BHP tries to mend bridges with China

As BHP Billiton has been busily blowing up bridges with its most important customer, its arch rival, Rio Tinto, has been lurching towards the opposite extreme. This is Rio Tinto's chief executive, Tom Albanese, in Beijing yesterday paying homage to Chinese power:

"There are some Americans and others in the West who look at the rise of China with concern," Albanese told the China Development Forum yesterday. "I am not one of them … our interests and China's, in accessing mineral resources to supply development needs, to borrow a Chinese analogy, are 'as close as lips and teeth'.''

The "lips and teeth" analogy is indeed a Communist Party favourite, most commonly used by China in recent times to describe its relationship with North Korea. While Rio is blurring the line between co-operation and genuflection, BHP Billiton had turned itself into one of China's leading corporate villains, second only to Google.

Advertisement: Story continues below BHP's reputation for negotiating aggression evolved into something more serious when it tried to take over Rio Tinto and then unleashed a lobbying assault to prevent Rio Tinto's joint venture with Chinalco.

But it is also undeniable that BHP's aggressive China stance has achieved corporate goals. It hammered through a more favourable iron ore pricing system and it helped prevent Chinalco's hopes for a joint venture with Rio Tinto.

''BHP believes that it has scored a major victory by preventing a state-owned Chinese firm from influencing iron ore pricing negotiations from the producer side," as the US embassy in Canberra reported, according to WikiLeaks obtained by the journalist Philip Dorling.

The BHP boss Marius Kloppers reportedly told the US diplomats: ''Australia does not want to become an open pit in the southern-most province of China."

Not exactly news in China. The Herald reported Australian government sources saying as much in 2009. But the WikiLeaks have not helped. They exacerbated the reputation of Kloppers for overconfidence in dealing with his Chinese customers. And they came after the company has lost valuable avenues of communication by closing down its Beijing office and lost all four of its most experienced executives in Shanghai.

It remains a mystery as to why BHP persisted so long with what seemed like a bridge burning strategy, even as China's importance grew to the point where it now accounts for 29 per cent of revenue.

But the message that shutting out your biggest customer is not good for business has filtered down to Melbourne - from the Politburo, no less - and the company has begun the difficult but necessary process of salvaging the relationship.

A few weeks ago Marius Kloppers arrived in a rare visit to Beijing. He could not open the doors he would have liked but his appearance was a welcome gesture. His new chairman, the relationship-focused Jac Nasser (who replaced Don Argus, who led the anti-China Inc lobbying campaign), sought and received an invitation to attend the three-day China Development Forum in Beijing, which ended yesterday. Nasser won't be unveiling any bridge rebuilding events in the near future, but the process has begun. If all goes to plan it will be only a matter of time before BHP starts courting similar Chinese joint venture partnerships to the ones that it so effectively opposed.

The China Development Forum is a classic Chinese diplomatic affair, where an exclusive club of the world's corporate leaders are given apparent access to some of China's leaders. Companies typically pay a six-figure sum for the privilege of having their chief executives have their say.

It's ironic that Albanese in effect subsidised this year's surprise appearance of BHP's Nasser. And it's strange that he paid to say the words he did. "I like doing business here," he said, extending his bout of public amnesia about the fact that four of his iron ore salesman are in a Shanghai jail, after what began as trumped-up national security allegations.

"It is impossible not to feel the sense of change, and confidence, in China's future," Albanese said.

Right now, as my usually reliable internet lines are down and Google Mail is having trouble, I have no doubt China is changing rapidly, but I can only hope Albanese is right about the direction in which it is heading. (Business Day)