Is China’s government the real buyer?
Both management teams say this is a deal with Chinalco and not with the Chinese government. But this won’t wash with most of the international press. Chinalco is lossmaking, so will rely on funds from state-backed banks for the deal, says the Sydney Morning Herald’s Jamie Freed. If the Reserve Bank of Australia were to offer a loan of $19.5 billion to help solve Rio’s debt problems, it would expect to have influence over the company’s management.
Unsurprisingly, the Chinese press isn’t interested in distinguishing between Chinalco and its state ownership. It has preferred to speculate on whether Chinalco president Xiao Yaqing was in line for a promotion to the State Council (China’s cabinet) in a coordinatory role for industrial policy. They were right to wonder, as Xiao announced mid-week that he is stepping down as Chinalco president.
A case of patriotism before profit?
International opinion wonders if Chinese national interests will come before those of shareholders, and that lower ore prices for Baosteel and other Chinese steelmakers will be more important to Chinalco than Rio profits. Jeremy Warner, at The Independent in the UK, likens it to Boeing inviting the head of procurement for the US Air Force onto its board.
Chinese journalists don’t disagree that wider interests are at play. The Shanghai Securities News gets it straight from the horse’s mouth, quoting the China Iron and Steel Association view that the move will allow domestic steel plants to better control strategic iron ore supplies. The Investor Journal is keenest to grasp the symbolism of the moment, arguing that a deal makes even more sense now that Australia’s “economic dependence” on China is growing.
How will it work?
Rio Tinto has published a 600 page document explaining exactly how the relationship will work, reports Malcolm Malden at the Melbourne Age. A “conflicts committee” will screen material before going to the board, and Chinalco’s two directors will be asked to leave the room during deliberations on a number of topics.
The mainland media is less concerned with boardroom practice and more with ensuring a decent return on investment. So the Futures Daily wants working arrangements that mean that China won’t suffer financially as it has in other recent investments such as Blackstone, Barclays, and Fortis.
So it’s a sign of a rising China?
Western consensus is that Chinalco has the whiphand on the deal at the moment. Rio is desperate for funds after its poorly-timed purchase of Canada’s Alcan. And most other potential suitors are currently cash-strapped. Ian Verrender at the Sydney Morning Herald reckons the mood in Beijing must be something akin to jubilation.
Perhaps the Chinese press has been asked to be subdued in their response here. There is a lot of talk about bottom fishing, and whether Chinalco is overpaying for the stake. The Securities Daily quotes one ‘well informed source’ who argues that with further declines to come in international stockmarkets now is not the time to invest.
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