Stern Hu, Chinese steel industry and Sino-Aussie relations

Comments on Peter Yuan Cai “The China ‘spygate’ affair and China’s steel industry chaos”, 19/07/2009, http://www.eastasiaforum.org/2009/07/19/the-china-spygate-affair-and-chinas-steel-industry-chaos/

There has not been much official information from China regarding Mr Stern Hu case that has frustrated many in Australia, including the foreign minister and the prime minister probably. So most if not all people have to speculate on what is happening according to own thinking and draw own conclusion. That is regrettable, to say the least.

On the one hand, it may reflect the complex and different Chinese legal system and the varying interpretations and difficult implementations of that legal system. On the other, it may also be a very complex situation, likely to be much more complex than most people have thought, that China has been in recent time, with potentially very broad implications.

If I were to speculate, I would link this to a wider context, like China’s (and other big developing economies too) demand for a more equal recognition and treatment in world economic affairs, such as IMF voting weights. Further, China also appears to be seeking to broaden international reserve currencies.

Reports have said that China officials say China treats Mr Stern Hu case as a business case and state that it will not affect China Australia relations. That may be the official line spoken in the open, just like the Australian Prime Minister and Treasurer said openly after the collapse of the Chinalco Rio deal that it was a business case and Australia welcomes Chinese investments in Australia.

Are there any unofficial lines that have not been spoken openly here in both countries? Or are there any different interpretations of what have happened, or at least misunderstanding of what have happened in both cases? What are happening below the table? Were they kicking each other?

In the case of the international iron ore market, China is the largest iron buyer, but it has not been treated as such, with the help of people who understand “how to deal with the Chinese”, such as using the tactics of “divide and conquer”. As some commentators have said, it may be difficult to be sure whether one has crossed the line between what is legal or illegal in pursuing business dealings that often can involve gifts and bribery and possibly more.

In terms of the Chinese steel industry, the “wars” between large steel firms and small ones can occur from time to time. When the economy is booming and demand for steel is strong with supply shortage, many small steel and mining firms spring up like new green shorts, and presumably making some profit from high steel and iron ore prices. But when the economy slows and demand for steel exceeds supply, the industry body and the government would like to close some small firms they say are inefficient in energy and intermediate inputs consumption and produce low quality products and damage the environment.

There are people who profit from the market conditions and make a lot of money. Many people here would say, why not, it is entrepreneurship, right? However, it is a situation in China where and when corruptions can occur and law and regulations can be breached.

It is a complex issue. In a reform era and constantly changing environment, what is appropriate and inappropriate today may be different tomorrow. Otherwise how can reforms be undertaken?

Most people involved may be lucky enough not being caught. But from time to time some of those people are caught by a crack-down by the authorities.

It cannot be said that China’s legal system is perfect. So such a system exists. One has to live with that system if you deal with China, although people may ask that China improves its legal system.

It is not unusual that corruptions and briberies may happen in China. In fact, it is more prevalent than in Australia. Some involves very high level officials.

Many Australians assume that Mr Stern Hu have not involved in appropriate business dealings in China. That is a still open case. Australian politicians have tried to use political pressures on China.

Maybe that is what China like to see them to do and also to show them it is not working.

As Paul Kelly’s article in The Australian on Saturday says it is a tussle that we cannot win and China may want to dictate the relationship.

We Australians need to treat the Chinese fairly and equally. We cannot continue to assume that they can be treated as second class people internationally and they will accept that. We cannot assume that we are better than playing games than the Chinese are.

I have said before that it is hard to know which side will win if strategic gaming is played out between the two governments.