Investor Q&A

A key commodity

Perspective on how far China has come is crucial, says former BHP boss

Clinton Dines: eyewitness to three decades of major change

As China moves to the forefront of the business conversation, plenty of foreign executives are now looking for a few years of in-country experience.

Clinton Dines started getting his more than 30 years ago: as an eyewitness to some of China’s earliest experiments with free market capitalism. He worked for some of the first joint ventures and foreign investment initiatives; before – at 30 – becoming BHP Billiton’s China boss, just in time to play a part in the China commodity story.

WiC spoke to Clinton on the sidelines of the inaugural HSBC Commodities conference in Singapore last week.

You sound a bit ahead of your time: studying Chinese economics in 1975?

Maybe. But at university in Queensland, I thought why would I want to bother with learning French history? I was interested in Asia. I chose economics combined with a Chinese area study focus. Then I went up to China for a stint as a post-grad in 1978. We flew into Hong Kong and crossed the famous footbridge at Lo Wu. I remember we had to cram our luggage onto a Hong Kong trolley, which we were then forced to switch mid-way through the border crossing for a Chinese one. It all had to be piled up for a single trip – they wouldn’t let us cross back and collect another load!

Not the most welcoming introduction…

No, not really. And then we travelled to Nanjing, and it was a massive culture shock. Remember, back in the 1960s and 1970s, Western academia was usually painting an overly idealistic picture of Chinese development. So when we got to Nanjing, it was disorientating. Not just the austerity. We’d also been completely outmanoeuvred, required to teach English almost all of the time but not getting much of the promised Mandarin tuition. So you could say that my experience of negotiating with the Chinese started on day one!

It was such a formative experience for a 20 year-old. It was close to hostile some of the time: they took our passports for four months, we could only phone out via an operator switchboard, and the Chinese students that talked too much to us were being pulled aside and interviewed. It felt so isolating. The Australian Embassy eventually called to check that we were okay but were told that we’d gone home!

Many of the other foreign post-grads did head home, completely disillusioned. But I stuck at it, and began to understand more about what was going on. I got to know some of my Chinese colleagues too, and it started to get easier.

Any sign of the “opening up” beginning around that time?

Not at first. On the ground, no one was really mentioning Deng Xiaoping much. You heard more about other leaders like Hua Guofeng, Ye Jianying and Li Xiannian. By 1979 a few people started hearing that policy reforms could be in the air but I don’t remember them thinking that there would be fundamental change. People were ground down, fatigued by government campaigns and didn’t believe that it would be different this time. It took a while to build.

The first time I really saw something going on was that year in Nanjing, when I went to what must have been one of the earliest permitted ‘free markets’ of the time.

Seriously, there wasn’t much more on offer than a few eggs, and the odd cabbage. My Chinese friends weren’t impressed – they said the prices were way too high. But this was the beginning, a chance to buy in cash rather than with ration coupons! Within a month, that market was packed with people.

All part of Deng’s reformist plans…

Plans? What you’ve got to remember is that even Deng himself said he was muddling through; remember the famous quotation about feeling his way across the stones in the river?

But suddenly the ideological constraints were loosening and it was all about pragmatism. They were trying things out, keeping what worked and getting rid of what didn’t. The Chinese are good at that.

There was devolution too. Sure, there was every effort to maintain centralised political control but the quid pro quo was increasingly devolved economic decision-making.

That’s all the more obvious today, with most of the original state planning efforts of the 1980s and 1990s now gone. You can’t run a continental economy with a command-and-control philosophy. What you do is set guidelines in key things like technical specs, energy or efficiency goals. Or you use other levers like tariff barriers and incentives.

How about your own career: where next after Nanjing?

I got my first job in Qingdao in 1980, in one of the earliest foreign joint ventures. It was with a Dutch shipping company that was training up Chinese seamen to man international flag vessels. Basically, it was an early effort to source cheap labour, and to break some of the power of the maritime unions.

But then the Dutch government agreed to sell submarines to Taiwan. Big mistake: my colleagues were kicked out on the spot. I got a week to clear up after them, and then I had to leave too. The Chinese kept all the company assets, naturally!

So I went down to Hong Kong and got a job with Jardine Matheson, working at Zung Fu. People remember it as the Daimler-Benz distributor but back then we worked as a trading agent for a range of goods, mostly German ones like MAN and MTU and Nixdorf Computer. We were selling technology into China, but also just starting to source a few Chinese goods like tools, basic pharmaceuticals and chemicals.

So you were around to see some of the early exports?

Yes, but I changed tack again, and went back into China, to Guangzhou. Back then it was the just starting up as the centre for the foreign oil companies starting to operate in the South China Sea fields off Shekou and Zhanjiang. This was another JV between Santa Fe from Hong Kong and a Chinese oil services firm, all still some time before the development of Shenzhen really began.

We were in logistics, as almost everything had to be brought in from overseas. There were no office buildings, for instance. We had to set up offices in hotels, bringing in all the furniture and equipment. Nor was there much in the way of Western food; it all had to come in by container from Hong Kong.

We opened up another JV – Sino Sante Fe – in Beijing, where we partnered with the State Planning Commission, which went on to become the NDRC.

All of this stuff being imported had to be specified on the clients’ JV contracts. So I’d be at customs, working for companies like Beijing Jeep and IBM, understanding how difficult it was to get set up, and able to observe their businesses closely and be intimately involved as they began to find their feet in China.

People who haven’t been in China long never saw this, so they don’t realise how far the country has come, and so quickly.

But I think that this kind of perspective is critical in being able to interact effectively with Chinese businesses, officialdom and colleagues. We should be comparing China today to where it was then. Not just contrasting it with the US or Europe now.

Then you moved back to Hong Kong again?

Yes, I ended up working for Bill Wylie, a “corporate doctor” in Hong Kong who ran Hutchison Whampoa before Li Ka-shing took charge. Then he started up one of the early venture capital funds in the city, called Asia Securities. We were looking at a lot of opportunities in distressed businesses in and around Hong Kong.

Mostly it was the type of business that had grown too fast from their family origins, and now needed capital desperately to survive. So we’d go in there and say: here’s your money but we want control. It was a great learning experience, especially for me in learning about understanding balance sheets and business models. But it was harsh stuff: vulture capital rather than venture capital, really.

And then onto BHP, in time for a role in China’s commodity story?

I nearly didn’t get that job. First of all it was only advertised in Australia (and not in China or even Hong Kong). I had to send my CV down there. Then they said I was too young, at 30, to be running their operations in China. But I made it through. I found out later that Kevin Rudd, the former Australian prime minister, had also applied!

I was with BHP for 21 years, with a lot of ups and downs. Back then BHP was much more diversified: shipping, cement, engineering, IT etc. It was a lot less like the focused energy and minerals operator that it is now. But that diversity, plus China’s rapid pace of change, kept me interested. I get bored easily, so that was important.

Of course, it also meant I was around for the 1990s, when the China commodity story first got into gear. We started out negotiating iron ore sales with a single Chinese buyer (China Metallurgical Import-Export Corporation). Then it was devolved to having to deal with the steelmakers individually as customers/end-users in their own right, just like elsewhere.

That was an interesting development but of course you spent a lot of time dealing with people who were new to the process and new to the global commodities markets, and that meant that a lot had to be explained. There was an aspect of ‘hand-holding’ in how we built relationships with new buyers.

The challenge, of course, until the early part of the last decade was that it was a buyer’s market so we were often faced with customer conversations which were based on treading gently with inexperienced counterparties. A lot of these guys had never been overseas, few spoke any English, most liked to drink plenty of Moutai over lunch and dinner, and not many had ever had to run a business on purely profit and loss drivers. So we got bullied a lot across the negotiating table and our livers took a hiding at the dining room table. But, again, it was good to go through that period because many of those guys are in senior roles these days and we have gone through the learning process together. We’ve all come a long way…

How about today? You’re still working in China?

Yes, I live in Shanghai, although I left BHP last year. I am now a non-executive director at Kazakhmys, one of the world’s largest copper producers. Kazakhstan has a growing relationship with China from both a commercial and governmental perspective, so I hope some of my experience is helpful. And as of the start of the month I am Chairman of Caledonia, an Australian-based hedge fund. We’re looking at predominantly long positions in listed companies which are leveraged to the China growth story. We are not going to be resource-focused or even exclusively China-focused but everything we invest in will be in some way related to China’s growth.

I am also involved at the Lowy Institute (the pre-eminent Australian foreign policy think-tank) because I think it’s really important to evolve the conversation about China (in Australia and across the Western world) to point out how much it has already changed and to keep that sense of perspective that I mentioned before. I also joined the board of my old university, so it feels a bit like the wheel has turned full circle. They were the people to encourage me to travel to China in the first place.


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