, highways, offices and a vast indoor entertainment and sports complex. More than 110 people move into Western Australia each day, making it the fastest growing state in Australia, and there's still a labor shortage. Truck drivers working in the mines are paid $100,000 a year. A gate attendant at a mine makes $80,000....

A steel company from China's Hunan province sank $580 million into Fortescue Metals Group last year, turning the company's chairman, Andrew "Twiggy" Forrest, into Australia's richest man. Chinese firms also snapped up a uranium mine, gold and coal mines, off-shore natural gas fields, real estate and wineries. This month, an Australian mining company announced a $60 billion deal to ship 30 tons of coal a year from a proposed mine in Queensland.

"The numbers are so big it's deceptive," said Sam Walsh, who runs iron ore operations for Rio Tinto, the Anglo-Australian mining giant in which a Chinese firm, Chinalco, tried unsuccessfully to buy an 18 percent stake last year. "No one has seen this before. It is manna from heaven."

The growth has been so robust that Rio and its old competitor BHP Billiton now want to merge their iron ore operations, allowing them to extract an even higher price from the Chinese. Spot prices for iron ore are already more than $100 a ton and officials from both companies predict that in a few years their total production could hit 1 billion tons a year....
So the Chinese are helping support Australia's economy, and in turn are getting access to natural resources that they don't have themselves.  In other words, voluntary, mutually beneficial exchange actually works - even when it's with "communists"!  Go figure.  Typical skeptic response: well, yes, but I'm sure this means that the evil Chinese are abusing the innocent and naive Australians.  Umm, not so much:
Despite its economic inroads, China has made economic and political blunders that have infuriated, and occasionally amused, many Australians.

Being Australia's primary market for iron ore, the Chinese assumed last year that they would be able to get a good deal on the price. So China rejected as too high a benchmark price that had been accepted by Japanese and South Korean firms. That decision cost China dearly when the spot price of ore rose 90 percent in the past year.

"The Chinese thought they'd be in the driver's seat on this," said Kenneth Lieberthal, a China expert at the Brookings Institution. "Who knew they'd find themselves in the trunk."
The economic relationship's obviously not perfect, and the Chinese have tried, and will undoubtedly continue to try, to bully the Aussies and game the system to their advantage.  But it appears that the Aussies are holding their own just fine so far and are reaping massive benefits, and they're not caving to diplomatic or military pressure in the process. 

Go figure.

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