Rio Tinto's Chinese Mistake 20 comments
-
Font Size:
-
Print
- TweetThis
Rio Tinto (RTP) claims that it is surprised by allegations from Chinese authorities that key executives were involved in stealing state secrets. The business media paint China as a big bad government arresting innocent people. The reality is that a lot of hard ball meetings have been held behind closed doors. We do not truly know what went on.
Rio Tinto and employees want to characterize themselves as small and relatively powerless. The Chinese are not stupid. The Chinese are subtle and astute. Rio Tinto did in fact have the power of a sovereign state, acted tough and probably did not think their way through the relationship.
Being shareholder driven they are influenced by quarterly EPS. Being a commodities firm they are all too familiar with price fluctuations. They probably acted for the here and now. Long term stable relationships are usually the most profitable and risk less. Rio Tinto has not been successful with the China Card. What ever they were negotiating is now kinked.
The advantage definitely goes to other parties who were competing with them for markets, influence and relationship.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 20 comments:
It is interesting to contrast with Xstrata, who did a deep discounted rights issue quickly and without fuss. Obviously a smaller business but I was impressed by the way they dealt with a similar leverage problem.
I think Rio's problems are great for the likes of Vale (iron ore), Xstrata and Kazakhmys (copper). It is a big mistake to anger your most important customer when you are not the only player in town.
Let supposed these Rio employees were stealing state secrets for a long time, and China's "secret police" have been investigating for a long time. Then, China state officials will stop Chinalco's bid on Rio for the sake of state security since the deal started. But of course, we all know what happened. Chinalco had the full approval from the state government for the go ahead to buy Rio.
Yeah, sure, of course we do not know what is going on behind that "closed door", so why should we all speculate? Because we like dramas!
1/ The rights issue - RIO has obviously had the need to shore up their debt levels - and they have picked the perfect time in the bearmarket cycle to do this - they are pretty much expecting that the current commodity price increase has been a lucky windfall to their expectations.
2/ The Chinese has been taking advantage of the low prices and this has lead to the recent run up in commodities; although they are now publicly stating that the prices are too high - which has lead to falling commodity prices and the baltic index.
3/ The final point is more speculative/cultural - the Rio execs were definitely stretching the boundaries of information as a power of negotiation tactics, the Chinese would no sooner take the smallest piece of foul play/rhetoric and turn it into a huge public incident - for the benefit of long term price negotiations. I hardly think the Chinese will make a big deal out of this whole spectacle once the negotiations of prices are completed.
I wouldn't put it past them to have baited RIO execs into fishing out state secrets, for the sake of this master stroke by the Chinese buyers.
Rio Tinto must have forgotten these facts during their "assumed normal" commerical negotiations with Chinalto.
These are the perils that befall foreign companies doing business with China. Just ask Google. The wants of the CCP must always be kept in mind.
So what is the lesson here? If you do business in China demand the money up front and repatriated out of the country. Ergo, that is why China needs US dollars. The more they behave like this the less likely anyone wants to leave their money or people in the country rife with corruption and shady business practices.
* February 12, Australian stimulus plan fail in senate,
* February 13 China announce a $19.5 billion bid, the same day Australian senate pass the stimulus plan,
* March 25th, Australian government approved Chinalco bid,
* June 5th, the Chinalco-Rio Tinto deal collapse,
* June 30, the iron ore price negotiation between China and Australia pass without a resolution
* one week later China announce it will stop stockpiling of iron ore
* following day, China arrest 4 Rio Tinto employees
* July 10, Reuter reported that China Shougang head of the iron ore department had been detained.
* over the weekend, news indicated that Rio employee bribe head of Shougang iron ore department to determine what's China bottom line.
Looks like Rio used this information to walk away from $19 billion deal and strong stance against China asking for iron ore discount. Wall Street Journal reported that Australian government is asking for more detail on the arrest, seems like the Aussie knew this will bite back.
Here we have Rio asking China financial help to repay their debt, entice them with a $19 billion deal, then decided that they probably can screw the Chinese by dealing with BHP, I don't think the Chinese will let it go easily.
> First, Rio rejected chinalco's bid, and a week later, Rio's employees
> were arrested for "spying".
>
> Let supposed these Rio employees were stealing state secrets for
> a long time, and China's "secret police" have been investigating
> for a long time. Then, China state officials will stop Chinalco's
> bid on Rio for the sake of state security since the deal started.
> But of course, we all know what happened. Chinalco had the full approval
> from the state government for the go ahead to buy Rio.
>
> Yeah, sure, of course we do not know what is going on behind that
> "closed door", so why should we all speculate? Because we like dramas!
As far as I am concerned, Australia can keep the iron ore in the ground for the future and just ignore the Chinese. The Chinese think that because they have the population and the USD reserves that they can call the shots. As far as I know, nobody really wins doing business with the Chinese, except the Chinese.....they make up the rules as they go along.
On Jul 13 04:04 AM Big Mouse wrote:
> Briberby can hardly be avoided in China.
On Jul 13 04:24 AM Moon Kil Woong wrote:
> I suppose Rio can just refuse to alter their contract. And I suppose
> China can just refuse to buy the iron they don't really want now
> that they learned their commodities speculation in the metal doesn't
> work. Thus a Chinese contract is once again proven not to be a contract
> at all.
>
> So what is the lesson here? If you do business in China demand the
> money up front and repatriated out of the country. Ergo, that is
> why China needs US dollars. The more they behave like this the less
> likely anyone wants to leave their money or people in the country
> rife with corruption and shady business practices.
On Jul 13 06:29 AM User 446276 wrote:
> Sorry, but the Chinese spat the dummy because Rio went to bed with
> BHP in the Pilbara.
>
> As far as I am concerned, Australia can keep the iron ore in the
> ground for the future and just ignore the Chinese. The Chinese think
> that because they have the population and the USD reserves that they
> can call the shots. As far as I know, nobody really wins doing business
> with the Chinese, except the Chinese.....they make up the rules as
> they go along.
On Jul 13 01:50 AM Sober Realist wrote:
> The Chinese government is the sole shareholder in Chinalco, and the
> prior president of Chinalco, Xiao Yaqing, was promoted to deputy
> secretary-general of China's cabinet. China's opaque legal system
> is also completely tied to the CCP. Major business dealings in China
> are looked at as an issue of politics and national security. The
> Chinese government treats a sweeping array of economic and other
> data as state secrets, and China’s vague spying and national security
> laws give authorities wide latitude in deciding what to prosecute.
>
> Rio Tinto must have forgotten these facts during their "assumed normal"
> commerical negotiations with Chinalto.
> These are the perils that befall foreign companies doing business
> with China. Just ask Google. The wants of the CCP must always be
> kept in mind.
It appears the jig is up for America, as the Yanks can no longer argue their way out of a paper bag, and they resort to mud-slinging. You could blame this attitude on the desperation associated with a recession, but I think the mindset of the SRs, MPs, etc is deeply ingrained and it really is incompatible with success in a global economic platform.
On Jul 13 11:59 PM 628956 wrote:
> Dick Cheney, Henry Paulson, Donald Rumsfeld was all CEO of traded
> companies and late become department secretary. What is wrong with
> Xiao Yaqing of Chinalco to be recruited by the Chinese government?
> Why is it right for US government to recruit CEO to be department
> secretary but is wrong for the Chinese government to do the same?
> Is it hypocrisy?
> I suppose Rio can just refuse to alter their contract. And I suppose
> China can just refuse to buy the iron they don't really want now
> that they learned their commodities speculation in the metal doesn't
> work. Thus a Chinese contract is once again proven not to be a contract
> at all.
>
> So what is the lesson here? If you do business in China demand the
> money up front and repatriated out of the country. Ergo, that is
> why China needs US dollars. The more they behave like this the less
> likely anyone wants to leave their money or people in the country
> rife with corruption and shady business practices.
This is propagandist rhetoric at its worst. China is not engaged in commodities speculation - they have a need for raw material, and are going to great lengths to secure it. Do not confuse the traders on the CBOT with parties that actually have a legitimate need for the commodity.
"... Thus a Chinese contract is once again proven not to be a contract at all."
There was no contract involved. Rio walked away from the ACH deal fearing government intervention from the Aussies. Chinese bureaucrats have detained a foreign executive for reasons unclear. There was no nullification of a contract, nor was there one signed to begin with (regarding ACH's deal). There is rhetoric, and then there is baseless rhetoric. Then, there is this statement of yours, which seems borderline racist and contributes nothing of quality to the discussion.
I cannot even comment on the rest of your diatribe. You sound like someone that got burned doing business in China and is harboring an unhealthy grudge.
> The Chinese government is the sole shareholder in Chinalco, and the
> prior president of Chinalco, Xiao Yaqing, was promoted to deputy
> secretary-general of China's cabinet. China's opaque legal system
> is also completely tied to the CCP. Major business dealings in China
> are looked at as an issue of politics and national security. The
> Chinese government treats a sweeping array of economic and other
> data as state secrets, and China’s vague spying and national security
> laws give authorities wide latitude in deciding what to prosecute.
>
> Rio Tinto must have forgotten these facts during their "assumed normal"
> commerical negotiations with Chinalto.
> These are the perils that befall foreign companies doing business
> with China. Just ask Google. The wants of the CCP must always be
> kept in mind.
There are fundamental flaws to your logic here, unless hypocrisy is your MO.
1) Chalco is listed on the NYSE - ACH, as an ADR. The CCP is a majority owner, but by no means the 'sole shareholder'. You can argue that they are the only shareholder that counts, but my 200% return on this stock does settle any major concerns I may have.
2)
"Major business dealings in China are looked at as an issue of politics and national security. "
knowledge.wharton.upen...
The key sentence:
"...the acquisition he has his eye on is an oil company in America, where lawmakers are jittery about allowing an important natural resource to fall into the hands of a rising military power."
Read this article. Then, replace the word 'China' with 'America'. Then you will see that there is nothing out of the ordinary with your statement for either country. Either you've been duped to believe that American business does not own the American government, or you're a naive idealist that actually believes that we live in a free country, and that corruption only happens elsewhere.
So should a democracy allow corrupt practices to happen in a corrupt foreign environment? Should a democracy not self-examine when such practices are exposed by the foreign nation in question?
On Jul 15 09:48 PM prastagus wrote:
> seekingalpha.com/insta...
1.
The detained Rio Tinto General Manager (Australian Chinese) could have been baited and given dis-information. Classic strategy, very popular with CIA. Also gives China a fantastic negotiation card.
2.
Or he could be a double-agent. Effectively working for China with access to information that can be used for years to China's benefit.
3.
Or here is the horrible part...he may just be an ambitious Australian Chinese, doing business the Chinese Way. But forgot who he was up against. Being a political prisioner, China will pull all classified information from him that can be used to their benefit. Make an example of him so foreign countries/companies do not conduct agressive tactics against China in business/political matters. Leaving them open to an advantage, because they themselves will carry on running their affairs with agressive tactics. It is also cements fear into government officials/business circles/people with sensitive information to restrict them for being bribed etc.
Of course it could be 1+3 currently, leading eventually to 2.
If I was negotiating for Rio, I would not need this information.
They should be able to calculate exactly what they want to be paid and refuse to supply under that price. The whole point here is:
China needs to buy the resources and need to buy from Rio.
Why Rio is playing the negotiation like this I dont know. Very stupid.
They are obviously very insecure. Rio should simply choose the price, explain to the Chinese is great detail how they came to the price. And refuse any offer from China that is beneath their price. Refusing to sell/supply to them. If the price is fair and negotiations structured this way, the Chinese would have to accept the price and would not feel cheated.
Of course if Rio wanted to sweaten the deal they could offer China an incentive to agree to the terms quickly and on a yearly contract price. Once again substantuating why they are offering the further incentive.
Being very tough and very fair is the ONLY way to deal with Chinese. Playing them at their own games is very hard, especially in their own back yard.