partnering with china in the asian century
DESCRIPTION
Philip Kirchlechner, Director, Iron Ore Research Pty Ltd, and Senior Advisor - from Mount Gibson Iron Limited has presented at the Global Iron Ore & Steel Forecast Conference. If you would like more information about the conference, please visit the website: http://bit.ly/13MkVsyTRANSCRIPT
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Philip Kirchlechner Iron Ore Research PTY LTD
Iron Ore Research PTY LTD 1
Global Iron Ore & Steel Forecast 16th Annual Conference & Exhibition
Perth 19-20 March 2013
PARTNERING WITH CHINA IN THE ASIAN CENTURY
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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
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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
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Philip Kirchlechner Director
Iron Ore Research PTY LTD ABN: 18 119 514 920
Mobile: +61-418-937-429 Email: [email protected]
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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
Iron Ore Research PTY LTD 20 Mark Knight – Herald Sun
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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
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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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