Can China be trusted?

John Garnaut's Sydney Morning Herald article of July 14, "China's Plan to use internet for propaganda" highlighted China's latest addition to the Central Propaganda Department's network. It also further discredits the reliability of China's official data releases and media reporting at a time when the decision makers of economies around the world are seeking fact and not propaganda to ride out the global economic crisis. These nations are relying on Beijing's claims of continuing record economic growth to plan their own economic recovery. To have that trust betrayed by blatant propaganda for the benefit of the Chinese Communist Party can destroy China's credibility as a future world power.

John Garnaut's earlier article of July 7, "Beijing Shuts Smelters to Meet Energy Targets" outlines Beijing's explanation for a slowdown in Australian ore exports as part of the CCP's strategy to combat climate change.

The article quotes the official line as the cause of the cutbacks and is just the latest effort in propaganda to conceal the real reasons for the slowdown in the mining and metals industries in China.

China's propaganda machine is also the primary tool to maintain domestic confidence in the CCP by promoting its grand plans and strategies.

The perception that Beijing's strategies or policies could fail is unacceptable and state media under the Central Propaganda Department direction reported the “energy” spin to deflect potential criticism away from the real cause.

Spin on decline in ore demand

Declining ore demand is real, but Beijing's spin infers the slowdown in the metals industries is due to China's efforts to meet its pre Copenhagen climate change commitments to reduce energy demand and greenhouse gas emissions. But this is a charade, designed conceal the truth and win support for China's unrealistic and unsustainable climate change strategies.

The smoke and mirrors behind the spin conceals the realities in the global market place and the looming disastrous effects of China's stimulus package, the prime mover in energy consumption and metals production.

The termination of stimulus spending in the first quarter of 2011 also terminates infrastructure, construction and property development and with it, China's own demand for steel, metals, cement, and glass used domestically and exported to developing nations for China's foreign investment projects.

One component overlooked in China's demand for ores was the role that China's speculative and quirky metal ore trading market played in driving the surge in iron ore buying by a steel industry focused on production rather than market forces and profitability.

Ore prices are in decline and steel mills are reducing inventories by buying from ore stockpiles at the ports and cutting orders for local and imported ores.

The cut back is not the result of shutting down the smaller inefficient and polluting mills across China. The cutback is a direct result of overcapacity, huge stockpiles, and the approaching end of stimulus spending, combined with Beijing's attempts to limit out-of-control bank lending and related bad debts.

It is also directly attributable to Beijing's restructuring strategy for the steel industry. Rather than decreasing capacity as a direct result of closures of hundreds of small, inefficient and polluting mills, capacity is rapidly increasing. This is in line with Beijing's declared objective of making China the world's largest steel producer by 2015.