China's money changes the landscape in Australia

This story is part of "China's Reach," a project tracking China's influence on its trading partners over three decades and exploring how it is changing business, politics and daily life.

[December 10, 2012]  GUNNEDAH, Australia (AP) -- Tony Clift's family has plowed the rich black soil of Australia's Liverpool Plains for six generations. The thought of selling never crossed his mind -- until a Chinese company came to town.

Shenhua Watermark Coal offered to buy farms at unheard-of prices. The decision wasn't easy, Clift says. His pioneer ancestors settled the land in 1832. But farming is a business nowadays, and selling his 6,500 acres (2,600 hectares) made business sense.

"If someone offers you a whole heap of money, you've got to take it," says the 50-year-old father of two, sitting at the kitchen table of the palatial hilltop home he built with the windfall. A sea of yellow stretches out below, canola fields planted on less fertile land he bought 25 miles (40 kilometers) to the north.

Soaring coal prices fueled by China's economic growth have made mining parts of the Australian landscape far more lucrative than farming it. It's one example of how China's emergence as a global trading power may transform countries in ways never contemplated and not yet fully understood.

The Associated Press analyzed China's trade with other countries as a percentage of their gross domestic product, using an International Monetary Fund database. It found that, on average, trade with China had climbed to 12.4 percent of GDP by 2011. By comparison, the peak reached with the U.S. in the past 30 years was 10 percent in 2001.

In Australia, where trade with China hit 7.7 percent of GDP last year, exports of coal and iron ore have helped Australia fend off recession for 21 years and deliver the largest trade surpluses in 140 years of record-keeping.

China's rapid rise has given Australia its strongest terms of trade since a global wool boom in the 1950s, says economist Peter Robertson at the University of Western Australia. "That boom was fairly short-lived," he wrote in an email response to questions. "This one's length is unknown. It may turn out much bigger depending on China's future growth."

The former British colony's relationship with China is deepening in other ways too:

• More than 29,000 Chinese became permanent residents in the year ending June 30, 2011, for the first time eclipsing the United Kingdom, the traditional source of migrants. While India topped China in the next 12-month period, that appears to have been a blip.

• China accounted for nearly two-thirds of the 10,407 business visas in the most recent year -- investors and entrepreneurs either given residency or put on a likely path to it.

"Here we have China not only being out biggest trading partner, it is now the major source of migrants and the major source of international students studying here," says Peter Drysdale, an emeritus professor of economics at Australian National University.

"The study leads to migration leads to investment, leads to the deepening of the economic relationship and the interaction between the communities," he adds. "The scale of it is ... now starting to cover a space that historically the relationship with the United Kingdom covered."

In eastern Australia, the China boom is reawakening the sleepy town of Gunnedah. Construction workers and surveyors in high-visibility, fluorescent green shirts are a common sight, a constant reminder that the plans to mine are the cause of the economic resurgence.

Not everyone is happy. The prospect of mining has divided the town of 12,000, including members of the extended Clift clan. There are fears that coal dust, endless coal trains and damage to the aquifers could forever alter a pastoral way of life, perhaps even make it untenable.

Shenhua spokeswoman Melanie Layton says the land will return to farming after the 30-year life of the mines.

Gunnedah, whose previous heyday came during the 1950s wool boom, may be undergoing one of its biggest transformations since it was settled in 1856, says Adam Marshall, who stepped down as mayor in September. "We did have a mini coal boom in the early 1980s, but nothing on the scale which we're seeing now."

Coal mining has a long history in Australia, but never before has it encroached on such prime farmland as the Liverpool Plains, a 4,800-square-mile (12,400-square-kilometer) flatland bordered by mountain ridges and dotted with volcanic hills about 275 miles north of Sydney.

Shenhua Watermark, a subsidiary of state-owned China Shenhua Energy, the world's biggest coal mining company, spent 167 million Australian dollars (more than $170 million) to buy 43 farms covering 36,300 acres. Ex-mayor Marshall says sellers told him Shenhua paid several times market value.

George Clift, 83, who refused to sell, is upset that his cousin Tony did.

"You're supposed to hand it down to the next generation, so if you're not going to do that, you shouldn't have been handed the land in the first place," he says. "I'm very, very sad to see how everything's turning out for the next generation; we've seen the best of Australia and I think it's only going to deteriorate from here on."

Tony Clift says he believes the state would have forced him to allow mining anyway -- and probably for less compensation than Shenhua paid for the land. Mining companies can take landowners to court if the two sides can't agree on access to the land.

"Yeah, it causes some problems in the family. That's life," Tony Clift says. "I'd rather take the money and run now than watch my whole block get dug up."

Japan's heady growth powered a boom in the 1980s, but trade with China, which dethroned Japan as Australia's top trading partner in 2009, appears headed even higher.

The 7.7 percent of GDP it reached in 2011 eclipsed Japan's average of 6.4 percent in the 1980s and even its peak of 7.4 percent in 1985. One quarter of Australian exports are now shipped to China.

Mark Beeson, a political scientist at the University of Western Australia, injects a note of caution: Resource booms are often followed by busts.

Commodity prices have already come off highs as global mine production catches up with Chinese demand and the global economy has slowed. Some companies have shelved mine expansion plans.

But the outlook for investment remains strong, the Australian government says, with about AU$500 billion in projects still in the pipeline.

"There're lots of things that could go wrong, of course, but if it carries on, it's going to get more and more important," Beeson says.

In some ways, it already is: Turf wars between farmers and miners have triggered a national debate over agricultural land use, a rarity for such a sparsely populated country. In October the government announced plans to create a national register of foreign-owned farmland amid concern that such record-keeping has been piecemeal in the past.

Not since the 1950s, before the modern, free-trade era, has a country done more trade with Australia as a percent of GDP.

Then, Australian trade policy gave Great Britain preferential treatment and put the needs of the British Empire ahead of national interests. At the peak of a Korean War wool boom, trade with Britain reached as high as 19.5 percent of GDP, according to Australian government statistics.

Though Great Britain and the United States remain far more pervasive influences, China is becoming part of the political and social fabric in Australia, says Chen Jie, a lecturer on international relations at the University of Western Australia. He notes that lawmakers now visit China at the invitation of business interests there, influencing Australian politics.

"It's a new phenomenon. It's challenging some of the old assumptions in Australia," he says.

Including the price of land in Gunnedah.

Paul Smyth almost fell off his harvester and into a crop of sunflowers when a Shenhua representative called him on his cellphone two years ago to offer AU$6 million for his 1,100-acre farm -- quadruple its market value. Smyth had bought the farm 12 years earlier for around AU$700,000.

"You'll have to run that past me again; I'm in a very noisy machine," he recalls saying. "I heard him first up, but I just couldn't believe my ears."

He adds: "If I lived two or three lifetimes there, I would never see a farmer come along and want to buy it at that price."

Once word got around that he had sold, others who had once greeted him with a friendly "G'day" stopped acknowledging him.

"If I was in their shoes, I'd be exactly the same way, I guess," says Smyth, who has retired at 57 and moved to a 3-acre property near the coast.

Those who remain are in limbo.

Shenhua has completed exploratory drilling after paying New South Wales state AU$300 million for exploration rights, but it won't be able to mine unless it wins state environmental approval for what would be three open-cut pits.

With the future uncertain, farmers don't want to invest in improving their farms, and no one wants to buy them. The affected include those who chose not to sell and others who were never given the choice, because they live on the periphery of the actual coal mining zone.

"I've got 1,000 hectares of land that's irrigated from underneath," says Andrew Pursehouse, whose farm lies outside the zone but under ridges that Shenhua plans to excavate. "If something happens to that water resource, my land is going to be worth only a third of what it is now."

Layton, the Shenhua spokeswoman, says the company may buy more farms in the years ahead if they are affected by dust and noise. The company plans to mine the ridges and leave the soil untouched and plant trees for those it destroys.

Smyth misses the Liverpool Plains, but he doesn't believe that farming and mining can coexist.

"I think that's just a pie in the sky pretty picture that they paint," he says. "I think it should be left alone. I feel guilty in lots of ways because I was one of the ones that weakened and got out of there."

[Associated Press; By ROD McGUIRK]

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