Sat, June 06, 2009
Business > Industries

Australia reassures China over Rio decision

2009-06-06 09:46:33 GMT2009-06-06 17:46:33 (Beijing Time)

Australian Federal Treasurer Wayne Swan

Australia's government has 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.


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