Rudd sees himself as an old China hand that knows the ropes and has a "special" relationship with the Chinese leadership. I am sure he has a spare policy laying around someplace that he could lecture the Chinese about so that he could fix all their problems and bring home Stern Hu while stopping for photo ops with all the 100s of party leaders.

Maybe he could also set up a 20 20 forum for them. And then he could help them launch 1000s of studies on sticky topics they don't want to address....

they will be so grateful for his assistence

The Chinese Communist Party probably sees four very good reasons for taking what is in effect four Rio Tinto hostages.
1. The CCP is grossly offended that the Chinalco deal fell through, they are hurt, confused and vindictive;
2. The very thing the Chinalco play was designed to prevent is now coming to fruition, ie Rio Tinto and BHPB joining forces in iron ore operations in the Pilbara;
3. Chinese steel mills were not responding to central CCP directives regarding the CCP line to take in iron ore price negotiations. The steel mills know a lot more about the reality of world market prices but the centre finds it untenable that companies from second order countries like Brazil and Australia have market power well beyond their geo-political importance to China. The real message is directed to the steel mills, more than to Rio Tinto;
4. If you are a Chinese person, even though you carry a foreign passport, you must behave as the CCP wishes.

When hostages are taken, concessions are usually demanded by the hostage takers. What might the CCP think these concessions should be in this case? (a) Rio Tinto become cowered in this round or the next round of iron ore price negotiations? (b)The Australian Government kowtow whenever there are matters of disagreement between the two nations? (c) Million of individual foreign and national business people learn the price of non-alignment with the CCP? The demands are implicit, not explicit, like the expected responses. (c) will have already worked. (b) is likely to work while Rudd is around as he is at heart a "lick-up kick-down" functionary with no set of principles, (a) has no prospect of success, but only if Rio Tinto senior management are professional (and there is a large measure of uncertainty here). End part 1.

Part 2.
The sad thing for the four Rio hostages is that the incompetence of the Rio CEO and Board is to blame for their predicament. Sure, the CCP has taken the hostages, but Rio Tinto put them right in the line of fire by a series on panic-stricken and grossly stupid decisions. Firstly, when BHPB quietly approached Rio Tinto several ears ago about a tie up of the two companies, the CEO and Board didn't tell the shareholders but panicked and decided on the poison pill defence. That is, become so unpalatable that they would not be gobbled up. This meant abandoning Rio Tinto's habits of a lifetime of buying cheap and selling dear, and instead paying an extravagant price for the Canadian aluminium producer Alcan. But BHPB didn't go away and offered a very healthy 3.4 shares per Rio Tinto share. Snubbing that as beneath contempt, the CEO and Board watched in shock as the share price subsequently declined to near parity with BHBP when BHBP decided the massive debt Rio Tinto had loaded itself with was not at all attractive. Then, in an even more severe panic, the CEO and Board ignored shareholders and sought a panic rescue in the arms of Chinalco, all the time deluding themselves that they were not really dealing with the CCP. Such stupidity has rarely been seen at this high level but fortunately the Rio Tinto shareholders had much more sense and stopped the give-away to Chinalco. Hence, no wonder the CCP are mightily upset, they took Rio's management for a ride, but shareholders (an alien concept) stopped their dream coming true. Secondly, they have not yet come to grips with the fact that iron ore is a strategic good, just like oil and gas, for which there is a world price which they cannot manipulate no matter how many hostages they take. That is why ultimately Australia is in a good position as long as Rudd and the Dead Men Walking (aka Rio Tinto CEO and Board) don't panic. Unfortunately the CCP will probably keep the hostages for years.

Arthur

In February and June this year you wrote pessimistic pieces about China's environment and about the prospects of its stimulus package working. Reports this past week apparently show China has managed 7.9% growth this past year, well above expectations. You have written that we should always treat such statistics, including claims about environmental regeneration and arresting desertification, with great caution. I would like your comment on these matters now that we are nearing August. Are you still of the view that China will not be able to life the world out of recession, and the papers claimed this week? Thanks for your articles.

Bertie
Use caution when accepting official figures coming out of China.

Recent comments over past months referred to conflicting indicators to GDP growth, including declining power generation as against positive growth figures. Note the sudden spate of state media articles referring to a rise in power generation.

An analysis of power generation however reveals that the articles are selective and not necessarily indicative of the overall contribution to economic growth.

State media is focussing on "growth" in steel and car manufacturing, while there is contradictory evidence on the ground, including a decline in coal and coke shipments.

A lack of coordination between small and major steel producers has produced conflicting reports of over capacity, rising inventories and shutting down of some operations while still claiming positive growth.

Deferments of Brazillian iron ore deliveries due to closure of the Carajas mine railway by flood damage helped alleviate the problem of ore stockpiling and potential delivery rejections. Expect China to use Vale in an attempted playoff against Rio.

An increasing problem for China at this time is stemming discontent from rising unemployment. To achieve this goal, China uses the domestic media to boost confidence in the government. Worsening ethnic civil unrest that has erupted in Xinjiang, Qinghai, Tibet and Henan is increasing China's woes.

The real problem facing Beijing is the level of concealed debt.

China's GDP calculation omits the true level of debt especially that of state banks, state owned enterprises and local governments (state secrets).

There is also the missing green factor in China's calculations for GDP.

You may also add to that, the rising cost of addressing the rapidly increasing health and age factors, especially in the rural sectors. Until China reduces the wealth gap, the potential for civil unrest will increase.

The US$586B stimulus package is 76% reliant on bank finance.

An exercise worth undertaking is tracking the companies on China exchanges that have shown recent activity and price enhancement. It is interesting to look at who and what is buying.