China’s tantrums and a justice system in question

Rio Tinto

The allegations relating to the arrest of Stern Hu and his colleagues, and China’s claims against Rio Tinto are becoming more like the tantrums of spoilt brat than those of a responsible trading nation.

The cause for these juvenile reactions lies more in a steel industry in shambles, internal power struggles and face saving for the CCP leadership, plus blatant commercial advantage.

Following the failure of the consortium of the major steel mills to secure the price cuts demanded, Beijing took over the lead negotiating role of the China Iron and Steel Association, assuming that it could use its political muscle to bring the miners to heel and accept its pricing demands. China ignored the tradition of accepting the 33 per cent discount benchmark negotiated with neighbours Japan, South Korea and Taiwan. China demanded a 40 per cent cut.

China’s desperate efforts are just not an attempt to save its corrupt and inefficient steel industry, but a blatant attempt to gain a major pricing advantage over its competitors, especially neighbours, Japan, South Korea and Taiwan.

The move failed, infuriating the CCP leadership which is now desperately seeking an excuse for the failure of its juvenile tactics.

Blaming Rio Tinto can achieve two crucial goals, both of which are for local consumption to regain face for the CCP.

The first is to dishonour Rio as a business partner. The intention is to claim that Rio’s staff bribed Chinese steel executives to obtain “state secrets” relating to the operations of China’s steel industry, and in so doing Rio deliberately undermined Beijing’s direct efforts to negotiate a “fair price”. Beijing claims that these steel industry “secrets” are undermining China’s steel industry and also China’s economy.

Second, Beijing claimed that Rio’s reversal of support for the massive Chinalco bid for Rio, clearly demonstrated its dishonourable business behaviour.

To enhance its global marketing power, Beijing claims that Rio then sided with BHP Billiton to manipulate the global iron ore supply and further undermine China’s massive steel industry. This delayed China’s economic recovery resulting in the need for its US$586 billion stimulus package.

China’s steel industry

Corruption is a daily part of China’s steel industry where mill competes against mill and province against province as well as personal gain. One only has to scrutinise the allocation of iron ore trader licences, the recipients and their government contacts. Rising iron ore prices and steel prices boost local GDP, regardless of the profitability of the steel mills.

The impact of the global financial crisis on China’s economy is beginning to appear far greater than China is willing to admit.

CCP policy of controlling CISA (China Iron and Steel Association) negotiations is not about competing in a global market, but more about using China’s political muscle to manipulate the global market to favour China’s shambolic steel industry.