July 25th 2009

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Articles from this issue:

FOREIGN INVESTMENT: China businesses 'left and right arms of the state'

ENVIRONMENT: Rudd admits failure of global climate talks

HOMELESSNESS: Families forced to brave the streets

RUSSIA: Moscow unrepentant about Stalin era

CHINA: China unrest a symptom of a diseased system

OPINION: Michael Jackson and popular culture

BOOK REVIEW: D-DAY: The Battle for Normandy, by Antony Beevor

CANBERRA OBSERVED: What Australia can learn from China's behaviour

BANKING: Six economists renew call for a 'people's bank'

GLOBAL FINANCIAL CRISIS: Rebuilding a functioning financial system

FISHING INDUSTRY: Coral Sea marine protected areas: our gift to Asian fishermen

EDUCATION: The war against home-schooling our children

VICTORIA: Religious freedom under threat

NATIONAL AFFAIRS: Aboriginal disadvantage: more than question of money

AS THE WORLD TURNS: Just some French youths

BOOK REVIEW: THE DARWIN MYTH: The Life and Lies of Charles Darwin, by Benjamin Wiker

EDITORIAL: The Middle Kingdom sends us a message ...

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The Middle Kingdom sends us a message ...

by Peter Westmore

News Weekly, July 25, 2009
The detention without charge of Stern Hu, Rio Tinto's chief iron ore negotiator in China, raises very important issues on the conduct of the Beijing regime and the operations of Chinese state-owned corporations in Australia.

Stern Hu is an Australian citizen. He was detained by security police, along with three Chinese nationals who work for Rio Tinto in Shanghai.

There have been numerous explanations put forward for the arrests. Senator Barnaby Joyce suggested that the regime was punishing Rio for its recent refusal to accept a partial takeover by Chinalco.

A second theory is that the Rio executives are caught in a vicious turf war between the government-controlled China Iron and Steel Association (CISA) and individual steel-producers who want the right to negotiate iron ore prices with foreign suppliers.

The Chinese steel-producers are willing to pay higher prices for iron ore than the government wants to accept, and Beijing is enforcing its policy by arresting Rio executives and alleging that they have been involved in bribing the steel producers and stealing state secrets.

Corruption pervasive

Writing in the New York Times, David Bardoza said that Chinese authorities had "detained or questioned at least seven Chinese steel industry executives in a broadening corruption investigation connected to the detentions last week of four employees of the mining giant Rio Tinto".

He added, "Analysts and industry officials, many of whom asked not to be identified ... because they feared upsetting Beijing, said the steel industry was rife with rumours and worries that there could be a wave of arrests and detentions in the coming weeks." (New York Times, July 13, 2009).

A further explanation, put forward by the business editor of the Sydney Morning Herald, Michael Pascoe, is that Beijing is alarmed by the consolidation of the iron ore assets of Rio and BHP Billiton in the Pilbara, and arrested the Rio executives as a way of registering its concern.

A fourth theory was put forward by Professor Clive Williams of ANU's Strategic and Defence Studies Centre. (See Canberra Observed on page 5 of this issue of News Weekly.)

The fact that each explanation is plausible highlights the pervasive secrecy and totalitarianism of the Beijing regime, whose disregard for the legal and civil rights of the Chinese people is legendary, despite its claim to be a "people's democracy".

In fact, as the Chinese-born scholar, Minxin Pei, has pointed out, "Few authoritarian regimes can maintain power through coercion alone. Most mix coercion with patronage to secure support from key constituencies, such as the bureaucracy, the military and business interests. In other words, an authoritarian regime imperils its capacity for political control if it embraces full economic liberalisation. Most authoritarian regimes know that much, and none better than Beijing.

"Today, Beijing oversees a vast patronage system that secures the loyalty of supporters and allocates privileges to favoured groups. The party appoints 81 per cent of the chief executives of state-owned enterprises and 56 per cent of all senior corporate executives. The corporate reforms implemented since the late 1990s - designed to turn wholly state-owned firms into shareholding companies - haven't made a dent in patronage." (The dark side of China's rise, Foreign Policy, March/April 2006)

Beijing's surreptitious interference in the business dealings between Chinese companies (most of which are government-owned) and foreign corporations contradicts its claim to have a market economy, and raises major questions for Australia, which has become increasingly dependent on China, not only as a destination for raw materials, but as a lender to bankroll Australia's soaring public and private deficits.

The degree of Australia's dependence is shown in a recent study by the US Heritage Foundation which recently published a survey of Chinese investment abroad. It found that Chinese investment in Australian business exceeded $US24 billion ($30 billion), far and away larger than its business investments in any other country.

In light of the fact that Chinese investment in Australia in strategic industries involves state-owned enterprises (such as Chinalco), the recent arrests in China highlight the need for clearer and more transparent policy settings by the Australian Government towards these Chinese corporations.

It must be recognised that nothing can be done about those companies which have already been acquired by China.

But in the future, there needs to be a clear policy that Chinese state-owned corporations will not be permitted to take over businesses operating in strategic industries which are vital to Australia's economic sovereignty. These include oil and gas, iron ore, uranium, coal, banking and the media.

Unless this is done, we will likely find that the economic future of Australia will be determined, not by parliament, but by the totalitarians who rule China with an iron fist.

Peter Westmore is national president of the National Civic Council.

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