China’s BHP Rejection Is More Than a Price Dispute (or a RMB Internationalization Ambition)
A Story Behind the Curtain
In the days leading up to China’s National Day, Bloomberg suddenly reported that China Mineral Resources Group Co., Ltd. (中国矿产资源集团有限公司) had instructed domestic buyers to suspend purchases of any BHP seaborne shipments priced in U.S. dollars. The report was later confirmed by the Australian side. Chinese official media did not follow up on this unexpected development, but after the nationalist platform Guancha (观察者网) covered the incident on October 2, some members of the public began to pay attention and engage in discussions. In the following sections, I will examine several prevailing interpretations circulating in China regarding this event, analyze the reasoning behind each of them, and finally offer my own perspective.
Price Dispute
In recent days, the most common explanation for the incident has been a price dispute. In 2022, China established China Mineral Resources Group aiming to centralize the procurement of imported iron ore. Normally, Chinese steel producers had individually negotiated prices with the three major iron ore suppliers—BHP, Rio Tinto, and Vale—either through long-term contracts or by using futures prices plus premiums. After the establishment of this new entity, it began to play a coordinating role in the import process by consolidating demand from major steelmakers and engaging in joint price negotiations with overseas mining companies.
Beijing has long believed that when steel producers acted independently in iron ore negotiations, they were vulnerable to being divided and priced against each other by foreign suppliers, thereby weakening China’s overall bargaining power. The creation of the China Mineral will change this fragmented and unfavorable arrangement. Although individual companies still sign their own import contracts, the group now integrates purchasing data and market information covering roughly 1.2 billion tons of annual imports. As a result, China has gradually gained greater leverage in price negotiations with these mining companies.
However, looking at the data from September 30 alone, the benchmark prices referenced by overseas mining companies—Platts Index and the Singapore Exchange TSI—were both around $103–105 per ton. By contrast, China’s own target price, as indicated by the Beijing Iron Ore Index, was around $100 per ton. Given China’s massive purchasing volume, it is highly likely that Beijing hoped to secure an additional discount on top of the $100 benchmark. Many observers therefore believe that this price gap explains the move: the China Mineral’s action is seen as an attempt to pressure BHP into lowering its prices further, thereby creating more profit margin for Chinese steel producers.
This explanation is partly correct, and several mainstream outlets citing unverified sources have repeatedly emphasized it as the main explanation. However, it overlooks an important fact: the China Mineral’s primary role is to consolidate import information and coordinate price negotiations on behalf of steelmakers—it does not replace the companies themselves in signing contracts. As such, it cannot unilaterally decide to reject iron ore shipments from Australia unless such a move is backed by higher authorities.
Furthermore, the gap between the Beijing Iron Ore Index’s $100 per ton and the $104–105 per ton indicated by the Platts Index and Singapore TSI is relatively small and falls within a normal fluctuation range. Beijing has little reason to disrupt such a massive supply chain over a price difference of just around four dollars per ton.
Promoting RMB Settlement to Offset Losses from Dollar Payments
Another widely circulated explanation in China is that Beijing’s move aims to promote the use of the Renminbi in commodity trade as a proactive measure to counter U.S. dollar dominance. In 2024, the Renminbi depreciated by 2.8 percent against the dollar, which meant that China’s steel industry ended up paying over 10 billion yuan more for iron ore imports. Most steel companies still rely on bank financing to pay for shipments priced in U.S. dollars, and the U.S. Federal Reserve’s high interest rates have further increased these financing costs, squeezing profit margins across the industry.
Moreover, transactions conducted through the SWIFT system expose Chinese companies to potential sanctions risk. Given that many in China believe a military confrontation with the United States over the Taiwan Strait is very possible in the future, insulating a critical sector like steel from such vulnerabilities is seen as a key strategic consideration.
I must acknowledge that Beijing does indeed seek to advance the internationalization of the Renminbi and, for security reasons, is committed to promoting RMB settlement in global trade as a way to challenge what it views as “U.S. financial hegemony”. It is also true that the heavy reliance on U.S. dollar settlement for iron ore imports makes Beijing feel vulnerable and forced to accept global rules at the expense of its own strategic interests. However, claiming that the recent move against BHP was intended to promote RMB settlement veers too far into a conspiracy theory.
There are several reasons for this. First, from the development of the Belt and Road RMB clearing network to the establishment of the Cross-Border Interbank Payment System (跨境人民币支付系统, CIPS) and the multilateral mBridge central bank digital currency project, Beijing’s approach to RMB internationalization has been gradual rather than abrupt. Its trade arrangements with Gulf countries (in energy) and Brazil (in soybeans) also demonstrate that RMB settlement remains limited in scale and scope, functioning only as a pilot program. Without new central policy directives, an expanded currency swap agreement with Australia, or a mature offshore RMB liquidity pool and cross-bank clearing network, it would be unrealistic to expect a sudden shift toward RMB settlement for all BHP iron ore.
Second, as an emerging power that sees itself as a challenger to the existing international order, Beijing may have problematic motives, but its actions are no doubt cautious and strategic. A sudden, unilateral decision to reject iron ore shipments to force RMB internationalization would only undermine confidence in Beijing’s policy stability, raising the risk premium associated with the Renminbi and portraying it as an unstable currency. This is clearly not the outcome Beijing seeks for its internationalization agenda.
China’s Confidence: Iron Ore Alternatives Beyond Australia
Many observers have also pointed out that China now has multiple alternatives to Australian iron ore, which gives Beijing the confidence to abruptly reject BHP shipments. Strictly speaking, this factor is not directly related to the sudden nature of the decision (after all, having alternative suppliers would typically lead to a gradual reduction in orders, not a last-minute cancellation after the cargo is already at sea). Still, it’s worth briefly outlining the major alternative sources of supply currently available to China.
First, there is the much-publicized Simandou iron ore project in Guinea, which is expected to begin production next year. The ore grade at Simandou is even higher than that of Australian mines, and Chinese investors hold roughly a 40 percent stake, making them the largest shareholder. Simandou represents a textbook example of Beijing’s Belt and Road approach of exchanging infrastructure investment for resource access.
Second, China is expanding iron ore imports from Brazil, a country that has developed increasingly close ties with Beijing. In May of this year, the two countries signed a bilateral currency swap agreement, enabling part of the iron ore trade to be settled in local currencies.
Third, technological advances have improved the efficiency of utilizing low-grade domestic ore and scrap steel recycling. According to the “Work Plan for Stabilizing Growth in the Steel Industry (2025–2026) (钢铁行业稳增长工作方案（2025-2026年）)” released earlier this year, China aims to raise its iron ore self-sufficiency rate to 25 percent and increase the share of electric arc furnaces—which process scrap steel—to 15 percent.
Beyond these substitution efforts, domestic demand for iron ore is also shrinking. In line with policies to curb overcapacity (“反内卷”), China has been tightening control over steel production, while the prolonged slump in the real estate market has further dampened demand for steel. Even without the alternative sources mentioned above, China’s overall need for iron ore may already be declining.
Hidden Cause: Power Struggle?
While many outside observers were speculating about Beijing’s motives, I reached out through personal contacts to a management-level employee from China Minmetals Group (中国五矿集团) based in Australia to ask for his perspective on the incident. His response was revealing and offers a glimpse into how the Chinese mining sector itself views the situation.
First, he explained that the positioning of China Mineral Resources Group is extremely ambiguous. It is effectively structured as an entity representing all major steel companies, while at the same time assuming a role similar to Minmetals’ traditional trading function. Within China’s state-owned enterprise system, such overlapping and unclear roles often signal competition over management and, in this case, bargaining power.
Second, he said the China Mineral had been aggressively demanding an exclusive long-term contract from BHP. However, companies like Minmetals and other large steel enterprises have built stable trading relationships with BHP over many years. From their perspective, the group’s intervention has been disruptive, seen as a spoiler in an otherwise stable supply chain. As a newly established central SOE—just over three years old—its assertive attempt to insert itself into existing commercial relationships appears to have triggered power frictions among China’s steel giants.
Finally, he noted that most steel companies had already finalized their import volumes for the year. In his words, the China Mineral “suddenly jumped out and pulled off this damned stunt (跳出来搞了个他妈的骚操作),” and “no one knows who’s backing them (不知道谁在给它撑腰).” His frustration underscored that this move was not part of any planned institutional arrangement but rather an abrupt administrative intervention. To other SOEs in the sector, the group’s mandate—much like its positioning—remains opaque. But it is clear that some level of authorization from higher up in Beijing was involved.
If this insider’s view reflects a broader sentiment in the steel industry, it suggests that the China Mineral’s rejection of BHP’s shipment was, to a significant degree, the result of a power struggle within China’s state-owned enterprise system rather than purely an external economic or geopolitical decision. As previously noted, the China Mineral’s formal function is to coordinate pricing, not to sign contracts nor even reject cargo. The fact that it was able to instruct the port to reject the shipment implies it received some kind of authorization from a higher-level entity in Beijing.
Other steel companies were not informed of where this authorization came from or what the strategic objective was—they only sensed that their operational turf had been suddenly encroached upon in an unconventional manner. The most plausible explanation is that, as China’s youngest central SOE, the China Mineral urgently needs to establish its authority in the strategically critical iron ore sector, especially when facing long-established steel giants such as Baowu (宝武钢) and Ansteel (鞍钢). And this assertion of authority appears to have been backed by the central government.
Yao Lin (姚林), the group’s party secretary and chairman, previously held top leadership positions at both Ansteel and Chinalco (中铝). It is unlikely that he would be content to lead a major new SOE merely as a coordination platform; his ambition and the central government’s expectations are clearly larger.
Whether this is part of a centrally endorsed effort to consolidate authority or a personal power play by Yao, the group’s actions have undeniably triggered friction among central SOEs in the steel sector. This internal struggle has spilled over into the external arena, becoming a flashpoint in Sino-Australian commodity relations. From Beijing’s perspective, this friction and the resulting standoff may be viewed as a necessary cost—a cost of empowering a new state-backed behemoth that will, in the long run, anchor China’s bargaining power in iron ore pricing and facilitate RMB settlement in bulk commodity trade.