China, Rio and power
Tonight鈥檚 decision by on whether to press the go button on a 拢61bn takeover of is not just a big event for these two monsters of the mining industry.
It鈥檚 also a big 鈥渨ho-runs-the-world?鈥 moment.
This takeover contest may no longer be decided in a conventional way by the shareholders of the two companies and competition regulators in assorted jurisdictions.
The reason is that on Friday the state-owned Chinese mining and metals group, Chinalco, through a daring stock-market raid. And it exercises control over 9% of Rio, through a partnership with of the US.
This was more than 拢6bn of Chinese government money saying no to the BHP deal.
It was the most aggressive intervention in a Western commercial deal ever made by the Chinese.
And it demonstrates a remarkable new confidence 鈥 almost a swagger 鈥 on the part of the Chinese authorities in throwing their vast capital resources around.
They don鈥檛 like the BHP takeover idea for a simple reason.
The Chinese fear that a combined BHP/Rio could have excessive control over the price and supply of the raw materials, such as iron ore, that feed the great Chinese manufacturing machine.
According to a banker close to Chinese ministers, BHP has done too little to allay their concerns.
Now the Chinese have not bought enough shares in Rio to totally stymie a deal 鈥 though their stake would allow Chinalco and Alcoa to prevent Rio and BHP being integrated in a way that would maximise returns to BHP.
That said, Chinalco may buy more Rio stock.
So what will BHP announce when the Australian stock market opens tonight?
Well, it would look a little foolish if it walked away with its tail between its legs, having stalked Rio for months.
But, perhaps more importantly, its negotiating position with its important Chinese customers would be enfeebled if it scurried off in the face of the Chinese state pressure.
It鈥檚 a high-stakes choice for the company, and also for all Western commercial interests.
And don鈥檛 expect this to be the last or biggest investment by the Chinese in a British business.
The message that the Chinese took from Gordon Brown鈥檚 recent trip to China is that most UK companies are in the shop window 鈥 and so long as the Chinese pay the proper price for them, they can have them.
I'm 
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A couple of thoughts on this article,
Every company that is publicly quoted is in effect "in the shop window"
If BHP really want to takeover Rio, it can as the % owned/controlled by Chinalco is not enough to block any takeover.
By the way, what would you do with the reserves China has?
Sensible thing is to "buy" protection??
Gordon Brown - British business is in the shop window and the chinese can have them....
Lets get rid of Great from Great Britain... Britain will do!!!
It's not a 'who runs the world' moment, they've just bought a share in a company not the whole company.
It shows a government prepared to take action decisively to protect their interest rather than wait for some competition watchdog to have an prolonged inquiry.
BTW, what does a 'daring' stockmarket raid look like ? Does it involve breaking & entering, shoot outs with security guards. Or a few traders pressing a few buttons and banks getting paid a fee !!
I suppose there will be more hand-wringing about foreigners buying companies etc.
Really, it's a bit bizarre in that the last great so-called communist nation is plundering the western world through the free markets, whilst at the same time the western world preaches the mantra of the free market whilst bemoaning people using it.
Do free marketeers really want a free market or do they want a market that's regulated, controlled by central governmemt and propped up by central government
Do Communist China really want a market that's regulated, controlled by central governmemt and propped up by central government or do they want a free market.
Bit of a conundrum all round really.
Britain need money and investment (although it already got loads of investment last year, obviously Mr. Brown needs more to turn the public focus off his leadership), and as an investor, I would welcome Chinese government investment here, if they can boost the stock market, or if they can help with employing more UK workers.
Yes, they might be financially strong, but no one is strong enough to control the world market. Are you a strong believer of the force of the market, Mr. Peston?
With the vast gulf between Chinas reserves and that of the sick debt-laden economies of the west, it would be rather lame if it didn't act with swagger.
Far eastern capital may very well take out Standard Life at some point.
As economic and financial empires grow in the East, how ironic would it be if, they were to take control of a substantial chunk of the pensions and life savings of the ageing western baby boomers...
All part and parcel of the ebb and flow of empires and their financial history, one would say.
But it doesn't half make you think.
Britain has been up for sale for decades. France and Germany bought up much of our electricity and gas utilities, American companies sell us water and healthcare, Indians bought British Steel, Dubai bought P&O etc etc.
China needs Rio Tinto's products, so it perfectly natural and logical for it to buy stock.
It is disingenuous to attack Gordon Brown for soliciting Britannia to China.
Times have changed. Britain is a declining economic force, Britannia is a fading beauty. If we have any hope of remaining seated at the top table, we must embrace China (and India). There are plenty of others willing to take our place.
it is difficult to ignore china factor now - the more important thing is - how can we milk this cow ongoing basis?
Interesting hypothetical question...a burgeoning capitalist economy can destroy/absorb a recessive communist economy by flaunting its wares until the communist economy defects. Can a burgeoning communist economy destroy/absorb a recessive capitalist economy by simply buying it up?
There seems to be some sort of surprise and even anger here. Why? China Inc. is only doing in the 21st century what Britain Inc, France Inc., Spain Inc, Portugal Inc, Holland Inc., Belgium Inc. and other European colonial powers did in previous centuries. Does someone think the rules of human behavior have changed? While China is buying up the world's raw materials, European nations are buying social safety nets. What's more, while China Inc. is selling manufacturing labor at $1 a day with no strings attached, Europe is selling it at $150 a day with a very sticky web of rules and regulations that goes with it. Europe is under some delusion that because it has formed a trading bloc that it is at least collectively a powerful market entity. The reality is that it is merely a collection of comparatively small weak players which are being murdered. The wake-up call may come when China offers Russia a deal for ALL of its oil and gas it can deliver that it can't refuse. It will be an offer Europe won't be able to match in money and for which no substitute in adequate quantity will be available. At that point, Europe will be forced to make enormous political concessions to Russia or face the prospect of imminent economic collapse. This time, America will NOT be around to bail it out. Why should it? Europe has not been very friendly to America and besides, large American corporations are some of China Inc.'s biggest shareholders. Maybe the anger comes from being on the receiving end of what Europe dished out to the rest of the world for so long. Do you think the Chinese have forgotten the European spheres of influence, their humiliating subjugation in the 19th century, the opium wars, or the Boxer rebellion? BTW, America had no part in any of that. The Italians say revenge is a dish best enjoyed cold. How fitting that the payback is for what was done by people so long ago, their bones in the cold hard ground so long, it's been all but forgotten by Europeans. The victim rarely forgets though. In a 5000 year old culture, half a dozen generations is like yesterday to them.
Alexander #7
"As economic and financial empires grow in the East, how ironic would it be if, they were to take control of a substantial chunk of the pensions and life savings of the ageing western baby boomers..."
Why would they want to...when they're invested in assets like Northern Rock and Societe' Generale?
The "free marketeers" want free markets in other peoples' countries. They definitely DON'T want a free market in their OWN country !!
For years, the Aussies have blathered on endlessly about China not being a "free market" and the very first time Australia is put to the test, they are hastily slamming up barriers all over the place !!
Truly, as the Native Americans would have said, "White man speaks with forked tongue!"
I probably hold the world record for the distance travelled to a job interview as I travelled from UK to Melbourne in 1991 for an interview with BHP (and for other reasons!). I wasn't overwhelmed by the management set-up at the time and having watched the decade of management by fad which followed, leading to an emergency parachuting in of Chip Goodyear and the de facto reverse takeover by Billiton, I am glad nothing came of it.
Asia has always regarded Oz as one huge farm and mine, so the battle is on for China to take a large slice of BHP. Indeed, it seems BHP will probably sell its oil division to finance this lot and 拢55bn of loans seems like a large pile of debt. China after all does not need BHP's relatively small oil operation.
Will Mr Peston stop referring to Kevin Rudd as "the Australian Premier". He is the Prime Minister. Premiers in Austaralia are the heads of the State Governments.
This article is silly, making me think how many 主播大秀 journalists out there just think China as an enemy at all costs. It's amazing how much hate-china propaganda you can derive from a simply open market operation! While China is buying western stocks, westerners are buying Chinese stocks too! Ping An insurance, Baosteel, Sohu, Lenova, ect, ect. So why it is ok for Chinese stocks to be on sale on westerner stock exchange while Chinese trying to buy some British stock would scramble the whole western world???!
How ridiculous.
If this is the main stream of the 主播大秀 portrait of china, I have to say, you are not doing your job of communicating an impartial view of china but create barrier and fears between people. This is what we least want in a modern peaceful world. Unless you just want wars. You probably will get it if you keep on promoting the biased and hate-filing view like this.
Thank you very much 主播大秀 for dividing people and create conflict and fears!!
Re Post #11 by Mark.
You really don't know your history.
The United States of America were a full member of the Eight National Alliance that formed to supress the Boxer Rebellion and deployed two warships and over 3,000 men directly. Additionally the United States was able to play a secondary, but significant role due to the presence of U.S. ships and troops deployed in the Philippines since the U.S conquest of the Spanish American and Philippine-American War. In the United States military, their role in the suppression of the Boxer Rebellion is known as the "China Relief Expedition".
Free market, OK, but sovereign wealth fund or state owned enterprise acquisition is surely just nationalisation by a foreign country, no?
As part of the great socialism experiment didn't we come to the conclusion that state run business didn't work?
So why allow China or Middle Eastern or any other state to buy up these businesses?