BRAVE NEW WORLD | Dangers as the Vale-China row escalates

From Tradewinds, 2012.05.11

Harsh lessons need to be learned as China’s anger escalated this week over the fleet of 400,000-dwt “Valemax” vessels being built and now operated by the Brazilian miner.

In an intriguing twist to an already extended saga, which could be a parable for our times, Cosco has rounded on Vale for allegedly boycotting its dry-bulk fleet. The blacklisting is in apparent retaliation for what Brazil believes is Cosco’s – and China’s – discrimination against its new fleet of super-bulkers.

It pits one of the world’s biggest commodities producers against a leading shipowner and operator, which just happens to be a state-owned arm of the world’s largest importer and second-biggest economy. Put so bluntly, it is hard to overstate its potential significance.

Cosco president Ma Zehua has threatened to complain to China’s ministry of commerce over what he believes is Vale’s retaliation for government lobbying he says has not happened.

Vale has yet to confirm the boycott but has apparently shunned chartering Cosco ships for around two months, even at times taking higher-priced alternatives.

Vale has already seen some of the 10 Valemax vessels delivered refused entry to Chinese ports on thinly argued “safety” grounds, although some independent experts acknowledge the risks of such large ships in China’s shallow coastal waters.

Vale has set up a transhipment point in the Philippines in an expensive solution that clearly undermines the potential savings of building and operating such giants in the first place.

In response, Cosco’s Ma continues to peddle the fear of “a growing number of [future] safety problems” without any hint of the specific issues, let alone any solutions — which is rather ironic as 20 of the current proposed fleet of 35 Valemaxes are being built at Chinese yards.

Attitudes on both sides appear by turns authoritarian, naive and now increasingly embittered. It is not a pleasant picture with worrying implications for all.

The central message the outside world needs to understand is that commerce and state remain firmly intertwined in modern China, despite apparent modernisation. Until those links are fully broken, it is wise to presume that the two remain cyphers for the other.

Further, no one should underestimate China’s desire to take complete control of its supply chain. If that means breaking the power and influence of any supplier — either of commodities or ships — then that’s what it will do.

It is another chapter in the story of China remodelling the world to its own needs and expectations. China believes the choice is clear: you are either with it or against it.

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