Friday, July 17, 2009

China & Rio Tinto...state secrets & corruption. A case study of a spurned suitor

China arrested four of Australia's multinational mining company, Rio Tinto, on charges of stealing state secrets and corruption. Canberra has lodged protest. Beijing dismissed the company's and prime minister Kevin Rudd's 'demarches' with a dismissive, cynical characterisation of 'noise' and stuff and nonsense. But is that so?
Guam Diary will use the tools of Marxist Leninist [Mao Tze tung thought] in drilling below the surface of charges and countercharges.
Let's begin by saying China in its rush to industrialised tapped overseas markets for raw materials. Australia's iron ore became an important source. It was georgraphically near and the price was right. Not only that it had a new Labour government, led by Kevin Rudd who spoken very good Mandarin. Rudd was eager to tie his country's future to China's roaring economic engine. Up to a point, however!
Then came the global recession which hit Australia hard, but China much less. And what's more Beijing had a fat purse full of strong currency. It looked to cherry pick the fruit of corporate misfortune for its own designs. And in its sight, Beijing centred on Rio Tinto, and made a grab to buy a good per centage of the company. It could count on the philosinophile prime minister, it thought. It bet badly, and China's offer was grandly and flatly rejected.
China quickly donned the mantilla of a spurned rich widow.
Let's examine doing business in China. Since China is a country of laws which are pliant to the whims of the Chinese Communist Party [CCP] and little private enterprise and ownership [and even in this case, nothing is safe from the interference of the CCP and the bureaucrats], foreign companies investing in China have no recourse but to deal with party and government officials up and down the line of command. Which means corruption is rife. Nothing gets done with a well greased palm. And to curry favour, white envelopes of ready cash get exchanged routinely.
Now, let's turn our attention to another fallout of the global economic downturn. Sharp fall of commodity prices. A common practice say for China's steel mills is to hoard supplies, and to make deals on the side with suppliers off the books. This may very well have come to pass, and brought the anger that Beijing festering against Australia to a head. It points out the Achilles heel of trading and dealing with China. China is 'lawless'. It can turn any situation to its advantage since on the whole foreign corporations are dealing with the Chinese government from the lowest country level to the central government. China has no independent judiciary, no sense of law that the outside world with few exceptions have. So Beijing gaily brands the foreign entity as purloining 'state secrets'. But truth be told, it is more often than not than widespread corruption which the CCP fosters and encourages; which to bend the rules corrupt officials engage in questionable practices to feather their own nest. This is not noise! On the front page of16 July issue of 'the Financial Times of London', smack dab on its front page, a picture of a certain Chen Tonghui, head of Sinopec [the state owned China Petroleum & Chemical group], with the headline that Mr. Chen has been sentenced to death, albeit within the next 2 years. [A lot can happen in 24 months! to spare his life?] Google the internet, you will find more stories on officials high and low executed for corruption. In the world of business, few are virtuous, so foreign businesses will adapt to China's corrupt business practices. And here is the nub of the problem. China wants its pound of flesh...and that flesh belongs to Rio Tinto. Beijing is patient that a deal can be worked out on its terms. This should serve as a warning to foreign companies looking to do business in China. It would be wiser if they look elsewhere, say, India, where one the language of business is English; the tradition of the law has roots in the British common law; and three, India is a market economy.
So if there is noise in the Rio Tinto affair, it comes from Beijing. Caveat emptor!

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