Chinalco: Shopping on the Commodity Market

Aluminium Corporation of China (Chinalco), China’s plans to invest 19.9 19.5 bn US Dollars in the Rio Tinto Mining Group. Xiao Yaqing, president of Chinalco (and its party secretary), Rio Tinto Group’s chairman Paul Skinner, and its chief executive Tom Albanese, signed an agreement on investment in London on February 12. Rio Tinto has headquarters in London and in Melbourne; Rio Tinto plc (UK) and Rio Tinto Limited (Australia) are separate legal entities but have been managed as a single economic unit since December 1995.

The new partnership with the Chinese company “will benefit from Chinalco’s strong relationships within China, which Rio Tinto believes will continue to be the main driver of growth in commodity markets over the longer term,” Albanese said.
He said the Chinalco relationship will also help Rio Tinto to seek project funding from Chinese financial institutions. (china.com)

Chinalco’s president is as much a politician as a business cadre. Xiao Yaqing was reportedly to move up to a position as the State Council’s vice secretary-general. Bloomberg reports Xiao’s departure today, but doesn’t mention his next destination.

According to its own website, Chinalco was established in 2001 when twelve Chinese aluminium companies were consolidated. Chinalco’s latest investment into Rio Tinto may double its stake to 18%, when you include convertible bonds also bought by Chinalco, according to the Financial Times Germany on February 13. According to the paper, negotiations between Rio Tinto and its Australian rival BHP had failed in November – BHP cited its misgivings about Rio’s debts as a reason for withdrawing its bid.

Rio Tinto is optimistic that the Australian government will approve the deal. It also says that 2,000 jobs could be at risk if approval isn’t granted, but trade minister Simon Crean says that preserving jobs wouldn’t be the deciding factor.

The fact that Chinalco is state-owned politicizes the matter.

“This is an economic question about giving another government a stake in Australian resources, our biggest wealth generator,” Opposition Nationals Senator Barnaby Joyce said in a phone interview from St. George in Queensland state. “This is not being parochial about foreign investment, it is about the ownership of Australian resources being handed to another government.” (Bloomberg)

And the Australian Workers Union sees Rio Tinto’s reference to job cuttings as blackmailing.

The accusation is no answer to the question who then should invest in Rio instead, and in fact, the union’s national secretary apparently sees no reason why the government would block the deal. But it seems to me that this marriage, made in heaven or not, does raise some protectionist questions. China is following a long-term strategic interest. What is Australia’s long-term interest in this matter?

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