[ZenGum]

I wonder if there isn't something more going on.

Historically, the Chinese have a record of playing hardball in business that makes Bernie Madoff look like a boy scout car wash team. I wonder if this isn't a stage in a plan to push down resource prices.

In general, their cultural assumptions about what constitutes fair dealing and reasonable behaviour are often quite different from ours, and there is no particular reason why western assumptions should prevail, especially in a situation like this.

Further, the present Chinese regime is still quite secretive, xenophobic, and totalitarian - so it is not unnatural for them to regard things like contracts and resource prices as state secrets.

Resource prices were at a peak a year ago and have since fallen dramatically. Chinese buyers have been putting downwards pressure on Australian resource prices. Well, naturally.

But interestingly, although China's production of steel has fallen, their imports of iron ore have not. (Similar ratios are true for other base metals.) They would appear to be stockpiling iron ore. Why? A few possible reasons:
(1) They prefer to hold a big pile or iron ore than a big pile of US dollars, since in five years time the iron ore will still be iron ore, but the greenbacks might well be just paper.
(2) They are building a strategic stockpile in case of war.
(3) They are building an economic strategic stockpile to improve their negotiating position and force the price of iron ore down.

My guess is that (3) is most likely, or a combination of (1) and (3). And so I wonder if this incident - which may have been personally approved by Hu Jin Tao, according to media reports - is part of a large scale game plan to get leverage over resource prices.


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Do you have any idea how hard it is to make a tinfoil hat with corks bobbing around the brim?