Thursday, October 07, 2004

China and the economic front

China it seems, has been very interested in Canadian mining companies.

This is very important for a number of reasons, not the least of which is that by owning natural resources, they can effectively control the flow and cost of raw materials into the US.

China Minmetals Corp., a state-owned conglomerate, is negotiating to buy Noranda from Brascan Corp. and other shareholders for $7 billion. It would be Beijing's largest foreign takeover, dwarfing its entire direct investment in Canada of $400 million last year, and of our $540 million in China. The deal will give Beijing control of a venerable Canadian mining firm, 15,000 jobs worldwide and strategically vital deposits of zinc, nickel, copper and other minerals. Noranda also controls Falconbridge Ltd.

This is a purchase which Prime Minister Paul Martin's government must scrutinize closely. That's because while a Minmetals takeover might be good for Noranda and its shareholders from a strict business point of view, the deal has much broader political and policy implications.

The Beijing leadership uses whatever leverage it has to stifle criticism of China at the United Nations or elsewhere on topics ranging from Beijing's aversion to democracy to its rough handling of the Tiananmen Square protesters, to its suppression of Falun Gong, its occupation of Tibet, and relations with Hong Kong and Taiwan.

The Canadians are just beginning to realize the implications of Chinese ownership.

Do we want Beijing making political demands of us, while holding Canadian jobs hostage? Similarly, would we want Washington or Moscow to have direct leverage of this sort?

The fact of the matter is, that no matter what differences the Canadian and US governments du jour have, Canada is the US largest trading partner, with trade now well exceeding one billion dollars a day. The vast majority of raw materials necessary for the economic engine to work, come from resource rich Canada. "China's disquieting bid for Noranda" is a must read editorial.

In another development along the same lines, Canadian mining company Falconbridge, is now a prime takeover candidate. They produce over 8% of the world's total nickel output. The company is also the largest producer of copper. The potential takeover target company has a global reach. As Bloomberg reported,

Inco Ltd., the world's second- biggest nickel producer, and Falconbridge Ltd. may spend $3.9 billion building mines in New Caledonia in the South Pacific as demand for the metal from Chinese stainless steel makers soars.

... Falconbridge is completing a study of its Koniambo project. The two companies would join French rival Eramet SA on the island with projects that may produce 10 percent of the world's nickel...

Read the entire article- it's a wakeup call.

We may be facing another kind of front in the war on terror, something much more insidious-- an economic war that serve to diminish our growth.

With the French and the EU fostering deals with China to secure their potential for growth, we may get left out in the cold-- and that would be a disaster.

These economic strategies are being played out daily in Canada.

I believe they bear closer scrutiny.

Wandering Mind

may not be suitable for political vegans