Too many eggs in this Chinese basket
Tim Treadgold’s midweek online article: ‘Analysis: The problem with China' prompted the following responses to our website: www.wabusinessnews.com.au
THE two-decade China boom is not sustainable because it represents a perfect storm of smoke-and-mirrors type politics and economic policy throughout the value chain.
Consider the following: a) the US grows demand by way of dubious mortgage lending policy; b) China enters WTO in 2001 and sets out on a crash course of development, with a near-term goal of cashing in on its membership to WTO and a long-term goal of undermining manufacturing in developed countries (by way of overcapacity relative to current markets, bolstered by cheap labour and cheaper capital); and c) poor economic policy in Australia that takes advantage of high raw material input costs (due to export parity pricing and artificially constrained supply) and, in so doing, unwittingly pushes its manufacturing base off the cliff.
Meanwhile resources companies cash in and the Australian government is only too happy to let them do so.
The GFC in late 2008 should have caused the slowdown in the Australian resources sector that we are seeing come to fruition now. Instead, China blew $1.75 trillion dollars in municipal bond debt to go full-bore Keynes and ‘stimulate’ its economy. Our resources companies breathed a sigh of relief, as did the Australian government.
From this came the infamous ghost cities built in China for the express purpose of spending money to keep its companies from folding (and then having to deal with the massive wave of civil unrest that would have been sure to follow).
But China now needs to pay that debt and is frantically extending the terms of those loans.
The day of reckoning is already upon us, as is evidenced by the rapid drop in iron ore prices over the past six months, increasing uncertainty in new iron ore and other mining projects, and the ominous signs that China can no longer spend itself out of debt.
The only way I see out of this predicament on the Australian side is to have Canberra and the states put an end to constraining the resources, oil and gas, and manufacturing sectors of our economy through encouraging new projects and removing tax burdens across the board.
Cheaper raw material inputs and cheaper goods and services will stimulate the entire local economy, not just the few big resources players.
Bill Schneider
Brisbane
AS a geologist, I’m disappointed that so many of the mineral deposits sold to Chinese and other overseas interests have been ‘dogs’; deposits that are difficult to mine or have other economic or technical constraints imposed upon them. Some people have benefited from such sales but it adversely impacts upon Australia’s standing in the world community as a good place to do business.
Bernie Masters
Capel
AS a geologist who has consulted on some of these projects that are now being put on hold,
I agree with Bernie Masters (above) to some degree. The only problem is, nobody forced the Chinese to buy marginal deposits that any geologist with experience would have known would be very difficult if not impossible to develop at a profit.
I also consulted to Chinese buyers on numerous manganese deposits in Africa and very seldom was my advice followed.
The idea was always that profit on the ore would be made at the smelters in China. Now with oversupply, inexperienced Chinese miners will struggle to compete with their marginal deposits.
Adriaan du Toit
Perth