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Nowhere has China's impact been greater than in Western Australia. The state accounts for two-thirds of Australia's exports to China, and that's resulted in faster growth and lower unemployment than in the nation overall. While much of the rest of the developed world struggles to find jobs for millions of unemployed, Western Australia is worried about a labor shortage. The local Chamber of Minerals and Energy expects another 33,500 jobs to be created in the sector over the next 18 months, on top of today's 85,000. The mining boom will also have a spillover effect to other industries, spawning jobs for waitresses, cabdrivers and hotel clerks. Over the next decade, tens of thousands of new workers may be needed in the state each year. With a population of only 2.3 million, Western Australia will likely be flooded with immigrant job seekers, reshaping the entire society there. "Our links to Asia are becoming increasingly important in every aspect of society," says Barnett, the premier.
The mining boom is also generating worries. Some Australians fear that roaring Chinese demand for natural resources is turning the economy into little more than a mining pit for China's factories. "An economy that becomes too dependent on any one sector takes too big a risk," Gillard recently warned. Most of all, Australians are nervous about losing control over their natural wealth to China, and that's thrown up hurdles to Chinese investment into the sector. Citing national security, the government blocked state-owned China Minmetals from acquiring Australian mining outfit Oz Minerals in 2009 because one of its assets, Prominent Hill, was too close to a sensitive military facility. (A revised deal without that site was eventually completed.) "When you are dealing with Chinese corporations, you are dealing with entities that are closely connected to the strategic interests of the [Chinese] government," Ludlam says. The Chinese "are not afraid of using their economic clout for political purposes."
Chinese money has already had a dramatic impact on Australian mining. New customers and investors from China have opened opportunities for entrepreneurs and small firms to thrive and challenge the nation's biggest mining corporations. The most prominent of these newcomers is Andrew Forrest, 49, chief executive of Fortescue. Eight years ago, Fortescue was an unlikely start-up attempting to crash into an industry controlled by Rio Tinto and BHP Billiton. Today, it is Australia's third largest iron-ore company, with revenue estimated at $5.5 billion this fiscal year. Forrest, who announced June 1 that he'll leave the CEO post to become chairman, has a stake in the firm worth $6.8 billion.
Forrest can thank China. Almost all of Fortescue's ore heads for China, while Chinese money has been a source of financing. Hunan Valin Iron & Steel purchased $360 million (at the historical exchange rate) of new shares in Forrest's firm in 2009. To meet unending Chinese demand, the company's board approved $8.4 billion of investments in November with the aim of quadrupling Fortescue's current output by 2013. "Because of the growth, mainly in China, we have the wind in our sails and we can expand at an unprecedented rate," says Forrest, as a massive machine scoops precious iron ore onto a conveyor belt at his feet.
Yet even Forrest harbors concerns about his company's relationship with China. He is striving to diversify his customer base to reduce his dependence on China, but most of all, he wants to protect the independence of his management from excessive Chinese influence. "China has a control mentality that I don't think serves them well in the long run," Forrest says. In 2004, three Chinese firms that had agreed to build Fortescue's railway and other facilities demanded a majority stake in the fledgling firm as part of the deal. Forrest refused, forcing him to find funding elsewhere. (Since then, Forrest says he has "forged good relationships with Chinese industry and government on the basis of deep mutual trust.")
Perth-based Mount Gibson Iron has also discovered that China brings challenges as well as benefits. Since late 2008, Gibson has been trying to collect money from Chinese steelmaker Rizhao Steel, which refused to pay for iron-ore shipments it was contractually bound to accept. Rizhao has even ignored a settlement awarded to Gibson in arbitration. Alan Rule, Gibson's chief financial officer, believes there are certain Chinese companies that don't have the same attitude toward international business as those in the West. "The minute [a contract] is not working well for them, they walk away," he says. (Rizhao didn't return repeated phone calls and e-mails seeking comment.)
The bad feelings run both ways. Beijing is just as wary of becoming too dependent on Australia as Australia is of China. In iron ore, China has been at the mercy of a handful of mining firms Rio and BHP and Brazil's Vale which in Chinese eyes leaves their economy vulnerable. So China is striving to tip the balance of power in its favor by securing its own sources. Its companies are fanning out around the globe looking for new deposits. In Western Australia, two iron-ore projects are 100% owned by Chinese firms.
However the countries feel about each other, China's roaring economy can't do without Australia's resources, and Australia's prosperity can't do without China's roaring economy. Australia, simply put, is facing the realities of the great shift of economic influence to the East. "That's where the growth is," Barnett says. Australians will have to find a way of accommodating a more powerful China, whether they like it or not and so will the rest of us.
With reporting by Jessie Jiang / Beijing
This article originally appeared in the June 13, 2011, issue of TIME Asia.