CITIC Pacific declined requests for interviews with senior managers about the Pilbara mine or answer questions about its feasibility study and background research on the project.
The market outlook isn’t good. Iron-ore prices are expected to continue sliding as China’s economy shows signs of slowing. Australia’s Bureau of Resources and Energy Economics forecasts ore will average about $136 a tonne this year, a drop of about 11 per cent from 2011. Some analysts expect steeper declines, with China on track to record its first annual drop in steel output in more than three decades.
It’s a major shift. Years of seemingly insatiable Chinese demand delivered a bonanza for Australia’s BHP Billiton, the Anglo-Australian Rio Tinto and Vale of Brazil, which together account for almost 70 per cent of world sea-borne iron-ore trade.
Ore, which had traded for less than $13 a tonne in 2000, peaked at almost $200 a tonne last year. In one savage hike in early 2005, the three miners increased prices by 71.5 per cent.
“That really got their attention,” says Shanghai-based Dines, who came under fire from steel makers when he represented BHP in China and now runs hedge fund Caledonia Asia. “From that moment, China really started worrying about securing reliable supplies of raw materials, particularly iron ore, and the cost of those materials.”
That’s when Larry Yung headed into the Outback.
It was the biggest risk he had ever undertaken, and he was doing it without the support of his legendary father. Just five months before CITIC Pacific in March 2006 signed agreements to mine the Pilbara deposit, Rong Yiren died in Beijing, aged 89.
Mr. Rong had become a household name in China after 1949, when he remained in Shanghai and co-operated with Communist efforts to build a socialist economy. As the head of the family’s flour-milling and textile empire, Mr. Rong was then estimated to be one of the 10 richest men in China, according to reports at the time. His only son, Larry Yung (Rong Zhijian in Mandarin) lived his early years at the family mansion on leafy Kanping Road in what had once been the French Concession.
Even under the Communists, Mr. Yung was extravagant. He drove a red open-topped sports car around the city and invited friends and classmates to dine at expensive restaurants, China’s official media reported.
That all changed with the Cultural Revolution, when Red Guards ransacked the clan’s homes, smashing and stealing valuable art and antiques. Mr. Rong was spared the brutality meted out to others with similar backgrounds. But he ended up working as a janitor, according to reports later published in the official media. Mr. Yung was forced to spend six years labouring in Sichuan Province after graduating from Tianjin University with a degree in electrical engineering.
With the end of the upheaval and Deng Xiaoping’s rise to power in the late 1970s, Mr. Rong was rehabilitated. Mr. Deng tasked him with a key role in guiding China’s opening to the global economy.
He set up state-owned China International Trust and Investment Corporation, now known as CITIC Group, as a vehicle to co-ordinate the massive foreign investment needed to jump-start a shattered economy. His rehabilitation was complete when, in 1993, he was appointed to the largely ceremonial but prestigious position of vice-president.
As his father returned to influence, Mr. Yung moved to Hong Kong in 1978 and started an electronics engineering company with two cousins. He joined CITIC in 1986 before leading the takeover of an existing listed company and renaming it CITIC Pacific. The deal created one of the first “red chips,” mainland-controlled companies with shares traded in Hong Kong.
CITIC Pacific gobbled up investments in aviation, property, telecoms, tunnels, bridges, power plants and mainland steel mills. The establishment Swire Group, a pillar of colonial Hong Kong, welcomed him onto the board of its airline subsidiary, Cathay Pacific, when CITIC Pacific became a major shareholder.
As the deals rolled in, the Yung family’s links to the CITIC empire deepened. Two of his children, son Carl Yung Ming-jie and daughter Frances Yung Ming-fong, joined the company in senior positions.Report Typo/Error