China and Rio Tinto: Coinhabiting Parallel Universes

While gathering our thoughts for a preview of Monday’s start of the Rio 4 industrial espionage trial, we received word of Rio Tinto’s $1.35 billion iron ore joint venture with Chinalco in Guinea. Having slept on it for more than 24 hours, this Bystander still can’t make anything out of it that isn’t surreal. Perhaps it is just another example of China’s remarkable ability to operate in parallel universes.

We had assumed that the trial of Australian Stern Hu and his three Chinese colleagues at Rio would proceed to its predetermined conclusion, with a routine sentence to follow. The main point the court proceedings are meant to be making is that China follows the administration of its law–not the same thing as following the rule of law, of course–and that nobody is above the process. With a host of domestic corruption cases in train, no foreigner, especially an ethnic Chinese one like Hu, can expect much by way of favors. Foreigners routinely underestimate how signals they assume are directed at them are really more for domestic consumption.

The case has strained though not severed relations between Beijing and Canberra. Those were further frayed last June when Rio Tinto pulled the plug at the eleventh hour on a $19.5 billion cash injection from Chinaclo that would have increased the state-owned aluminum giant’s 9% stake in the Anglo-Australian miner. A revisionist view of the causes of Rio’s change of heart more favorable to the company has taken hold in Beijing. Last year Rio’s sales to China accounted for a quarter of the company’s revenue.

The new joint venture between the two in Guinea gives Chinalco a 47% stake in Rio’s Simandou project which involves infrastructure work Chinese firms are well practiced at in Africa, building a mine, a port and a railway to connect the two. Last October, China signed a $7 billion mining and energy deal with Guinea’s military rulers, so it makes a well-connected partner for Rio in a project that has run into local political problems. The joint venture also gives China a voice on the sellers’ side of the table at the iron ore price negotiations where it is already sits on the other side as the buyer. More parallel worlds.

Leave a comment

Filed under China-Australia, Economy, Politics & Society

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s