Wed, Jul 29, 2009 - Page 8 News List

Sino-Australian relations in crisis

By Sushil Seth

Who would have thought that Australia’s relations with China would nose-dive under Mandarin-speaking Prime Minister Kevin Rudd?

When Rudd took office, expectations were high on both sides. He believed that as a friend of China, and one well-versed in Chinese culture, he had some latitude to speak to Beijing frankly about issues that would annoy them, like Tibet.

China also seemed inclined toward Rudd, the only leader of a Western country known for his fluency in Mandarin.

Beijing naturally thought that he would be sympathetic to Chinese interests.

But things soon started to go wrong.

Although he chose China among the first countries (and the first in Asia) that he visited — rattling Japan particularly — Beijing was not amused by a Peking University address in April last year when Rudd said that “there are significant human rights problems” in Tibet and advised China to recognize the fact and deal with it.

Even as he claimed to be China’s friend, Rudd continued to emphasize the primacy of Australia’s strategic alliance with the US.

Beijing, of course, wasn’t expecting any sudden change in Australia’s primary political and security relationship with the US, but it did expect that under Rudd Canberra wouldn’t stand in the way of Chinese investments in the crucial resources sector, particularly iron ore.

China is now Australia’s top trading partner, ahead of Japan, devouring the country’s exports, particularly iron ore.

One estimate said iron ore comprised A$18 billion (US$15 billion) of Australia’s A$32.5 billion exports to China last year.

With the global economy spiraling and high commodity prices, China’s insatiable demand for iron ore helped Australian exporters like Rio Tinto reap huge profit.

China was not happy. It wanted to control both the supplies and pricing of iron ore.

Beijing sought to take advantage of Rio Tinto’s debt problems and double its share in the company.

However, Rio Tinto made up with BHP, another Australian mining giant that had only recently wanted to gobble up the company, and Rio Tinto backed out of the Chinese deal at the last moment.

China was left high and dry — and fuming, it would appear.

Beijing feels that Canberra played a role in scuttling China’s investment by delaying its approval.

Whether or not the Australian government forced Rio Tinto’s hand is not the question, as most countries — and especially China — would prefer not to have another country having a controlling share in its strategic resource sector.

As things were heating up over the refusal to sell shares in Rio Tinto, the global economic crisis lifted the pressure on commodity prices.

However, China wanted Rio Tinto to reduce its iron ore prices by more than 40 percent, refusing to accept a 33 percent reduction as agreed with Japan and South Korea.

With the wrangling over the price of iron ore continuing, Chinese authorities arrested Stern Hu (胡士泰), a Rio Tinto executive in China carrying an Australian passport, and three Rio Tinto employees who are Chinese citizens.

They are accused of bribing executives of Chinese steel mills and attempting to damage China’s economic security by stealing state secrets, but have not been formally charged.

Australia is being largely ignored, with its approaches in the matter dismissed as interference in China’s “judicial sovereignty.”

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