Australia owed its success in the first half of the 20th century to wool - it was ”a lucky country” built “off the sheep’s back”. In the 1990’s the economy powered through a decade without recession due to increased demand for minerals. Raw exports from Australia fed the growth in Asia and particularly China. In the same period China built vast reserves due to growth in trade. Australia was one of a very few countries with a positive trade balance with China. The USA faced a record imbalance as it relied more and more on China’s low cost imports.
Today China still has vast wealth reserves. Couple that with a desire to secure long-term resources and the country is sitting pretty.
Australia’s Treasurer Wayne Swan faces difficult decisions as China’s state-owned minerals company seeks to buy into Rio Tinto, one of Australia’s largest mineral companies. (Further complicating matters Rio Tinto knocked back an offer from BHP Billiton and now may accept a lower offer due to financial stress. Their gamesmanship didn’t work. Checkmate, Rio Tinto?)
Is China using the global economic crisis to sweep into long-term deals? You betcha!
In Russia a loan was announced today where two oil companies receive $25 billion from China in exchange for long-term supply contracts. The frankest summation comes from Charles Freeman at the Centre for Strategic and International Studies in Washington DC:
“Realistically, there is nowhere to go but China.”
But China faces an enormous image issue - as they experienced during the Olympic Torch Relay. A large number of people around the world distrust the Government of China. Human rights, Tibet, Tiananmen Square, censorship and other serious issues are raised. But today the country with cash is king. And China is awash in foreign currencies. It is one country able to buy USA bonds to fund the massive bail-out.
China has become a lender of last resort - and one we are highly, highly dependent on. William Shakespeare said:
“Misery acquaints a man with strange bedfellows.”
Shove over America, Australia, Russia and others - make room in bed for Superhero China!
