BHP, Rio Tinto and China

Stephen Grenville of The Interpreter complains that discussion of BHP’s planned takeover of Rio Tinto is focusing on the market aspects of the deal, to the exclusion of the potential geopolitical consequences. Chinalco has already begun buying up Rio Tinto shares in an effort to block the deal, and there were reports that “China” also planned to buy a significant interest in BHP to hedge against the market share of the eventual merged giant. Here’s Grenville:

Perhaps the longer-term issue this raises is even more important. Over time, it seems likely that China will want to assure its resource security through greater ownership of supply sources. . .

We’ve been relying on foreign capital to fund our current account deficit for two centuries, and we should start from a presumption that free capital flows are a good thing. If, however, our main buyers come to own so much of our resource sector that it’s hard for us to know what the market price should be, and what the right royalties are, then we might wonder if the family farm should have been sold off to the highest bidder.

That finite resources (like, say, peak oil) represent the outer limit against which globalization will collide seems not only likely but inevitable, for China, but for every other country as well. (If you take a cynical view of the Iraq War, it’s a pre-emptive American response to that fact.) Which means that national security exceptions, along the lines of the Dubai port deal and China’s abandoned takeover of Unocal, are sure to be the next patch of turbulence in the extension of free trade.

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