Rio chairman chides 'bad and lazy habits'

Rio Tinto chairman Jan du Plessis was optimistic about the prospects for China changing economic gears, and relying on consumer spending rather than capital spending, as he warned of "bad and lazy habits" that have emerged in Australia amid the stagnation in Europe.

"The strength of the resources boom has masked the weakness of a slowdown in productivity improvements," he told a business lunch on Friday. "Australia now needs to rebuild competitiveness and productivity."

Mr du Plessis called for co-operation across all levels of government to achieve the necessary reform. "I am afraid there are no shortcuts," he said, while praising the new federal government.

"I must admit, I like what I see," he said after visiting Canberra this week for meetings.

The Rio chairman said Australia had moved from being the miner's lowest-cost operations to the highest, while conceding much of this shift was due to movements in the dollar.

The "great divergence" which saw China left behind as Europe developed during the industrial revolution "has become the great convergence, with the East rapidly regaining ground", he said.

During the 1990s, China's industrialisation contributed to the long period of strong economic growth in Europe and North America, he said, without fuelling inflation.

"Increasingly, the wellbeing of the global economy depends on Asia in general and on China in particular," he said. "The good news is that China's economy continues to grow and between July and September, GDP rose by 7.8 per cent [and] signs of a consumption-led economy are beginning to emerge.

"Beijing is steering its economy through a major transformation - towards growth eventually being led more by domestic consumption than exports and investment.

"And, although it will be unpredictable, the reform process in China will gain momentum. We will learn more about the implications of intended reform [from the recent plenum] over the next few weeks but my long-term view of the Chinese economy remains positive and we expect to see continued, robust growth in demand for commodities."

He said: "I have no doubt China will become the world's biggest economy; I don't know when."

Mr du Plessis said Europe had seen little improvement in its "fundamental economic imbalances [making] it difficult to reach sustainable solutions over the long term".

He said low rates, low growth and low inflation had left that continent with "considerable challenges".