Exclusivity in China-Australia Deal

When China buys, it buys big. Most recently, China’s global resource acquisition spree has centered on Australia, after tours through Canada, the Middle East, South America and Africa.

Following the recent arrest of four Rio Tinto employees in China on corporate espionage charges, the two countries are doing something mutually beneficial to smooth over relations. For China, it is a matter of face-saving and to Australia, it is a source of cash that will flow right into the government coffers.

A lot of people have not heard of – Barrow Island and this is where the place for transaction to take place. It located about 30 miles off the northwest coast of Australia and about 80 square miles in size. The island sits atop a supply of natural gas – a portion of which now will be liquefied and send to China. The deal will cost US$15billion, with some 15 million metric tons of the fuel each year and is expected to create 6,000 jobs initially with another 3,000 to follow.

It is not the China wants to spend this money, but it is because China has to spend that money. It is a matter of the country’s long term survival. It is aimed to avoid ‘social unrest’ – the word phrase that scare Beijing more than anything else. This is why China leaders have been so resolute in their drive to lock up supplies of raw materials and other key commodities.

On the other hand, Australia is caught between citizens who get uncomfortable at the thought of selling valuable national interests to a trading partner they don’t really know or understand well. It has some similarities with failed Unocal Corp of 2005 because US interests were appalled that a Chinese company could acquire ‘national interest’. Yet few take a look for the fact hat most of Unocal’s assets are actually located in Asia.

The changes are under way and are inevitable. Fight them if you must, but realize it is at your own cost or embrace them and ride along, which is not only the path of least resistance. It is also the most profitable trail to take, after all.