In Australia, China’s Appetite Shifts From Rocks to Real Estate
SEPT. 24, 2016
PORT HEDLAND, Australia — A lanky, dark-haired surfer, Lee Meadowcroft modeled on the runways of London, Milan and Singapore, then followed his dream of going home to Australia to sell herbal medicines. His store failed — he had chosen the wrong street, he says — and he lost almost all his savings. By then, the fashion world had found fresher faces.
So like tens of thousands of other Australians, Mr. Meadowcroft went to the mines.
It was late 2004. He plowed his last $4,000 into a two-week course on how to operate a crane. He found companies so desperate for workers that they would send chauffeured cars to pick up prospective welders, electricians and crane operators and deliver them to the nearest airport for their flights to mining country, here on Australia’s remote northwestern coast.
China back then was growing at a breathtaking pace and needed all the Australian rocks it could get. Mine workers like Mr. Meadowcroft kept a punishing schedule: 13 consecutive days of 12-hour shifts, a day off, then another 13 consecutive days of 12-hour shifts. Mining fueled Australia’s surging exports to China, which at their peak reached nearly $100 billion a year — a figure representing $4,300 for every man, woman and child in the country.
Resource-rich places around the world prospered thanks to China, and Mr. Meadowcroft and his fellow Port Hedland equipment jockeys were no exception. By 2011 he was earning $250,000 a year. He watched idle miners sketch circles in the dust and place cockroaches inside, at times betting more than $100 on which one crawled out first. One welder bought a Ferrari 308 sports car, quickly tired of it and sold raffle tickets for $1,000 apiece to get rid of it.
“Everyone just went crazy,” Mr. Meadowcroft said.
The bust came just as hard and just as fast. China’s economic slowdown left too many mines to feed too many dormant Chinese steel mills. Construction of new mines stopped. Port Hedland’s economy slumped. Mr. Meadowcroft lost his job, then lost a second job. Like thousands of others, he went back home.
Mr. Meadowcroft’s tale could serve as yet another boom-and-bust cautionary tale of the limits of China’s rise. From Russia to Brazil, and Nigeria to Venezuela, resource-rich countries that boomed during China’s surge found their economies shaken when Chinese demand slowed.
Except something unexpected has happened to Australia: It has withstood the global rout. Most mines — lower-cost compared with mines elsewhere — have stayed open. But Australia has also kept thriving, against all expectations, with a different kind of money flowing in from China.
Attracted by clean air, a strong education system and worries about China’s future, more Chinese are spending their money in Australia. Thousands of Chinese families have sent their children to study at costly Australian universities, and Australian food exports to China have boomed. Chinese investment in Australian real estate has increased at least tenfold since 2010; Chinese investors have purchased up to half the new apartments in downtown Melbourne and Sydney.
That has led to some soul-searching about the role of Chinese money in the country’s political and economic life. Businesses linked to China have become sizable donors to Australian political parties, and a company said to have links to the Chinese military obtained a 99-year lease last year for a port next to a base that often houses United States Marines.
But for people like Mr. Meadowcroft and others in Western Australia who were cut loose by the mining slump, Chinese money is a blessing. He now lives in the Western Australia capital city of Perth and works as an apprentice plumber in new housing developments aimed at Chinese buyers. He earns just $21,000 a year, but that could double or triple when he finishes his apprenticeship.
The Color of Prosperity
In Port Hedland, the color of money is pinkish red.
At the docks, the salmon-hued dust coats everything, from the yellow railings atop the cranes to the rims of the fast-moving conveyor belts that hurtle rocks toward the bellies of giant cargo vessels. When the mining boom started 50 years ago, it covered the streets, too.
“It made all your clothes go pink,” said Julie Arif, a city council member who was still a girl when workers began digging mines in the nearby Pilbara desert and hills. “Pilbara pink, we used to call it.”
Back then, local leaders did not mind. “We’ll worry about our dust when it clogs the cash registers,” said the city’s mayor in the early 1970s, according to Ms. Arif, who also runs the town’s small history museum.
The pink dust comes from iron ore. And nobody sends more iron ore abroad than the state of Western Australia.
Iron ore transformed Port Hedland. Named “Marapikurrinya” by the local Aboriginal people, it subsisted for years on wool exports and a few pearls gathered from oysters at low tide. Until the mining boom, its claim to fame was a late-1940s three-year strike by nearby ranch workers that became a pivotal moment in the assertion of Aboriginal rights in Australia.
The iron ore deposits were far from Australia’s steel industry on the country’s southern coast. But the Australian government began allowing large-scale iron ore exports in the 1960s, opening up the region to buyers from Japan and Europe.
For entertainment, there were the “skimpies” — stripper shows by young women who barely complied with state regulations against full nudity at the start of each evening, and were even less likely to comply as the hour grew late.
The ore is mined several hours’ drive into the desert from Port Hedland. Workers use explosives to shatter the rock at open-cut mines, then scoop it up with huge bulldozers. The ore is crushed and sorted by machines bigger than a house, then hauled to Port Hedland either by train or by enormous trucks — so-called road trains — pulling three or sometimes four trailers.
During a crimson Indian Ocean sunset at Port Hedland’s Utah Point berth recently, a conveyor belt dumped iron ore into one of the seven large holds of a Chinese-owned freighter held in place by mechanical suction cups the size of minivans. A red gravel torrent rocketed downward at two tons a second, in a low, dull roar. Each hold was big enough for a capacious American home, with room to spare.
The crane lurched to one side, stopped disgorging iron ore, rumbled sideways to a position over a different hold, near the middle of the vessel, and resumed pouring.
Iron ore sometimes means dangerous work. Mr. Meadowcroft once saw a taut, inch-thick steel cable snap and sweep a man into a pile of steel pipes. Another time, he saw a 50-pound steel cable block fall on a worker, shearing off part of his face and shoulder and hurling him to the floor.
“It bounced him off the ground like a basketball,” Mr. Meadowcroft said. “There was a lot of blood.”
But life was mostly quiet — and inexpensive. The town had eight amateur baseball teams, and many of the workers played after their shifts. Housing was affordable. Sharon Ramirez, 40, remembers that her parents had a chance in the late 1980s to buy the bungalow they were renting for $20,000, but decided not to.
“We didn’t jump at it,” she said, “because it was a lot of money in those days.”
China Shock Wave
Everyone in Port Hedland has a story about a moment when the boom struck them.
For Mrs. Ramirez, it was when that rental home sold to an out-of-town investor for $1 million. For Dave McGowan, it was when four of the eight baseball teams disbanded because workers were putting in 12-hour shifts instead of eight-hour shifts. For Daniel Connors, it was when a local garage, short on workers, told him that he had to make a reservation four months in advance to get the oil in his car changed.
China was changing — and it changed Port Hedland.
Three decades of economic reform in China, plus lower trade barriers after the country joined the World Trade Organization in 2001, lit a fire under the economy there. Skyscrapers blossomed by the hundreds in obscure cities. The nation has built 77,000 miles of expressway, almost all of it since 1997 and two-thirds more mileage than the Interstate highway system in the United States, on which China’s network is modeled.
All that construction meant China produced and consumed last year almost as much steel as the rest of the world combined.
To supply its steel mills, China needed Australia’s iron ore. Iron ore prices surged tenfold. Big companies like BHP Billiton, Rio Tinto and Fortescue Metals Group rushed to build mines and add port berths as fast as possible.
The boom was on.
Little Port Hedland became one of the biggest ports in the world, handling a greater tonnage of freight each year than the ports of Los Angeles, Hong Kong or Antwerp, Belgium. Skilled welders and electricians earned as much as $350,000 a year, drawing workers from around the country. The town’s population doubled, to a peak of about 30,000, and would have increased a lot more except that a dispute over Aboriginal claims to land on the city’s outskirts blocked construction and resulted in a housing shortage.
Much of the high pay came from overtime, or what became known as “divorce rosters” or “suicide rosters.” Mining companies flew workers into remote camps to work 27 days with a single day off in the middle, then flew them home again. Welders in their “high-viz” — reflective, high-visibility yellow mining shirts — spent months drenched in sweat as they labored outside through long summers in coastal desert heat reaching 110 degrees.
All that overtime pay pushed prices to stratospheric levels. Port Hedland’s bakery, butcher, newsstand, charter fishing operator and scuba-diving shop all closed, unable to cope with soaring rents and locals who would rather work for mining companies than the shops.
Ray Sampson, the owner of a local diner, paid $1,600 a week to rent a small house for his out-of-town cooks and waitresses. With his diner packed daily, he then had to rent a second small house, for $1,800 a week, to house more workers, mostly hitchhikers who drifted through town for a few weeks and were the only people willing to accept jobs as cooks and waiters.
Real estate prices and rents took off. Affluent families from elsewhere in Australia and from mainland China, Malaysia and Singapore heard about the profits from charging four-digit weekly rents and swooped in to invest.
Lorren Murphy, a convenience store owner from Perth, flew up to Port Hedland four years ago and paid almost $2 million for a two-story house. He quickly signed a two-year lease with a tenant willing to pay $4,100 a week — nearly $18,000 a month.
He was envious of others who had even more money to invest, because it seemed like a sure bet. “I’ve got a friend who dropped $6 million here,” Mr. Murphy recalled.
The town finally replaced its prefabricated hospital and added a swimming center, an air-conditioned basketball arena, a new courthouse, a skateboard park and more. Outside Port Hedland, the state government in Perth spent on hospitals, new power lines and water systems and a $1 billion Australian football stadium.
But 4,000 miles away, trouble was brewing. China’s debt-choked developers were starting fewer buildings. Steel use fell 3 percent in 2014 and an additional 5 percent in 2015, even as more steel mills were being built in anticipation of never-ending growth. Manufacturers were becoming more cautious about putting up more factories.
“This is a bigger bust than anyone ever saw.”
Nearly 200 miles south of Port Hedland, the Iron Valley iron ore mine squats in a red desert of drought-stunted eucalyptus trees and maroon cliffs.
Kim Sheppard, the general manager until he moved to a different position last month, climbed the staircase of a three-story yellow apparatus coated with reddish-pink grime that clanged as it crushed and sorted iron ore into small pebbles. The highly automated operation requires only four workers and a supervisor for each work shift, as well as a few mechanics, blasting specialists and managers at an air-conditioned building nearby. At the peak of construction, a couple of hundred workers labored here.
The desert around the site used to be dotted with large camps of workers, building more mines. Now the desert is empty.
“There are always booms and busts,” Mr. Sheppard said. “But this one is different.”
Port Hedland felt the pain quickly. Iron ore prices plummeted. Worried that workers might get angry and damage multimillion-dollar equipment, mining companies laid off tens of thousands of construction workers.
“One day they just called in the trucks for lunch, and they said, ‘Bring in your backpacks,’ which was unheard-of,” said Shannon Baker, a former power shovel operator at a mine near Iron Valley. “They got us together in the crew room and they said, ‘The planes are at the airport to take you out.’”
Rents and housing prices have fallen by three-quarters, said Jim Henneberry, the owner of one of Port Hedland’s biggest real estate brokerage firms. A fifth of the town’s homes sit empty.
Bill Dziombak spent $1 million apiece to build luxury townhouses here, only to see rents and prices collapse. “I never expected this to go bang the way it did, in just 12 months,” he said. “It was like falling off the edge of a cliff.”
Customers at Camilo Blanco’s car repair garage no longer need reservations. “I’ve had customers coming in and saying, ‘This is the last time I’ll see you, because I have to leave town,’” said Mr. Blanco, who is also Port Hedland’s acting mayor.
Departing miners have sold so many used power boats, muscle cars and dune buggies that the local market is glutted. Mr. Blanco was recently offered an options-laden $14,000 Rhino dune buggy for half that price, and he still bargained: “I said, ‘I’ll pay you five grand for it,’ and it’s sitting in my yard now.”
Local leaders who spent heavily during the boom times are now under pressure to cut real estate taxes, which in many cases are still based on eye-wateringly high property values. Simply operating Port Hedland’s new basketball arena costs $2 million a year, or 3 percent of the city’s annual budget.
“It’s like surfing,” said Colin Barnett, the premier of Western Australia state, in an interview in Perth. “When the wave comes, you’ve got to catch it and you’ve got to ride it hard and get everything out of it. When the wave’s not there, you’ve got to paddle hard, and we’re paddling hard at the moment.”
Chinese Investment 2.0
Even in the middle of the worst of the mining slump, Australia has found a potential source of strength, again from China: people like Ike Wang.
Mr. Wang, 24, graduated last year from Murdoch University in Perth, where he was one of hundreds of students from mainland China. He is looking for a full-time job in marketing and, despite Western Australia’s slowdown, he has an advantage: His family back in Tianjin, China, paid $370,000 at the start of this year to buy him a two-bedroom apartment.
The 13th-floor apartment, with white walls and a white carpet, is nearly empty of furniture. But it has a good view over the city and what seems like solid workmanship. (Coincidentally, Mr. Meadowcroft did some of the plumbing for the complex.)
The apartment gives Mr. Wang a free place to live while he decides his next move. “I like that it’s a new apartment,” he said. “Everything is new and clean.”
Real estate developers say that they see a lot of Chinese families eager to buy homes in Australia. “I think the investment return is the No. 2 concern — it’s about getting money somewhere that is stable and safe, it’s about getting the money out” of China, said Paul Blackburne, a developer of numerous Perth apartment complexes.
As in the United States, low interest rates have also fanned demand for houses and apartments from local buyers. Australian government data shows that it approved $18.2 billion in Chinese real estate investments in the year that ended June 30, 2015, twice as much as the year before, and more than triple the total last year for the United States, which was the second-largest overseas investor. And developers say that a lot more Chinese money is quietly flowing into Australian real estate without government approvals.
Port Hedland and the entire state of Western Australia face budget problems. The state has begun moving to sell a 50-year lease on the Utah Point berth, possibly to a Chinese buyer, despite objections from smaller companies like Mineral Resources, which owns the low-cost Iron Valley mine and cannot use the other docks because they are controlled by giant rivals like BHP. (Mr. Meadowcroft coincidentally helped build the Utah Point berth as well.)
But unemployment has barely risen in Port Hedland or in Western Australia over all. Some, like Mr. Meadowcroft, found jobs in Perth. Many moved east to Sydney and Melbourne to work in the construction sector there.
One worry in Australia is whether the country is now on an economic trajectory similar to that of the United States a decade earlier. Australia’s central bank warned in April that if Chinese demand faltered, Australia’s real estate market could suffer and the country’s banking system, heavily exposed to home mortgages, could be harmed.
But for now, Chinese money is still flowing. Many miners who squandered their earnings during the iron ore boom are now trying to catch up in construction jobs. But many others socked away their money from the boom and have used those savings to buy homes or start small businesses.
“They were micro-entrepreneurs,” said Tom Barratt, a University of Western Australia doctoral student who is doing his thesis on labor markets in the Pilbara hills.
Mr. Meadowcroft is among those savers. He bought a house and soon paid off most of the mortgage. He also married his longtime girlfriend after years of commuting to far-flung mines and ports, and is now raising two children as he learns to be a plumber.
Although his savings account is much smaller now, he has no regrets about the boom years. “That was 12 years of really hard work,” he said, “to achieve what a lot of people don’t achieve in their whole lives.”