Fortescue spat no threat to trade

Local China business experts say a recent spat between Western Australian iron ore developer Fortescue Metals Group and its Chinese partners is unlikely to have a major impact on the Australia-China trading relationship.

However, they have warned existing iron ore producers’ healthy price demands may impact on the bilateral trade relationship with WA’s and Australia’s major trading partner.

Leading Australian iron ore producer BHP Billiton has been holding out for a reported 105 per cent price increase.

It has prompted major Chinese steel mills to threaten to form a buying cartel and the Chinese Government to look at imposed strict controls on lending and investment in the iron and steel industry. Another major producer Rio Tinto has already settled for 71 per cent increases.

While the Federal Government, which is looking at striking a free trade agreement with China, will not openly get involved, it is understood to be closely monitoring the situation.

There are also several WA businesses, especially resource companies, currently negotiating deals with Chinese companies.

Australia China Business Council president Desmond Williams said the stoush between FMG and China Metallurgical Construction was a separate issue from the price negotiations. Despite strongly rejecting recent claims by CMC, which attacked the strength of FMG’s contracts with its Chinese partners and questioned its resources, FMG’s shares have struggled to recover.

“This is just two groups carrying out business,” Dr Williams said.

Although it showed the Chinese, who sparked the stoush, could be tough negotiators, it should not be viewed as a warning on the hazards of doing business in China.

“It is an example of bad negotiations,” Dr Williams said.

However, in regards to the iron ore price demands, Dr Williams said China had warned Australian producers to look at opportunities to reduce their demands.

“They are not welcoming of the price rises, which threaten to increase the cost of construction and production, ultimately increasing inflation and pressuring the economic balance sheet,” he said.

“They have got to realise it will impact the long-term demand and income opportunities that Chinese demand creates.”

Curtin University academic area head of entrepreneurship, Stephen Choo, who is also a trainer of Chinese business at CCI, said Australian producers’ current advantageous position could be compromised in the long term.

“I think that if Australians are very short sighted, that might mean, in the long run, repercussions, like with the free trade agreement,” he said.

China Links

• Highlands Pacific
• Lynas Corporation
• Tasman Resources
• Mt Gibson Iron
• Titan Resources
• Orbital Corporation
• Gunson Resources
• Aztec Resources
• Crescent Gold
• Advanced Engine Components

* List is a sample of business relations with China