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Philip Kirchlechner Iron Ore Research PTY LTD
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Global Iron Ore & Steel Forecast 16th Annual Conference & Exhibition
Perth 19-20 March 2013
PARTNERING WITH CHINA IN THE ASIAN CENTURY
DISCLAIMER
In preparing this presentation Iron Ore Research “IOR” has used information from a wide range of sources for which IOR is not responsible. The data in this presentation may contain inconsistencies or may be otherwise unreliable. Forward-looking statements in this report, including but not limited to expectations about prices, markets, and sales reflect IOR’s views at the time of writing but are only predictions – actual events will differ materially. IOR makes no warranty regarding the accuracy, completeness, or reliability of the information in this presentation.
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CONTENTS
Partnering with China in the Asian Century
- Why foreign investment is important and the mining tax is a barrier - Chinese investment in context - Frictions and challenges - Business needs to become Asia-literate - Importance of long-relationships - China in transition - what it means for us
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CAN WE AFFORD CAPITAL XENOPHOBIA? “State governments failed to capture enough of the market value of the minerals the largely foreign-owned miners were being permitted to extract” - Ross Gittins, Sydney Morning Herald
“Profits go largely to foreign-owned mining companies” – Jessica Irvine, Herald Sun
“It is right and proper that resource companies, most of them not owned by Australians, pay a fair amount of tax on our common wealth” - Paul Howes, AWU
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JAPANESE INVESTMENT BUILT THE FOUNDATION FOR OUR BIGGEST EXPORT INDUSTRY
• “Is more Chinese FDI in America a good thing? The answer is yes. It’s a good thing for American workers. It’s a good thing for American business” - Gary Locke, US Commerce Secretary
• “Australia’s economy is not just attracting investment capital because it is successful, but it is successful because it has attracted foreign capital” -Andrew Cornell, AFR.
• Investment by Britain was crucial for Australia’s early development of infrastructure and export capabilities. - Tim Harcourt, Austrade
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CHINESE INVESTMENT IN PERSPECTIVE Total foreign investment stock in Australia in billions
2010 2011 - United States $548 $555 - United Kingdom $475 $470 - Japan $119 $123 - China $19.5 $19 - Total all countries $1971 $2030 - China share 0.99% 0.94%
Foreign annual direct investment in Australia in billions
2009 2010 2011 - United States $2.9 $15.4 $12.0 - Japan $9.7 $6.2 $11.8 - China $4.9 $2.6 $2.0
Source: Australian Bureau of Statistics
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CHINESE CONTROL IS STILL LIMITED
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Sources: WA Department of State Development, company announcements Mt/a: million tonnes per annum
Mt/a
WA SHIPMENTS TO CHINA
CHINA OWNED PRODUCTION
MOUNTING FRUSTRATIONS Recent statements by senior Chinese officials - Facing Reality: import dependency - Ownership of resources still limited - Complaints about increasing cost of doing business in Australia
Policy Responses “Going out” 走出去 policy …combined with the new….. “Going In” 走 进 去 policy
- Country by country risk assessment - Key criteria: approvals, unions
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RECOGNIZING CULTURAL BARRIERS
Cultural barriers - China had only 3 decades of reform - Japan started reforms in 1868
Reasons for business failure in China - Lack of understanding of history and culture - Not being aware of political situation and how the bureaucracy works
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AUSTRALIA IN THE ASIAN CENTURY – WHITE PAPER “a complex sophisticated document” – Craig Emerson “wake-up call that the easy days of Australians getting filthy rich shipping rocks to China are over” - Jessica Irvine
Noble objectives but how to get there? - NBN – long distance learning - Unions - Diversify economy - MRRT - Cut superannuation concessions - Prioritizing China, India, Indonesia, Japan
and Korea
Key challenges remain - Instil interest in Asian at an early age - To bring business and education together - Attract Asian entrepreneurs and capital
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LONG-TERM RELATIONSHIPS WILL HELP US WHEN THE BOOM ENDS
Ross Garnaut : ”Australia would not enjoy forever the privileged access of the mid-eighties.”
Courtesy of Rio Tinto
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“TENNIS DIPLOMACY”
The Age 5 September 1986
New Straits Times 12 February 1984
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CHINA IN TRANSITION – CAUTION WILL PREVAIL
17th Party Congress October 2007 “5th generation” future leaders elected to Standing Committee “SC” of the
Political Bureau • Xi Jinping: previous positions in Shanghai, Zhejiang, Fujian • Li Keqiang: previous positions in Henan, Liaoning 18th Party Congress November 2012 • New SC: Xi Jinping, Li Keqiang, Zhang Dejiang, Yu Zhengsheng, Liu
Yunshan, Wang Qishan, Zhang Gaoli
12th National People’s Congress March 2013 19th Party Congress November 2017
Rising star: Sun Zhengcai
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CHONGQING CRISIS – DEALING WITH THE AFTERMATH
Interim Party Secretary Zhang Dejiang
Former Party Secretary Bo Xilai
New Party Secretary Sun Zhengcai
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PREMIER’S FIRST NEWS CONFERENCE
Priorities
• Sustainable growth at 7.5%
• Improving people’s lives • Social justice
Premier Li Keqiang with new vice premiers at the Great Hall of the People 17 March 2013
Vice Premiers
• Zhang Gaoli • Liu Yandong • Wang Yang • Ma Kai
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WE ARE IN A GLOBAL COMPETITION FOR THE INVESTMENT DOLLAR
- We must work harder on relationships
- Think Long-term – “Neanderthal marketing”: "Trying to make a profit on each transaction
rather than trying to profit by managing customer lifetime value" - Philip Kotler, Kotler on Marketing- How to Create, Win and Dominate Markets, 1999
- Asia/China literacy essential
- Deal with growing basket of risks for investors – MRRT, Carbon Tax, Approvals, Industrial Relations
- We cannot take our success for granted
- Open the gates - To labour and capital - Remove restrictions on state-owned investment
Philip Kirchlechner Director
Iron Ore Research PTY LTD ABN: 18 119 514 920
Mobile: +61-418-937-429 Email: pkirchlechner@alum.mit.edu
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NEW DEVELOPMENTS 2003 China becomes biggest iron ore importer,
import value reaching $4.8 billion 2007 May: Marius Kloppers to be new BHPB CEO Nov.: BHPB proposes combinaCon with Rio 2008 Feb: Chinalco acquires Rio stake Rio reject BHPB offer Oct.: CISA Conference without Rio/BHPB China Iron Ore Imports reach US$60 bio 2009 Feb: Rio partnership with Chinalco Jun: Rio/BHPB WA iron ore JV 2010 Apr: Rio announces shiV to QTR pricing China Iron Ore Imports reach US$80 bio
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AUSTRALIAN INVESTMENT ABROAD
Total direct investment stock in billions
2010 2011 • United States $94.3 $97.9 • United Kingdom $71.3 $52.1 • New Zealand $39.8 $40.2 • Canada $21.3 $23.3 • China $6.7 $6.4
Source: Australian Bureau of Statistics
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Speaking Chinese can get you in trouble
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Different Styles of Business Conduct
Korean Japanese Chinese
Courtesy Jean Ough – Representative, Government of Western Australia Trade and Investment Office, Korea
Unresolved Problems
Deng Yuwen, Dep. Editor of the Central Party School journal, Study Times, wrote an arCcle saying that lack of reform during the last decade was brewing a legiCmacy crisis.
Unresolved problems: -‐ Stagnant economic restructuring -‐ PolluCon -‐ CorrupCon -‐ Outdated household registraCon system -‐ Moral degradaCon
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