MICHAEL PASCOE, Sydney Morning Herald
August 10, 2009 - 1:41PM
The danger in dealing with a pig-ignorant bureaucrat in an authoritarian regime is that the moment their stupidity and ineptitude is exposed, they will use all their power to blame someone else. So it seems with the China Iron and Steel Association's secretary general, Shan Shanghua, and Rio Tinto.
If it wasn't for the fact that four men are facing years in a Chinese jail because of it, the latest development in the Rio Tinto/Stern Hu case would be simply laughable - either that or Rio has been capable of greater magic than anything Harry Potter has imagined.
Maybe the China Iron and Steel Association doesn't realise Ms Rowling's books are fiction - how else could China allege Rio has overcharged by $123 billion for iron ore shipments over the past six years when that is more than the total value of its shipments?
Such a ridiculous allegation, the stuff of a loony propaganda machine, is a sign of desperation. And Shan Shanghua is understandably desperate.
Shan first came to popular attention as the goose who triumphantly hissed back in February that the proposed Chinalco bailout of Rio would ''help China break the duopoly in Australian iron ore supply over the long term''.
Dumb, Shan, plain dumb - unless you're secretly a double-agent, working for the anti-Chinalco forces. No matter how much you might have hoped it, or even if you planned it, to speak such a thought was sheer stupidity. Take a bow, Shan Shanghua, for doing as much as anyone could in sinking the Chinalco deal.
But that was just a warm-up. Shan moved on to more costly mistakes as he exerted CISA control over China's steel mills in their price negotiations with Rio.
It was Shan himself who scotched suggestions that key mills had agreed to the same new benchmark pricing as the Japanese and Korean mills.
And thus it is Shan himself who is responsible for China presently paying about 20 per cent more than it needed to for iron ore. Over time, that would add up to billions Shan - nice work.
Again, you'd have to think Shan is either grossly incompetent or a double agent.
But it's no fun being exposed as either in a totalitarian regime, even if you are a favoured son of the Party - that can change. It's even worse than the NSW Labor Party.
Hence the urgent need to blame someone else - blame Rio.
Et tu, BHP?
The weekend's escalation of a commercial dispute into the realms of fantasy and xenophobia is dangerous stuff. By strong implication, it takes this particular fight well beyond Rio to BHP Billiton and, to a lesser extent, Brazilian rival Vale.
It may have been Rio's particular misfortune to be leading the iron ore price negotiations this year. It could so easily have been BHP instead.
There's a clear warning that CISA has ''the Australian duopoly'' in its sights, not just the running dog capitalists at Rio. Note that China is now claiming that stolen goods accounted for 10 per cent of Australia's GDP - ah, the old convict streak coming out in us.
BHP reports its annual results on Wednesday. Its usual fine commodities outlook section might well be carefully worded this time round.
In particular, it might pay to be very careful in the wording of any discussion about the Pilbara joint venture with Rio. This is an issue of great concern in China that seems to have been brushed aside by the miners understandably bedazzled by the cost savings.
China's threats to sool its equivalent of the ACCC onto the joint venture should not be ignored - there's plenty of room in Chinese detention centres for more recalcitrant employs of foreign devils.
And CISA does have a point - Rio, BHP and Vale happily function as a cosy oligopoly in the annual price negotiations, as they've had to when the Japanese, Korean and now Chinese mills are similarly marshalled into a single negotiating voice.
Shan Shanghua's inability to handle that reality, his apparent lack of comprehension of the demand/supply balance, has created a desperate bureaucrat well out of his depth - a dangerous individual indeed. Maybe he should have asked Rio for a little market intelligence before running off at the mouth.
There are plenty of very smart, very well educated and ethical Chinese bureaucrats who are doing an amazing job in steering the Middle Kingdom back towards the centre of the universe. The Party runs a business school for them modelled on the best Western MBA courses.
Unfortunately there can be a great deal of internal politics in the way of the intelligent bureaucrats taking control of an issue from the hopelessly ignorant. And bigger immediate problem again is that the latest over-the-top rhetoric and publicity make finding a solution much harder - the stupid value face much more than the wise.
Michael Pascoe is a BusinessDay contributing editor.