http://www.nytimes.com/2009/06/03/world ... ted=1&_r=1




"their nation's birthright"

China is now the big dog on the block. With Russia following behind.
Both China and Russia have conducted joint military exercises. China's building up it's navy.

And Australia is buying U.S. built warplanes.


I've got to ask, are Americans paying attention to this?

I searched for an Australian economy thread to post this in so I wasn't being redundant, but the only thing that turned up was a thread about Australians being angry drunks.

I think the idea of selling stakes in companies that operate in your country's natural resources is probably not the best idea. Also, taking the political suspicion out of the question, I don't like the idea of a major buyer of a product owning a stake in the company that sells the product. Sure it looks attractive now, with the economy in shambles and all this potential money being pumped in, but this could bite them in the ass in the long run.

I know two people who work for Rio Tinto and would be very interested to hear their opinions on this.

You know two people. I'd also be interested to hear what their opinions are. Get 'em over here Chud, and let's hear their opinions. Otherwise, I'm hoping there will be some responses to this after people are done enjoying their weekend.




You don't like the idea of just any old buyer or more specifically if the buyer happens to be China Inc?

I don't like the idea of it in principal, ignoring the fact that it is China completely. With my little economic knowledge, it just seems that by doing that money passes through less hands and one party stands to profit largely at the expense of otherwise normally involved parties.

I'm curious about the price stability stuff. If a company owns a major part of the company that it buys a lot of product from, this guarantees a huge foot in the door to manipulate the decrease and/or stability in the price of the product. I'm sure this would translate to stable prices and savings for other buyers as well. Price stability doesn't seem to be a bad thing to me.

As an example, if gas/petrol prices were stable it would certainly be easier to keep a balanced budget in my own household, rather than experience an unexpected spike in price here and there.

am i supposed to be scared of a military attack? the cold war might be over, but that doesn't mean MAD isn't still effective against governments (especially large ones).

and economically, i don't have any mercantilist concerns about other nations getting wealthy.

If anyone lobs a nuke it will be North Korea. Simply because ole Kim over there is a fruitcake.

I don't think China wants to go to war with anyone. But they did threaten military action in Taiwan. So, hypothetically I'm sure a military attack is on everyone's minds. Otherwise Australia wouldn't be bolstering their air force as a direct result of China's military buildup. China is a communist country. Is that good or bad in this day and age? Seems that people are more tolerant overall, and would agree that each sovereign nation is entitled to govern as it sees fit and it's nobody else's business.

Just as it they have shown huge interest in U.S. technology companies (Seagate), it's clear that China wants to invest heavily into owning Australian companies (iron ore, etc). That of course, makes sense for China. Australia isn't comfortable with it, it appears, just as the U.S. hasn't been comfortable.

I do wonder what the chances are that China will actually flex it's muscles more as a means to get what it wants.

But stable prices don't necessarily mean good prices. And also this smells like trickle down theory. If the corportation that makes a product owns a large stake in the company that sells the materials it needs to manufacture said product, that coorporation is going to get a good deal on the price of it's parts. But that puts a lot of trust in that corporation to pass on those savings to the consumers. I was always under the impression that corporations exist to make as much money as the possibly can. So if they're getting a break what motivates them to pass that break on?

That's a good question. But the better question in this particular China Inc scenario is, what sort of motivation must there be?
And who is demanding the motivation? Or is it perfectly within the company's rights to profit as much as they can without passing on the savings?

Well it sounds good in theory to say companies have the right to profit as much as they can without passing on savings, but if companies have the right to do whatever they can to make the most money possible we wouldn't have anti-trust laws.

I'm not entirely certain, but I'm going to guess that China probably doesn't have any anti-trust laws.

I'm guessing they very probably do.

You're guessing or you know they do?

edit:

It appears that they do. Maybe even a lopsided one.


http://www.huffingtonpost.com/anu-bradf ... 16422.html



ha ha ha ha! those buggars...

The point is it's pretty accepted around the world to regulate business, especially large corporations, to best serve national and economic interests. So to answer the question underlined, I would say no, corporations dont have the right to do whatever they want to make maximum profits.

they would be motivated to pass on the savings if demand is high enough to offset any decrease in price (after taking into account change in cost of production). i don't think anyone, including supply siders, would claim that a business should be trusted to pass on savings. it's usually going to be dependent on price incentives. trickle down theory(really, supply side theory) doesn't really make any claims regarding this situation itself. it argues that if taxes are lowered, especially on the wealthy, savings will increase (the Marginal Propensity to Save of rich people is higher), interest rates will go down, therefore investment will go up because borrowing is easier, and new businesses will be created or existing ones will be expanded, and therefore jobs are created.

But if the demand is high enough wouldn't the company still want to sell the product at the highest price possible to maximize profits? Sure, high demand would allow you to make the same profit as charging more and selling less, but wouldnt the ultimate goal be to sell more at the highest price possible?

My point in this thread is that if one entity controls too much of the process (ie, owning the companies you buy your supplies from), then it makes it a lot easier for that entity to reap as much as they want at the expense of everyone else.

Chud, I think you're forgetting that the consumer has influence on demand and therefore price. If a consumer's demand for a product continues on extensively after a price increase, competition is stimulated because consumers will start demanding an alternative.

Likewise China has the power of being a consumer in it's trade with Australia. At some point it makes sense to allow a reasonable amount of foreign investment. Of course government could stipulate a maximum amount of production to ensure the longevity of the consumption, keeping demand at a steady pace.

if they can sell 100 units at 10 dollars or 100 units at 50 dollars, of course they'll sell it at 50 dollars. however, this is not likely the case. also, the creation of a vertical monopoly like you laid out can make prices go down.

don't read too far into the numbers i'm going to present here---they're not intended to be realistic necessarily, only illustrative of a point
say that prior to the buyout of the austrialian company, the chinese company was selling its products at 6 dollars per unit, the cost of production was 4 dollars per unit, and 30 consumers demanded it. this means they're making 2 dollars on every unit, and 60 dollars in total. now, when said company buys out the raw materials, their cost of production drops to 1 dollar per unit. so now, if they keep prices at 6 dollars, they're making 5 dollars per unit, but still only selling 30 units. however, 90 people demand the good at 3 dollars per unit. prior to the buyout, it would have made no sense for the company to sell it at 3 dollars, as they'd be losing 1 dollar per unit and 90 dollars in total by selling to all demanders. however, when the cost of production goes down to 1 dollar, their profit selling it at 3 dollars is 2 dollars per unit. this means that their total profit will be 180 dollars ($2 profit/unit * 90 buyers). therefore, it makes sense for the company to lower the price.

if any of that needs clarification, let me know.

that example also didn't take into account competition and many other factors (because it wasn't necessary for the example provided, but also because i'm not good enough at the stuff to make an example with a ton of different factors involved.)

anyway, if you're interested in learning a bit more, here's thodoks' favorite recommendation:
http://jim.com/econ/


this is not to say monopolies are always a good thing or anything, simply that in the example i presented, the consolidation could help the consumer out.

My problem is I'm cynical and paranoid, and I rarely trust corporations to do the right thing. What dkfan made sense, and I'm not an economist by any stretch of the imagination. Foreign investment has to be allowed in a global economy, but I'd be weary of selling of a country's resources to foreign companies to makea quick buck in a downtrodden economic situation. It seems to much like a quick fix and might fuck you in the long run. But then again, I say this based on gut instinct without actually knowing what I'm talking about.


But I do laugh at the motivation behind making this thread in the first place.