China & Latin America news, updates, ...

[TaiShang]

February 18, 2015

Lessons in Public Relations for China and LAC
by Margaret Myers

China has been a critical economic partner for Latin America over the past two decades and will continue to be a top trade partner and an important source of investment for many countries in the region. During the January 2015 China-CELAC forum, Xi Jinping promised $250 billion in direct investment stock within ten years and $500 billion in trade with CELAC nations. This year is also shaping up to be a big one for Chinese lending in LAC.

Despite China’s success in developing strong economic partnerships in LAC over the past few years, the path ahead won’t be entirely smooth. China’s extractive sector deals have already met with some resistance at the community level. Chinese firms are likely to encounter even more in the coming years as additional projects come online.

More deals in contentious sectors will have Chinese firms and officials working overtime to cultivate a peaceful, cooperative, and socially responsible image in Latin America. The smartest firms will hire local advisers and learn from success stories, such as Chinalco’s Toromocho project. Chinalco is China’s poster child for good community relations in Perú.

It’s not only China that is prone to public relations missteps, however. As China and LAC draw closer together, Chinese are also reacting to Latin America’s occasional blunders.

The Chinese backlash following Mexico’s suspension of a high speed rail project is one example.

In early November 2014, Mexico revoked a prestigious railway deal with a consortium of Chinese and Mexican firms. For China, which is actively seeking to export increasingly high-tech products and services, Mexico’s about-face was an awkward development, especially considering that this deal was highly publicized in the Chinese media. The Chinese government expressed considerable regret about Mexico’s decision, stating that Chinese firms hadn’t been treated fairly.

Chinese also took to Weibo, China’s Twitter/Facebook hybrid, to condemn Mexico’s perceived dishonesty and caution against future dealings with the Latin American nation. Some even urged China to impose economic sanctions on Mexico, or at the very least to avoid investment and cooperation deals with Mexico in the coming years. The project was later suspended due to economic constraints, prompting another wave of angry posts.

Somewhat surprisingly, Cristina Kirchner’s recent Twitter post mocking the Chinese accent drew relatively little attention in China, despite broad criticism of the post in other countries. Twitter isn’t widely accessible in China, which would likely account for the limited reaction. The comments that surfaced on Weibo were nonetheless fairly measured.

In general, netizens suggested that the tweet wasn’t malicious, but that it demonstrated a lack of maturity on the part of the Argentine president. Others were baffled by the timing of the post, just as Xi Jinping was planning to sign off on Chinese finance for projects in Argentina. As one Chinese netizen wrote: “I can’t imagine that she has the courage to beg for investment from China while insulting Chinese people. Why doesn’t she speak some Chinese and let us hear her pronunciation?”



Still others blamed foreign media for focusing too much on Kirchner’s “joke” tweet and not on her other social media posts, which expressed gratitude for the warm welcome and remarked on China’s impressive economic development. One Weibo user posted: “Western conspiracy again. She wouldn’t offend China intentionally at this point. Western media misinterpreted and exaggerated the issue, trying to harm the China-Argentina relationship.”

China’s relations with its top economic partners in LAC won’t be derailed by the occasional protest, project cancellation, or Twitter blunder. But the Latin American and Chinese publics will be playing an increasingly vocal role as China-LAC relations deepen. And for Mexico, which has had a rather tenuous relationship with China, bad surprises like the railway deal cancellation can certainly damage prospects for future deal-making.

 

[Shotgunner51]

Some pics for sharing ...

 

[Raphael]

South America News: Peru, Brazil, China Roll Ahead With Transcontinental Railway

Peru, Brazil and China are moving forward on a transcontinental railway that will cut across the Andes and connect port cities in the Pacific and Atlantic coasts of South America, Folhia reports. The agreement was announced during a four-country Latin American tour by Chinese Premier Li Keqiang. The mega rail project will cost an estimated $10 billion dollars. Technical studies are now underway and specific timelines are expected to be revealed in the coming months. The railway is expected to reduce the cost of exporting agricultural goods from Brazil to China, and bring new business to Peruvian ports.

Brazilian grain is a top item on China’s wish list, as are iron and other raw minerals. Agricultural goods like corn and soy currently leave Brazil by boat heading south down the Atlantic coast, rounding the southern tip of Argentina, and heading back up the Pacific coast on it’s way to China. An overland route would shave off a few days from the trip, and lower transport costs by an estimated $30 per ton. That might not seem like much for a $10 billion dollar project, but Brazil exports millions of tons of grain to China each year.

What about passenger trains? Will tourists and migrants be able to ride the rails from Lima to Rio, through the Amazon and over the Andes? Passenger trains are not named in the current proposals, and technical studies of Peruvian railways are just getting started. Studies have been done on the Brazilian side to pick a route and the transcontinental railway is likely to stretch from Port De Açu, in Rio de Janiero, through the agricultural heartland of Mato Grosso, and on to Porto Velho near the Peruvian border. Future studies will determine the route through Peru, but it safe to say that the rail would cross the Andes and end in one of the larger port cities like Lima, Mollendo, or Llo Arica. If passenger trains were allowed to squeeze in between all the corn and soybeans, it would be a very interesting ride.

China has continued to expand its dominance in Latin American trade. It’s become the top trading partner of Brazil and Peru, passing the U.S. in 2009 and 2014, respectively. It’s also a top consumer of Venezuelan oil and a top lender to the Venezuelan government. In addition to visiting Brazil and Peru, Premier Li Keqiang will travel to Colombia -- to discuss more infrastructure projects -- and to Chile, where China has significant interests in copper imports.

 

[TaiShang]

South America News: Peru, Brazil, China Roll Ahead With Transcontinental Railway

Peru, Brazil and China are moving forward on a transcontinental railway that will cut across the Andes and connect port cities in the Pacific and Atlantic coasts of South America, Folhia reports. The agreement was announced during a four-country Latin American tour by Chinese Premier Li Keqiang. The mega rail project will cost an estimated $10 billion dollars. Technical studies are now underway and specific timelines are expected to be revealed in the coming months. The railway is expected to reduce the cost of exporting agricultural goods from Brazil to China, and bring new business to Peruvian ports.

Brazilian grain is a top item on China’s wish list, as are iron and other raw minerals. Agricultural goods like corn and soy currently leave Brazil by boat heading south down the Atlantic coast, rounding the southern tip of Argentina, and heading back up the Pacific coast on it’s way to China. An overland route would shave off a few days from the trip, and lower transport costs by an estimated $30 per ton. That might not seem like much for a $10 billion dollar project, but Brazil exports millions of tons of grain to China each year.

What about passenger trains? Will tourists and migrants be able to ride the rails from Lima to Rio, through the Amazon and over the Andes? Passenger trains are not named in the current proposals, and technical studies of Peruvian railways are just getting started. Studies have been done on the Brazilian side to pick a route and the transcontinental railway is likely to stretch from Port De Açu, in Rio de Janiero, through the agricultural heartland of Mato Grosso, and on to Porto Velho near the Peruvian border. Future studies will determine the route through Peru, but it safe to say that the rail would cross the Andes and end in one of the larger port cities like Lima, Mollendo, or Llo Arica. If passenger trains were allowed to squeeze in between all the corn and soybeans, it would be a very interesting ride.

China has continued to expand its dominance in Latin American trade. It’s become the top trading partner of Brazil and Peru, passing the U.S. in 2009 and 2014, respectively. It’s also a top consumer of Venezuelan oil and a top lender to the Venezuelan government. In addition to visiting Brazil and Peru, Premier Li Keqiang will travel to Colombia -- to discuss more infrastructure projects -- and to Chile, where China has significant interests in copper imports.

First Nicaragua Canal and now this. China means business. Anticipate the Western pundits to start reporting on the displaced villagers who are extremely angry and almost ready for a revolution to bring down their governments.

 

[TaiShang]

Looks like China is about sign a much bigger deal in Brazil than it signed with India. Besides, it is good to have a much bigger economic clouts in US' (once)-semi colonies.
***

Li expected to sign $100b investment deals in Brazil
China Daily, May 19, 2015

Premier Li Keqiang arrives in Brasilia, the capital of Brazil on the afternoon of May 18 local time to kick off his official visit to Latin America. [Photo/Xinhua]

Premier Li Keqiang arrived in Brasilia on Monday to sign agreements on infrastructure, energy and aviation that experts say could reach at least $100 billion.

Li's visit, which will also take him to Colombia, Peru and Chile, aims to restructure China's resource-driven trade with Latin American countries by including more value-added products.

Li is scheduled to meet Brazilian President Dilma Rousseff in Brasilia, sign the agreements and meet the press. He will also address Chinese and local corporate leaders about China's plan to upgrade its trade with Latin America's largest economy through better financing and targeted industries. Li will then fly to Rio.

Brazil is the first leg of Li's Latin-America trip. He is accompanied by his wife Cheng Hong.

"I expect to deepen political trust and economic cooperation with Brazilian leaders with an focus on industrial capacity, equipment manufacturing cooperation and infrastructure construction," Li said upon his arrival at the airport.

China previously had said deals expected to be signed with Brazil include a feasibility study for a rail link from Peru's Pacific coast to Brazil's Atlantic coast.

The project seeks to lower transport costs of Brazilian products to China. It also would fit into China's plan to export globally its expertise on high-speed railways.

Under the Program of Investments in Logistics, Brazil will invest $65.8 billion in construction and expansion of its aging highways and railways.

A total of $20.8 billion will be used to double Brazil's 5,700 kilometers of highways, while $45 billion will be used to build 10,000 kilometers of railways, according to Xinhua News Agency.

Chen Duqing, China's former ambassador to Brazil, said the construction projects mean big opportunities for Chinese companies as Brazil strives to upgrade its infrastructure, especially the transportation system.

"It is imperative for the country to modernize its transportation network, so as to improve efficiency and encourage spending. Chinese companies are usually at a more advantageous position for these infrastructure construction biddings because they come with a financing plan," Chen said.

The investments are to be made through the private sector, with the government selling highway and railway concessions to private companies.

Brazil's transportation system consists mainly of main road and railway networks, where the railway capacity accounts for only 24 percent. Railway networks are used mainly in the south, the southeast and northeast of Brazil, more than 35 percent of which was built 60 years ago.

Chen said logistics are a main problem for Brazil because high costs have increased agricultural prices and reduced their competitiveness with overseas producers.

The country relies heavily on road transportation for grains, sometimes impossible to transport during rainy periods. Railways and waterways are cheaper and faster, but underdeveloped.

According to the Brazilian Association of Cereal Exporters (ANEC), the average price for shipping soybeans from Brazil has been nearly $98 per ton over the past three years, which is five times higher than in the United States and considered the most expensive in the world.

Chen said Chinese companies must go to Brazil to know local laws and rules before completing deals.

Brazilian daily newspaper O Globo reported a change of interest among Chinese investors for value-added industries.
"There is a kind of evolution of Chinese investment in Brazil. We have already been in a third wave. It started in the energy sector with China's State Grid, and now there is much interest in railways," O Globo quoted Guilherme Billi, head of the trade-promotion sector at the Brazilian embassy in Beijing, as saying.

The State Grid Corporation of China has invested more than $1 billion to construct and manage power transmission projects in Brazil. Chinese investors are also very interested in railways and "all the large railways groups in China want to operate in Brazil," added Billi.

China has been Brazil's largest trade partner since 2009, accounting for 18 percent of the country's foreign trade. Despite a slight decrease, bilateral trade last year was $78 billion, according to Brazilian authorities.

 

[TaiShang]

‘New normal’ brings change to Latin America
By Zhao Minghao 2015-5-21 22:48:02

Illustration: Liu Rui/Global Times


Former Chinese leader Deng Xiaoping, who initiated the country's reform and opening-up, once said the 21st century belongs to Latin America. Premier Li Keqiang's visit to Brazil, Colombia, Peru and Chile again demonstrates China's will to advance its ties with these Latin American countries, with which China's trade in 2014 accounts for 57 percent of its entire trade with Latin America. While Latin America as a whole has become an important link of China's global partnership network, and Beijing faces opportunities and challenges in improving this network in the region.

World Bank President Jim Yong Kim said recently that China's economic slowdown and dropping demand for raw materials have had a huge impact on the economy of Latin America where the investment stays at a low level and the situation for oil exports is worse. The International Monetary Fund said the region's economy grew by just 1.3 percent in 2014, down by nearly two thirds from three years ago. With economic difficulties there have been some protests in countries like Brazil. Obviously, as Chinese economy moves into a "new normal" and Latin America meets new development challenges, the two sides need to jointly work out solutions to maintain the momentum for their relationship. China's economic restructuring will help upgrade the bilateral cooperation and deal with the changes in a sensible way. This is conducive to strengthening the resilience of bilateral ties.

During his visit Li is set to bring massive investment direly needed by these countries. Brazilian President Dilma Rousseff hoped for more investment from China to improve her country's shabby railways, roads, ports and airports. Brazil, Peru and China will study the feasibility of building a new railway that goes across South America and connects ports along the Atlantic and Pacific Oceans in a bid to promote bulk commodity export. The 3,500-kilometer railway is expected to cost at least $50 billion. Li has been called the "super salesman" of China's railways.

Cooperation on major infrastructure programs often produces positive spill-over effects in spheres such as finance and trade. The Industrial and Commercial Bank of China and Brazil Caixa Economica Federal will co-establish a $50 billion fund to finance programs like the transoceanic railway. In January, a 2015-19 cooperation plan was passed by the first ministerial meeting of the China-CELAC Forum, which listed 13 focuses for cooperation including infrastructure and finance.

During Li's visit, China and Brazil reached agreements calling for $53 billion in Chinese investment in Brazil. As Jose Graca Lima, Brazil's undersecretary of state who oversees Asia and Oceania, said, this suggests Brazil is embracing a second wave of Chinese investment that is moving away from the previous raw materials and trade of bulk commodities toward industry, manufacturing and infrastructure. According to Brazilian statistics, over the past 13 years, its trade with China increased from $3.2 billion to $83.3 billion.

China is intentionally adjusting its economic ties with Latin American countries. The region's exports to China, an important market, rose from 3 percent to 9 percent of its total exports in the past decade. However, 90 percent of the exports are agricultural products, mineral and oil and gas.

One important target of Li's visit is to deepen bilateral cooperation on productivity and free trade agreement (FTA), which means China is willing to import more industrial products from Latin American countries and create more jobs for them. China's investment in Latin America was only $231 million 10 years ago and in the decade to come China's stock of foreign direct investment in the region will reach $250 billion.

Apart from readjusting economic ties, Beijing also hopes to "rebalance" its diplomacy with Latin American countries. Despite the importance of Brazil and Venezuela, China also needs to invest in its relations with other countries.

Li's visit to Colombia, one of the few countries on the continent that have close ties with the US, is the first time by a Chinese premier in three decades.

Li is also set to attend a meeting for building China's strategic and economic dialogue mechanism with Peru, as China is Peru's largest trade partner. Chile was the first Latin American country to establish diplomatic ties and sign an FTA with China.

All in all, despite the long distance from Latin America, Beijing is rediscovering countries in the region as part of its ambition of advancing the global partnership network.

 

[Raphael]

China and Peru agree to study transcontinental rail link| Reuters

China and Peru have agreed to study the feasibility of a controversial 5,300 km (3,300 miles) transcontinental railroad that will connect Peru's Pacific coast with Brazil's Atlantic coast, China's official Xinhua News Agency reported.

The agreement came as Chinese Premier Li Keqiang arrived in Peru, on the third leg of a Latin America visit. This week, Brazil and China agreed on a feasibility study for the rail link.

In talks with Peruvian President Ollanta Humala on Friday, Li called for cooperation in the oil, clean energy, mining, agriculture, forestry and fishery sectors, the news agency said.

Li also said the two governments should cooperate on financial issues, including a method to carry out trade settlement in local currencies, and a currency swap scheme.

The proposed transcontinental railway would span the Andes to the Pacific and reduce the cost of shipping grain and minerals to Asia.

China and Latin America would each benefit from the project by upgrading infrastructure, while allowing China to export its "industrial capacity" and investment, Xinhua said.

Humala said China's participation in the project was "indispensable", the news agency reported.

Outside the rail scheme study, the two governments on Friday also signed cooperation agreements on industrial capacity, energy, mining, infrastructure, quarantine, healthcare and aerospace.

In January, Chinese President Xi Jinping pledged $250 billion in investment in Latin America over the next 10 years as part of a drive to boost resource-hungry China's influence in a region long dominated by the United States.

Li oversaw a raft of agreements during his visit to Brazil this week, ranging from a $1 billion purchase of passenger jets made by Brazil's Embraer to the lifting of an export ban on Brazilian beef.

 

[ito]

China has emerged as one of the largest investors across the world.

 

[ahojunk]

China and Peru agree to study transcontinental rail link| Reuters

China and Peru have agreed to study the feasibility of a controversial 5,300 km (3,300 miles) transcontinental railroad that will connect Peru's Pacific coast with Brazil's Atlantic coast, China's official Xinhua News Agency reported.

The agreement came as Chinese Premier Li Keqiang arrived in Peru, on the third leg of a Latin America visit. This week, Brazil and China agreed on a feasibility study for the rail link.

In talks with Peruvian President Ollanta Humala on Friday, Li called for cooperation in the oil, clean energy, mining, agriculture, forestry and fishery sectors, the news agency said.

Li also said the two governments should cooperate on financial issues, including a method to carry out trade settlement in local currencies, and a currency swap scheme.

The proposed transcontinental railway would span the Andes to the Pacific and reduce the cost of shipping grain and minerals to Asia.

China and Latin America would each benefit from the project by upgrading infrastructure, while allowing China to export its "industrial capacity" and investment, Xinhua said.

Humala said China's participation in the project was "indispensable", the news agency reported.

Outside the rail scheme study, the two governments on Friday also signed cooperation agreements on industrial capacity, energy, mining, infrastructure, quarantine, healthcare and aerospace.

In January, Chinese President Xi Jinping pledged $250 billion in investment in Latin America over the next 10 years as part of a drive to boost resource-hungry China's influence in a region long dominated by the United States.

Li oversaw a raft of agreements during his visit to Brazil this week, ranging from a $1 billion purchase of passenger jets made by Brazil's Embraer to the lifting of an export ban on Brazilian beef.

It looks like Peru is handed a slam dunk and they are still dragging their feet!

Why isn't other countries such as Uruguay, Argentina, Chile or Colombia lobbying for this transcontinental rail link to go through their countries when there is so much to be gained economically? Is it because of the terrain?

 

[ahojunk]

An overland route would shave off a few days from the trip, and lower transport costs by an estimated $30 per ton. That might not seem like much for a $10 billion dollar project, but Brazil exports millions of tons of grain to China each year.

Chen said logistics are a main problem for Brazil because high costs have increased agricultural prices and reduced their competitiveness with overseas producers.

The country relies heavily on road transportation for grains, sometimes impossible to transport during rainy periods. Railways and waterways are cheaper and faster, but underdeveloped.

According to the Brazilian Association of Cereal Exporters (ANEC), the average price for shipping soybeans from Brazil has been nearly $98 per ton over the past three years, which is five times higher than in the United States and considered the most expensive in the world.

This has massive implications for my country Australia. We are a big producer of agricultural products (i.e. grain, beef) and iron ore.
Australians need to wake up, we are no longer the lucky country. Having rich resources only matters if we can deliver value to the customers.
China is also expanding the Vale iron ore mine and when S11D comes online, Brazil's iron ore becomes more competitive; this is bad news for Australia.

-------------
How Australia was blindsided by China and Brazil

Rarely has the global economy handed out blunt lessons of free-market capitalism to Australia with the sweet timing it did so this week.

by Ben Potter | Amanda Saunders

The global economy has handed out some blunt lessons in free-market capitalism to Australia in the past century.

But rarely has it done so with the sweet timing shown by China and Brazil this week, when they struck a deal to shatter any illusion that Australia Inc could carve up the global iron ore market among themselves.

China underwrote a massive expansion of supply by Brazilian iron ore giant Vale that smacked down Fortescue Mining Group chairman Twiggy Forrest and any politicians who indulged his noisy campaign for a Senate inquiry into iron ore pricing.

The deal blindsided an Australia that had turned its back on a quarter century of market-opening reform to gaze at its own navel again and consider rigging the market to handicap Australian iron ore giants BHP Billiton and Rio Tinto.

The Australian Financial Review reported the China-Brazil deal in full on Thursday, well before other media. This stunned senior members of the government. Our reporting brought home the risks they were flirting with and helped head off the inquiry.

It felt like the return of Rex Connor – the 1970s Labor resources minister who wanted to seize control of Australian resources from the mining companies and develop them using "men to match my mountains".

Yet what Forrest was complaining about is all part of normal market dynamics, University of Melbourne economics professor and 1980s ambassador to China Ross Garnaut says. But Forrest's cure – creating uncertainty about Australian supply by whistling up a parliamentary inquiry targeting his biggest rivals – could have been worse than the perceived problem.

Alternative supplier

Japan, Australia's biggest iron ore customer before China, cultivated Vale as an alternative supplier in the late 1970s, partly because of anxiety about our reliability – unions gripped the supply chain in those days – and partly in an attempt to force the price down by bringing on more competition.

"The China-Brazil initiative announced this week is not new," Garnaut says.

"China has been investing in West Africa and Brazil, and this is a normal part of market dynamics that is helped and encouraged by anything that raises uncertainty about Australian supply.

"It'd be going on anyway, but anything that increases anxiety about Australian supply helps it along."

Thinking we could buck the dynamics of the global market was a habit we were supposed to have kicked long ago.

Australia's reputation as a leading free-trading nation was hard won over many years. Such reputations have a value all of their own in economic relations. But this can be compromised in a few days if rent-seeking business-folk and fellow-travelling politicians command a megaphone.

The idea that Australia Inc – governments, corporations, unions – could clump its hand on the scales and manipulate the global market to make it more fair, or to maximise profit, revenue and wages was a far-fetched throw-back to the prevailing orthodoxy in Australia for a century until the early 1980s. By that time it had led the Australian economy into a ditch and was dumped by the Hawke, Keating and Howard governments in the 1980s and 1990s.

Harsh lessons

Those harsh lessons taught us that global capitalism was ruthless. To prosper you had to keep your eye on the ball and focus obsessively on giving your customers the best value for money you could, especially if they showed signs of wanting to cultivate alternative suppliers.

Navel-gazers could be knocked right out of the arena, or at least back in the queue. Australia's iron ore suppliers found that out the hard way in the late 1970s, when Japan responded to union supply disruptions by sponsoring Vale's entry into the north Asian seaborne trade hitherto dominated by Australia.

The lesson has been repeated in one commodity after another.

Just a day after Vale struck its stunning deal, China and Brazil struck another deal to lift their annual beef trade by $500 million. That brought the South American giant back into the rapidly-growing Chinese market in a big way after an enforced absence because of mad cow disease.

There is nothing fair about global capitalism. This is especially true if you are a middle-sized, commodity-exporting economy and a price-taker in most of your export markets most of the time, like Australia. Natural resource riches are no guarantee of prosperity, as the history of Brazil – and parts of Australia's history – show. Nations have to earn prosperity.

The recently expired boom was the exception, not the rule. The big context for all of this is the unsustainable expansion of the Chinese steel industry in the first 11 years of this century, Garnaut says.

Australian and global miners at first underestimated the boom, and then responded to the sky-high prices that resulted from the supply squeeze by bringing new supplies and new entrants into the market.

Painful adjustment

"What we are seeing now is a painful adjustment in China and the rest of the world to market realities. Within those realities a lot of capacity that was using lower-quality resources will be squeezed out before there is any prospect of a stabilisation in prices," Garnaut says.

Hence Forrest's discomfort. Fortescue is the world's fourth-lowest-cost producer behind Rio, BHP and Vale.

Iron ore is a global commodity, freely traded in transparent markets, as Labor's resources spokesman Gary Gray noted at the height of the brouhaha.

In this environment Australia's interests are best served if we encourage our lowest-cost producers – BHP Billiton and Rio Tinto – to be as efficient and aggressive in the global market as they can be.

If they don't, others will step into the breach, as BHP chief executive Andrew Mackenzie and Rio Tinto iron ore chief Andrew Harding pointed out this week. And any loss of market share will be hard to recover, Harding says.

Mackenzie took the rare step of going on ABC Radio National to argue that the proposed inquiry would be a gift to Brazil and an expensive lesson in the economics of global trade.

China and Vale demonstrated the lesson a day later with a brutal clarity that sent Prime Minister Tony Abbott and Treasurer Joe Hockey scurrying into a face-saving retreat. Late on Thursday they canned the idea of a parliamentary inquiry.

Yet they had given succour to Forrest and his political backers only a few days earlier.

Mercantilist delusions

The mercantilist delusions of Australia's past are a virulent strain of thinking that has proven hard to eradicate. Forrest had moaned long and loud that supply expansions planned by BHP and Rio into a surplus market would force a depressed price even lower, driving Fortescue and other higher-cost, marginal suppliers to the wall. Smashing the iron ore price also cratered Commonwealth and Western Australian state revenue. What better justification could there be for the government to stick its beak in?

Forrest's argument was self-serving. Vale's deal with China exposed it as preposterous. Vale's boost to production will dwarf the combined expansions of BHP and Rio.

It came as a bit of a shock that any serious person – let alone the institution of Parliament that had presided over the economic reforms of the 1980s and 1990s – could take Forrest's campaign seriously.

Forrest's parliamentary echo chamber was led by South Australian Senator Nick Xenophon and came to include Abbott, Hockey and another independent MP, Queensland's Bob Katter.

As an independent senator Xenophon needs to stay in the headlines. Katter is a loose cannon with the same need. Abbott and Hockey should have known better.

Peter Drysdale, emeritus professor in Asian studies at Australian National University, says they have let us down.

"It should be an automatic credential for political leaders in Australia to understand these simple facts about our position in the resource trade and the economics of it," Drysdale tells AFR Weekend.

Political security dimension

"But there's also a political security dimension of it both for Asia and for us, and I'm afraid we have to learn that again and again."

Drysdale doesn't think the political culture has regressed to the 1970s. "There's more people understand it now than used to when I was a young man," Drysdale says from Tokyo.

"But the truth of the matter is, we have to get out and make sure people understand it again and again and again."

The iron ore market is a case study in trade dynamics. China did the Vale deal "to ensure S11D gets up", Credit Suisse mining analyst Paul McTaggart says.

China wants to ensure Vale remains a strong competitor to the Australian suppliers. The deal includes $US4 billion ($5.05 billion) in cheap credit to help fund a 90-million-tonne-a-year iron ore expansion in the Amazon forest, known as S11D. As Vale squirmed under a $US32 billion debt pile last year, its Chinese market share had shrunk to 18 per cent, and Australian suppliers had increased their share from just more than half to nearly 60 per cent.

Vale is bent on winning back lost share. It aims to increase its production to 450 million tonnes a year by 2018, from 330 million tonnes in 2015. That expansion is several times the combined expansions of 35 million to 40 million tonnes planned by BHP and Rio.

It will help Vale – the third-lowest-cost producer – close the gap on costs with Rio and BHP, the world's lowest and second-lowest cost producers. Fortescue, which is capping its production at 165 million tonnes, is fourth-lowest.

Cut transport costs

China also invested in Vale's Valemax bulk carrier ships. The super-sized ships will help the company cut its transport costs by a quarter, helping to bridge a gulf in freight costs with BHP and Rio of $US18 a tonne to $US4.

The S11D deposit is also higher grade than Australia's flagship "Pilbara blend", Credit Suisse analyst Matthew Hope says, making it attractive for Chinese steel mills as the quality of their domestic iron ore falls away.

Roy Hill chief executive Barry Fitzgerald says the blended product "is direct competition for both us and the two major producers in the Pilbara and that again reminds us that we are in a competitive environment and that our market share and our position in the world will be coveted by other companies, so we need to make sure we are productive and efficient".

It's true, as Forrest complained, that BHP, Rio and Vale are expanding amid a supply glut and flat-lining – though still robust – Chinese steel demand.

The iron ore price has halved in a year to about $US60 a tonne, but is up from a record low of $US47 a tonne in April.

But even at that record low the big two in the Pilbara are still profitable. Their cash break-even prices are between $US32 and $US35 a tonne.

Vale says it can shave another $US3 to $US5 a tonne from costs this calendar year, paring its break-even cost to about $US40 a tonne. When its S11D project comes online, costs will be cut further.

Vale is expected to pare costs further to about $US33-$US35 a tonne in the medium term, after S11D comes online. But BHP and Rio will also be racing to cut costs further.

Still, UBS mining analyst Andreas Bokkenheuser says it is "highly unlikely" Vale can catch BHP and Rio on costs. They land iron ore in China about $US10 a tonne cheaper than the Brazilian giant.

If he is right, Australia will have prospered by letting BHP and Rio – and not Parliament – call their own shots.
.

 

[ChineseTiger1986]

It is a shame that country as big as as generously bestowed by God in terms of natural resources need China help in infrastructure building. Brazil should export infrastructure to her neighbours -- by right. Looking deep into it, there is no surprise.

Everywhere Aryan go, they impose a caste system. Right now, Brazil is a caste society where the neo-Brahmin is white, followed by mestizo and the neo Dalits are the blacks.

The neo brahmin monopolize all the wealth, letting the country rot, not unlike India.

Brazil need a Fidel Castro.

Well, the racism in Brazil has been blown out of proportion, since their population is pretty much mixed, so it cannot be worse than the US.

BTW, Aryan means the eastern Indo-Europeans such as the Indo-Iranian and Balto-Slavic, while the western Indo-Europeans such as the Celto-Italo-Germanic folks are not Aryan.

 

[TaiShang]

The Chinese chequebook

***

No matter what the sour grapes of old colonialists say, the project will be very welcome to South America.

 

[Kiss_of_the_Dragon]

The Chinese chequebook

***

No matter what the sour grapes of old colonialists say, the project will be very welcome to South America.

China's grand strategy is not to have a direct confrontration with US but to help all nations around the world to be strong so they can free themself of the so call superpower to exploite or bullying them, imagine of South America's econmy is strong and not depend on US, they will get rid of Americans by themself from bullying them for over decades.

China's investment around the world give us triple gain: make friend, make money and make our enemy to feel the gravity of China's pivot. Now Americans learn to be bowed and nice with Cuba because they know that we're there in south America to play the game that they have beem played so long in Asia...the only thing we haven't introduce yet is massive arm these countries.

 

[TaiShang]

China's grand strategy is not to have a direct confrontration with US but to help all nations around the world to be strong so they can free themself of the so call superpower to exploite or bullying them, imagine of South America's econmy is strong and not depend on US, they will get rid of Americans by themself from bullying them for over decades.

China's investment around the world give us triple gain: make friend, make money and make our enemy to feel the gravity of China's pivot. Now Americans learn to be bowed and nice with Cuba because they know that we're there in south America to play the game that they have beem played so long in Asia...the only thing we haven't introduce yet is massive arm these countries.

Exactly. It seems the US is itching for a direct confrontation as it is make or break point for their hegemony. On the other, China has been putting the pieces together slowly while abstaining from confronting the US directly. Thus, while the US is right in SCS trying to provoke China into a shooting war over some island development, which is funny, it is missing the larger picture that has been reshuffled in Esurasia, Africa and Latin America.

 

[Kiss_of_the_Dragon]

Exactly. It seems the US is itching for a direct confrontation as it is make or break point for their hegemony. On the other, China has been putting the pieces together slowly while abstaining from confronting the US directly. Thus, while the US is right in SCS trying to provoke China into a shooting war over some island development, which is funny, it is missing the larger picture that has been reshuffled in Esurasia, Africa and Latin America.

Chinese strategists and war planners are well aware of what US is trying to do, we will not seek confrontation until we reach nuke and conventional parity with US...remember of Han-Xiong Nu story, Our ancestor could afford to wait over hundred years of humiliation from being provoked by Xiong Nu similar as Americans are doing now before Han Wu Di was ready to confront and banish Xiong Nu from their own homeland.