From Australia: We must play the China card correctly…Cheap labour wanted…

Michael Sainsbury, China correspondent

Nothing too unusual about that. His company, China Metallurgical Group Corporation (MCC), has built most of the latest mills in China. But the latest project Shen is eyeing is in Western Australia.

Shen’s problem is he wants to build it cheaply and quickly, something he can only do with imported Chinese labour. To underscore the capabilities of his company, China’s largest industrial infrastructure builder, he upped his offer by saying he could build a city in the Pilbara that could house 400,000-500,000 people.

“Labour is a key issue for us,” he told the Australian China Business Council (ACBC) Business Dialogue in Shanghai last week. “The facilities in Australia mining areas are often inadequate. We could build a town for 300,000-500,000 people with proper facilities,” he said, indicating this would help mining companies better exploit the vast resources in the region and add to Australia’s wealth. The idea would be to bring in cheap Chinese labour purely for the building period, then hand it over to Australian operators, leaving legacy infrastructure for decades ahead.

However, mention importing Chinese labour, only even for the short term, and politicians simply change the topic, government lobbyists say. It’s a concept too politically hard for them to deal with. But Shen says without cheaper Chinese labour, including its huge base of skilled engineers, it’s simply not possible to build such projects.

But without such projects, Australia misses out on badly needed infrastructure, and projects will go to more accommodating countries. For example, China’s No 3 steelmaker, Wuhan Steel, is building a mill in Brazil.

The MCC president’s dilemma underscores the problems with Australia and China’s relationship, one that is heavily based on trade right now, but is rapidly become more complex as our two economies becoming increasingly intertwined.

Since charging past Japan as our largest trading partner last December, the gap has only grown; this year, the figure is likely to top $100 billion.

Yet the gap between Chinese investment in Australia and our own investment in China continues to grow wider. Approved Chinese investment in Australia stands at about $80bn — the actual amount is substantially less — while Australia only has $400 million or so invested the other way.

Much of that can be put down to China’s continued protection of most parts of its key sectors — energy, telecommunications, financial services and other utilities — from any significant private, let alone foreign, investment. But there is sense that Australia is not making the most of the available opportunities. With the exception of ANZ and Macquarie, our banks have been laggards. And beyond Bluescope, Ausenco, Cochlear, Kerry Stokes’ Westrac and a handful of others, there are few top-200 listed Australian companies with much presence in China at all.

“I am concerned that we don’t get left behind,” Australian Broadcasting Corporation and financial services industry stalwart Maurice Newman says.

As Australia’s traditional providers of capital — the US, Britain and even Japan face a prolonged economic slowdown — China is our main option for importing desperately need capital.

In terms of Chinese investment in Australia, the mooted MCC steel mill model could be extended to other sorely needed infrastructure, such as ports, roads and other facilities using a system of bonds or eventually an equity sale.

While Australia has something of a head start in China due to a long relationship in the resources sector, many business figures believe we are starting to slip back, as European nations pump investment into the country and China extends its resources investment into Africa, South America and Asia, partly due to an investment climate in Australia it still finds problematic. It is a situation only exacerbated by the recent resources tax fracas. As reported in The Australian on Friday, China remains deeply unhappy about the compromise position on the tax reached by Julia Gillard, believing it favours big miners over the new investments in industry juniors that Chinese mining groups and steelmakers have made in the past two years.

Senior Chinese officials expressed their disquiet over the original mining tax to a number of government cabinet ministers, including Treasurer Wayne Swan and Trade Minister Simon Crean when they visited Beijing, but these worries have not been assuaged by the new version of the tax, which is seen in China as a deal to placate the big miners.

“Sure, deals (in Australia) will be done but they are likely to be reduced in scale,” a senior adviser to a range of high-profile Chinese businesses says. “There is also a big question for Chinese companies who have already invested but who were going to raise billions of dollars in debt to fast-track many of these projects — much of that remains in doubt.”

Last week, Wuhan Steel unveiled a deal that will see it buy iron ore from Venezuela for $US20 per tonne less than it pays Brazilian giant Vale. “This is the first-ever contract under China prices,” Wuhan Steel says. “It’s also a significant starting point to move away from control by the world’s top three mining giants.”

Meanwhile, the stark reality is that China’s investment in Australia is starting to spread beyond the traditional mining and energy sectors — it has recently been a major investor in natural and coal-seam gas — into a range of other sectors, particularly agriculture and food.

“Chinese investment in Australia will spread to a host of other sectors in coming years,” ACBC China chief Paul Glasson says. There has been a failure at government level to address the relationship with China on a holistic level, Glasson and many others who do regular business with China believe.

Already China has made an ultimately failed bid for the sugar division of CSR and is openly eyeing investments in the wine industry and other sectors.

“Government to government relationships have grown, the trading relationships have grown exponentially and there really has been quite a gap opening up in where the official relationship is and where people on the ground see that relationship,” Newman told the ACBC conference.

“And that is going to be tested when it comes to Chinese investment in Australia. As anybody here who has been to Australia knows, Chinese or Asian faces are not rare but I still think there is a big gap to be overcome so people in Australia understand culturally and philosophically the nature of Chinese investment.

“I think unless that disconnect is dealt with it will lead to tension.”

ACBC chairman Frank Tudor borrowed Chinese leader Den Xiaoping’s metaphor for China’s economic development as “crossing the river by feeling the stones with your feet” to sum up the state of play. “We are halfway across that river,” Tudor says. If he is right, that’s progress, but standing halfway in the middle of a river — particularly if there is another flood of economic bad news on the way — can be a particularly dangerous place.

http://www.theaustralian.com.au/business/media/we-must-play-the-china-card-correctly/story-e6frg9cf-1225896779734