Rio hailed Chinalco -- Beijing's wholly-owned aluminium manufacturer -- as a white knight when it offered 19.5 billion US dollars for an increased stake in the debt-laden miner last February, while the global slump was at its worst.

Yet as soon as commodities markets picked up, Rio dumped Chinalco and cut a deal with BHP to create an iron ore joint venture in Western Australia's Pilbara region worth an estimated 140 billion dollars (113 billion US).

The deal, announced last Friday, will see Rio receive 5.8 billion dollars from BHP for the Pilbara joint venture and separately raise 15.2 billion US dollars through a rights issue.

Bell Potter Securities client adviser Chris Kimber said China would be seething at missing out on a deal it viewed as an important part of its goal to guarantee long-term resource supplies.

"They're going to find this very frustrating because the reason they bid for Rio in the first place was because they were worried about their supply," he said.

"This is going to put them back in exactly the same position they were in before."

China also faced a bruising campaign against its Rio bid from Australian rights activists and some politicians that used evocative images such as the Tiananmen crackdown to oppose selling assets to a "brutal military regime".

Also, reports say Beijing may see another deal go sour if miner OZ Minerals accepts a last-minute recapitalisation proposal rather than proceed with a plan to sell most of its assets to China's Minmetals.

Little wonder that West Australian Premier Colin Barnett said China felt "unwelcome and unloved" in Australia at the moment.

Barnett, whose massive state includes the Pilbara and other major resource assets, said he would visit China next month in a bid to reassure its leaders that their investment remained welcome in Australia.

"We have got a very, very messy situation on our hands with China right now," he told Perth's Sunday Times newspaper. "I'm going to China next month and I expect it to be a very difficult visit now."

"China was basically a white knight to try to help Rio Tinto, now they have been rejected... I would imagine China right now is feeling slighted about their relationship with Australia."

Australia China Business Council spokesman Duncan Calder said officials in Beijing would be closely examining how their counterparts in Canberra had acted.

Australian officials deferred a decision on Chinalco's bid for three months last March, a delay Calder said proved crucial because it coincided with recovering commodities markets.

"Beijing may have some disincentive views and some disappointment with the Australian government over delays in the (investment review) process, which may be seen to have allowed this deal to have collapsed," he told public radio.

The Australian newspaper has reported that government officials urged Rio to consider alternatives to Chinalco's offer, which was looming as a potential political headache.

However, Prime Minister Kevin Rudd said Australia remained a country that welcomed all foreign investment, Chinese included.

"Our policy on foreign investment in Australia is non-discriminatory, our policy on foreign investment in Australia is open and welcome," he said.

"But consistent with all previous Australian governments, we will make judgments in the national interest.

"What's occurred most recently is entirely a commercial matter between Rio on the one hand and Chinalco on the other -- that's the truth of it."

earlier related report
Australia reassures China over Rio decision
Australia's government on Saturday raced to reassure China that miner Rio Tinto's decision to walk away from a 19.5-billion-US-dollar investment by Beijing was not a political move.

Rio Tinto announced Friday it was pulling out of the deal that had sparked political and shareholder opposition and would instead raise capital from existing shareholders and forge a joint venture with arch rival BHP Billiton.

"It's a commercial decision that has been taken by the companies," Australian Treasurer Wayne Swan told state radio on Saturday, adding that the move would not harm Chinese-Australian business ties.

"This has been taken completely independently from the government.

"Chinese investment is welcome in this country, I have made that clear with the Chinese, as has the prime minister," he added after Rio's decision to scupper its agreement with Chinese state-owned aluminium miner Chinalco.

Rio Tinto's announcement saved the government from having to make a politically sensitive decision on whether to grant regulatory approval to the deal, a decision that would have had to be made within the next week.

The landmark deal between Chinalco and the debt-laden Anglo-Australian firm would have marked the largest Chinese investment abroad and the largest foreign investment in Australia.

Prime Minister Kevin Rudd held a hastily arranged meeting with Chinalco chairman Xiong Weiping late Friday night during which he also stressed that Rio Tinto's decision was its own.

"The prime minister explained that Australia welcomed foreign investment," a spokesman for Rudd was quoted as telling The Sydney Morning Herald.

Asked whether the collapse of the Chinalco investment would anger the Chinese, Rudd stressed that the decision was taken by Rio, not his government.

"And I think it is very important that our friends in China recognise that fact," he said.

Xiong had been in Australia in a bid to seal a modified deal with Rio after it and Chinalco earlier agreed to change some of the terms as the economic landscape shifted.

Rio shareholders and opposition politicians had spoken out against the Chinalco deal saying it risked allowing China -- Australia's main resources customer -- to control the pricing of the minerals it buys.

Rio opted instead to walk away from the deal and form an iron ore joint venture in Australia's mineral-rich Pilbara region with rival BHP and to raise capital through a 15.2-billion-US-dollar rights issue.

Xiong Friday issued a statement expressing frustration with Rio's decision and warned that Chinalco, which remains Rio's largest shareholder, would keep a close eye on the rights issue and BHP joint venture.

"We are very disappointed at this outcome," Xiong said. "We had maintained an extremely flexible and constructive attitude in our consultations with Rio Tinto."

The head of Australia's China Business Council, which promotes trade and business ties between the two countries, said Beijing may hold Canberra responsible for Rio Tinto's decision to back out of the Chinalco deal.

"Beijing may have some disincentive views and some disappointment with the Australian government over the delays in the FIRB (Foreign Investment Review Board) approval process, which may be seen to have allowed this deal to have collapsed," he told state radio.

Share This Article With Planet Earth

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Related Links
Global Trade News

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News