Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Wayne Swan's misplaced confidence in Australia's recovery

By Arthur Thomas - posted Thursday, 14 May 2009


Treasurer Wayne Swan is confident in turning a massive "temporary" deficit into a surplus in just seven years. This confidence appears reliant on consumer spending and investment in major infrastructure upgrades to increase our export capacity and rapid, efficient movement of goods throughout Australia.

In Western Australia, Swan appears to be relying on iron ore and gas to provide the jobs and cut demand for Federal funding. In Queensland and New South Wales, coal appears the saviour. A sudden jump in Queensland coal exports to China offset a slump in demand from Japan and South Korea.

Prime Minister Kevin Rudd also sees huge Chinese demand for our steaming coal.

Advertisement

One can only presume that China's massive coal-fired power generation expansion program is responsible. This comprises 550 new 1GW coal fired power stations, each the equivalent of Wallerawang power station, commissioned roughly every 10 days until 2020, and with very few exceptions, incorporating old technology.

If rising exports of steaming coal to China is to contribute to returning our temporary deficit to a surplus, then Rudd should look more closely at the restructuring of China's short, medium, and long term planning to increase supply and cut the cost of coal for power generation and steel production.

China is receiving praise in legislating to close 1,500 small dangerous, inefficient, low quality coalmines in Shanxi. It also intends to modernise Shanxi's coal mining operations to increase output.

Rapid development of large scale, mechanised open cut coalmines in Inner Mongolia will soon displace Shanxi as China's key coal producer. A dedicated coal railway will transport coal to the massive new Caofeidian steel complex in Hebei.

Further west, Xinjiang is developing a massive new open cut coalmine and constructing a new dedicated rail line on the Lanxin Railway to transport coal eastwards. More large-scale mines are in various stages of development on major coal deposits in the west.

As an example, China Shenhua has just committed US$14.7 billion to develop two new deposits in Inner Mongolia and Shaanxi to produce an added combined 100 million tonnes per year for the domestic market.

Advertisement

Mongolia has been benefiting from aggressive investment by the world's coal majors, emerging as China's future major foreign coal supplier. Dedicated railways operating, under construction, or in the planning stages link the very large scale, mechanised opencut coalmines close to the Chinese border, to major energy and steel bases. They also connect to China's growing integrated coal railway network linking these mines to export ports servicing neighbouring Taiwan, South Korea, and Japan.

Australia will soon be competing with Mongolian and Chinese miners for the China, Japan, Taiwan, and South Korean markets well before Swan's seven-year recovery period is up.

It will be interesting to know how much reliance Swan has placed on coal exports to help lift Australia out of the recession, provide jobs, and return the economy to surplus in seven years.

In the meantime, Australia will be busy demonstrating how competitive its coal pricing is for China and it's close neighbours.

Carbon caps

Having proclaimed Australia as the world leader and innovator in greenhouse gas reduction and global warming sensitivity, Rudd appears happy to ignore the increasing pollution from China's massive coal mining, energy, steel, aluminium and cement expansion programs. China's emissions were horrendous before 2000, but a decade of continuous record industrial and energy generation expansion has seen China's emissions skyrocket.

So, just how does the Rudd, Wong, Garrett trio intend to secure a meaningful reduction in global greenhouse emissions with such massive ongoing growth in China's major polluting industries?

When examining this massive and increasing expansion in emissions, the use of 2000 CO2 levels as a benchmark, lacks credibility. One would expect China to jump at the 2000 benchmark, but it still wants a benchmark in the 1990s.

So where does Penny Wong stand on this? Poor old Peter, he must be in there somewhere; just can't find his way out of the woods for the trees.

Although impressive by Australian standards, China's much vaunted commitment to wind generation is minimal in terms of overall reduction. China loves Kyoto. It has no commitment to comply, and the CDM (clean development mechanism) scheme is proving a highly profitable foreign exchange earner.

Keep in mind the effect of the global atmospheric circulation system on emissions and that Australia produces less than 1.2 per cent of recorded global emissions. So, how will Australia's stand-alone reduction affect global warming in Australia? If Australia immediately cut all GHG (greenhouse gas) emissions, the overall effect of global warming on Australia would be negligible. When considering the overall impact of China's current and future emissions on global warming, the argument of per capita emissions ignores the obvious.

The Rudd "fuzzy feel" carbon reduction strategy

Stage I

A 5 per cent carbon reduction against 2000 levels by 2020, regardless of action taken internationally.

A firm and irrevocable commitment for the next 9 and a half years.

Stage II

A reduction by a further 15 per cent of 2000 levels by 2020, if a global agreement falls short of stabilising CO2 below the 450-ppm target, but satisfies the White Paper criteria.

Global agreement include which countries? Just how flexible is the White Paper Criteria? Is there a plan "B" outside the White Paper?

Stage III

A reduction of 25 per cent of 2000 levels by 2020 if the world agrees to stabilise CO2 at or around the 450 ppm level.

"World," means which countries precisely? In the event of failure, Rudd should enlighten Australians on "Plan C," we appear likely to need it.

The question of course is: why make a decision that can have a major impact on an entire nation that is so vague and based on so many variables and unknowns?

China is not even half way through its massive coal and energy intensive industrial development programs. How can the 2000 levels of CO2 emissions be relevant or considered serious?

What are the intermediate and end game plans if all fails? The Rudd, Wong, Garrett trio have placed Australia's credibility at risk. Do they envisage revising the 2000 CO2 level benchmark for all countries to accommodate China's ongoing increasing CO2 emissions to 2020 while the rest try to cut back?

Do we retain the 2000 CO2 level benchmark and just sit back and watch global warming continue to rise because of China's massive increasing emissions to 2020 and beyond?

Somewhere the cost of increasing CO2 on planet earth requires accountability and a strong and determined government response to replace the current waffling and trying to be all things to all people for all occasions.

As for options, there are a number, but only if governments have the guts to act in their nation's best interest and for future generations.

One realistic option appears that of a carbon tax on scheduled manufactured products with a penalty carbon tax imposed on exporting countries failing to commit to realistic caps and accept a meaningful role in global warming reduction.

A careful perusal of IMF, WTO and other international bodies will reveal other options for consideration including jobs, jobs, and jobs.

Australian resources and post recession

Once the recession is over and market normality returns, Swan apparently expects market forces to come into play to lift demand and prices.  But consumer demand will not return to the heady pre 2009 days, and resource exports and jobs will reflect that change.

As a point of interest, can Swan enlighten Australians on the volumes and prices for iron ore, coal and gas that he used in his projection to produce a surplus in 2016? Surely, it cannot be another rule of thumb estimate like that used in job forecasts for the stimulus consumer-spending package!

Conflicts of interest?

In 2016, China could be the 800-pound gorilla in the iron ore market.

In 2016, Japan and South Korea will still be recovering from recession and China will have government officials in senior management positions on Australia's and other countries resource corporation's boards. This raises a question; can China be relied on not to exploit its confidential corporate knowledge and influence on pricing for its own advantage and to the disadvantage of its competitors?

China has been very open in its intention to control iron ore prices. The successful foray into Australia's iron ore mining companies has witnessed the appointment of Chinese executives to senior management positions. In light of the foregoing, some buyers of Australian iron ore have quietly expressed concern for confidentiality in negotiations with a competitor government involved in the negotiating panels and on the boards.

Irrespective of residency conditions and inferred responsibilities, it will be interesting to see how senior management from China's state-owned enterprises respond to conflicts of interest posed by their appointment to boards and/or management executive positions in Australian public resource companies.

Japan and South Korea have proved reliable in avoiding conflict of interest, but there are clear differences between these two and China’s state-owned enterprises, and there are clear grounds for concern.

The clear conflict of interest facing Chinese Directors and executive officers will be their Chinese Communist Party membership. The implications are foreign to developed countries private enterprise directors. CCP membership and cultural loyalty is mandatory for all in senior management positions in China's state-owned enterprises. Membership demands unquestionable obedience and loyalty, whereby duty is first, and foremost to the interest of the CCP, and then China as a whole. Everything else has a lesser priority. There are severe penalties for breaches.

The CCP is China's government and is present in every state-owned enterprise from village level up through the entire corporate network and throughout the government itself.

The next seven years will indeed be interesting.

  1. Pages:
  2. 1
  3. 2
  4. 3
  5. All


Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

6 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Arthur Thomas is retired. He has extensive experience in the old Soviet, the new Russia, China, Central Asia and South East Asia.

Other articles by this Author

All articles by Arthur Thomas

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 6 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy