Sino-Australian relationship and the mining industry

Tytuł obrazka

Robert Walters talks to Chris Stevens, Chinese economics specialist to take a closer look at Western Australia’s mining industry and the Sino-Australian relationship.

Australia has long been an extremely important source of resources for China’s development, being the key supplier of iron ore, thermal and coking coal. Between 2010 and 2015, Australia’s share of Chinese iron ore imports grew from 270 million tonnes to 607 million tonnes. 

Where do we stand now?

Australia’s position within the Asia Pacific region is important to China as part of its efforts to maintain regional stability. In China, Australia is seen as a middle ranking developed nation characterised by two key elements: resources and location. Ultimately, it seems fair to say that although Australia spends an enormous amount of time considering Sino-Australian relations, the same does not necessarily apply to China. 

The mining industry is currently experiencing a perfectly normal correction as part of a massive cycle of demand, primarily driven by the need for steel producing minerals and energy resources in China. Western Australia and Queensland have seen unprecedented project development resulting in construction booms. The increase in supply of most steel making minerals has resulted in reduced commodity prices, especially in iron ore. This has eased the tensions between Australia and China caused by what China saw as excessive iron ore prices. 

We have now entered a new phase where focus has shifted towards cost reduction and productivity improvement with large mining companies being far more successful in cutting costs than most analysts predicted.

Over the next five years, sustaining capital and capacity replacement will see greater focus over major expansion projects. The forecast recovery of base metal prices should be enough to drive new projects into production, as will the likely continuation of historically high Australian dollar gold prices. 

What does this mean for jobs?

Although there has been a reduction in employment levels, the mining industry in Australia remains a significant employer, especially in Western Australia, a situation that is unlikely to change.

Although there has been a reduction in employment levels, the mining industry in Australia remains a significant employer.

Most new job vacancies appear to be in operations rather than development. There is also demand for professionals with skills in areas related to efficiency and optimisation. Just like in other sectors, professionals with a deep understanding of digitally driven optimisation and strategic tools, such as data science and automation will be increasingly sought after in the mining industry.

Circular migration is increasingly the prevailing model from both an economic and cultural standpoint. When I first went to China in the late 90s people thought that I was mad. China was seen as a hardship post and expats commanded incredible salaries just for being willing to live there. Fast forward to 2016 and China is often seen as first choice destination for global executives, a place to gain vital experience that will be invaluable on a CV.

In terms of talent coming from China to Australia, we are seeing a greater number of Chinese CEOs and Directors running ASX listed companies due to an increased need of professionals with deep Chinese market understanding.

How can Australian companies work better with China?

Recently there have been several cases where Australian companies have demonstrated a severe lack of understanding of what’s going on in China. These issues not only affect Australian operations in China but can ultimately harm Australia’s overall reputation.

Fundamentally, the rules of strategy are no different in China. Companies must deeply understand their operating environment and make decisions based on strong qualitative and quantitative analysis. This holds true for all markets, however what makes China different are the unique cultural, political and historical characteristics of the country. 

Often what makes for a successful executive in Australia does not translate well into the Chinese market and many executives lack understanding of how China operates. Boards in Australia need to be regularly briefed on what is happening in China, they need people who deeply understand the history, culture and politics of China in order to provide context to the current environment in which the company is operating. Over nearly 20 years of working with China, I have seen it done extremely well but also extremely badly. 

Companies must not look to China as a quick fix or an easy dollar. Irrespective of the business that you are in, the Chinese market can take persistence and patience to crack.

The Chinese government knows that it is offering access to the world’s largest market and in return it expects proper respect and investment in terms of corporate structure, taxation, employment, and sometimes knowledge transfer.

There is no doubt that the rewards are there for those who approach China in the right way but extreme care needs to be taken to never lose focus of risk management and operating strategy. 

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