Australia and China - An Uneasy Alliance

Great read in the New york times recently talking about the economic relationship between Australia and China, and who is benefiting versus who is getting exploited. Here are some highlights.

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Since three state owned Chinese companies said they would buy stakes in Australia’s storied mining industry totaling $22 billion — as much as China’s entire investment here in the last three years — some of this nation’s 21.3 million people have reacted with aggrieved nationalism

The government of Prime Minister Kevin Rudd, which generally favors the sales, has been savaged as naïvely cozy with China, a view some in his own military appear to share. Opposition politicians have flogged the specter of an Australian future more or less as a giant open-pit mine in which the locals toil, but Beijing takes the profits.

“It’s the Communist People’s Republic of China, 100 percent Communist-owned, buying up sections of the country and minerals in the ground which they will then sell to the Communist People’s Republic of China,” said Barnaby Joyce, who is a leader of the National Party in Parliament. “And we’re going to live off the commission on the way through. They’ll try to make sure we get as little as possible.”

Australia has always been the West’s outpost in the East, the British penal colony with American spunk and European joie de vivre. But seemingly overnight, China has become Australia’s biggest trading partner, one of its biggest tourism customers, the largest single buyer of its government debt, a major buyer of farmland and real estate.

China’s hunger for steel gobbles up half of Australia’s iron ore exports, and its textile factories buy more than half of Australia’s wool. Over 120,000 Chinese students throng to Australian schools and universities.

Although China’s purchases remain dwarfed by cumulative investments of the Americans and the British, they are growing much faster. And suddenly, Australians are stepping back, realizing that their new best friend is someone they really do not know very well, much less trust.

The Chinese bids for parts of the three Australian mining companies — Fortescue Metals, Oz Minerals and Rio Tinto Ltd. — have been raptly watched for Australia’s answers. So far, they are mixed.

The smallest deal, an $840 million bid for part of Fortescue, a struggling iron ore miner, won Australian regulators’ quick approval. But Australia’s foreign investments review board, the central gatekeeper for overseas purchases, vetoed part of a $1.8 billion bid for Oz, the world’s second largest zinc miner. The reason: Australia’s military raised the prospect of Chinese espionage at an Oz mine not far from an aerospace test site. A pared-down deal was approved after the suspect mine, the core of Oz Minerals’ assets, was excised from the deal.

But it is the proposed purchase by the Aluminum Company of China, or Chinalco, of $19.5 billion in Rio Tinto stock, bonds and mining rights — China’s biggest investment in a foreign company — that has caused the most angst. Chinalco, which bought 9.3 percent of Rio Tinto in 2008, proposed taking a larger stake after the global economic collapse drove Rio into financial straits. If approved, the new investment would give China an 18.5 percent share of the world’s third largest mining company.

Chinalco unequivocally asserts its independence. “Chinalco operates as a commercial entity, at arm’s length from Chinese political processes,” the company’s Australian spokesman said in a written response to questions.

Many Australian experts agree. Modern Chinese corporations are state-run in name only, Ross Garnaut, an economist, former Australian ambassador to Beijing and himself the head of a gold-mining company, said in an interview. In practice, he said, they are just like their Western counterparts — fiercely competitive, and focused on profit.

“You don’t know anything about the dynamics of relations between major corporations in China if you think a major aluminum company like Chinalco would sacrifice its profits to increase profits for one of its rivals in the steel industry,” he said. Even Australia’s antitrust regulators have concluded that the Chinese would be unable to influence the price of iron ore, a crucial Rio Tinto product, were the Rio deal to go through.

Allies of Prime Minister Rudd argue that increased Chinese investment pumps money into Australia’s economy and opens new trade opportunities. But Mr. Rudd’s opponents say he does Beijing’s bidding. Among a drip of well-timed news leaks were claims that Chinese spies sought to hack into Mr. Rudd’s laptop during last year’s Olympic Games, and that his defense minister had failed to disclose gifts from a Chinese friend with ties to Beijing’s military establishment.

Those allegations have been flying even as the Australian military has become more focused on China as a potential rival. A newly issued defense strategy proposes the biggest Australian military buildup since World War II, driven in part by a forecast of rising Chinese economic and military power, and a slow American fade in the Pacific.

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Definitely worth reading the full article if you get the time.

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How to Get Rich and the Many Paths to Get There

We have all thought about being wealthy and rich, and what we would do if we had enough money to fund all our desires and take care of loved ones. However, how can you get rich? In reality there are only a few ways to do so and here I look at the main paths on how anyone ever gets rich. They are in order, from the quickest path to becoming rich/wealthy to the slowest and most likely path.

Luck: As the saying goes, "I'd rather be lucky than good." Think: winning the lottery; winning a slots jackpot in Vegas; big inheritance; being born into a family fortune; winning a big legal settlement. The flip side is being in the right place at the right time—by choice perhaps, but with lots of luck. Think: an intelligent but lucky stock pick (Apple when it was $5); an intelligent but lucky job choice (company goes IPO).

Extraordinary Talent: Some have the god-given talent that they are able to profit from by ensuring it is not wasted. Think: Michael Jordan, Tiger Woods and other top professional athletes; film and song celebrities and authors than can write for the masses. Growing up, it is important to recognize all forms of talent because if you become among the best in your field of practice, there is a good chance that riches will follow (especially in America).

Visionary: Build on amazing vision, unique product/service or new idea that you commercialize. Think: Bill Gates and Microsoft or the founders of Google, Ikea and Wal-Mart. Many of the richest people in the world are those who built a company from ground up, yet had the business sense to profit from their invention. Unfortunately, very few people will come up a brilliant idea AND commercialize it successfully.

Small Business Empire (franchise): Start a profitable small business and eventually franchise it. This way you are able to make money as your franchise grows without having to take much of the business risk associated with putting up your own time and money.

The Full Time Investor: Put loads of money (perhaps borrowed) into risky and high-return (speculative) investments. Think: flipping real estate; buying on margin; hedge funds; investing in hot emerging market stocks. This path could make you rich beyond your wildest dreams, but more likely than not could result in you losing everything you own and then some.

Corporate Warrior: This is the realm of the CEO's, MBA's and investment bankers. The idea is to get an ivy league education, work 70 to 100 hours a week for a big corporate or hedge fund and then retire before you are completely burnt out. Those that follow this path, assuming they have the capability, will probably achieve financial freedom sooner than most, but the personal toll could be very heavy indeed.

Slow and Steady : Sound familiar? It should. Most of us are on this path which involves working for most of our adult lives, saving diligently, raising a family and then retiring after 65. This was a pretty well worn path for many, until the recent financial crisis where all the hard work from years of saving and investing were wiped away. This is also the approach espoused by many personal-finance publications and blogs, because it is probably the surest and more straight forward. Though if you do want to get rich, before you get old, consider the above paths first.


Which path are you on? If you are like most people you are on the corporate warrior or slow and steady path. The top ones are much faster ways to get rich, but available to only a select few. I'll discuss the above paths in more detail during future posts, but early in life you should decide which path you want to pursue and follow it with all your heart.

Picture courtesy the Shane H. This post was originally published at Saving to Invest.

Related:
~ Don't be spooked by crisis headlines
~Property still better than shares & 5 tips to consider when investing in property
~ Your relationship to money