Battle shows China's will to block BHP-Rio

The detention this month of four Rio Tinto employees in China, in the midst of bruising iron ore prices negotiations, could be just a sign of things to come as BHP Billiton and Rio seek regulatory clearance for their iron ore joint venture, Chinese lawyers and officials said.

BHP and Rio proposed in June to merge their iron ore operations in Western Australia's Pilbara region. That joint venture needs to be cleared by regulators in Europe and in China, where the case offers Beijing an opportunity to wield its new anti-monopoly law.

"If the government is prepared to use security services in support of its own companies, then we cannot preclude that they will use the laws on their books to block the joint venture," said Michael Komesaroff, a consultant on Chinese industry at Urandaline Investments in Australia, referring to the detention of four Rio employees.

Early this month, Shanghai's state securities bureau detained Rio's top salesman in China, Australian Stern Hu and three Chinese colleagues on allegations of "stealing state secrets." At least one Chinese steel executive has also been detained, for allegedly leaking the China Iron and Steel Association's negotiating position in the annual iron ore talks.

The Chinese steel industry is adamantly opposed to the BHP-Rio joint venture, as are their counterparts in Europe and Japan, because they fear giving more pricing power to the two mining giants.

"We are against price stirring and market monopoly," said Luo Bingsheng, vice chairman of China Steel and Iron Association, which has tried to prove this year that it could wrest a better price from global miners.

BHP and Rio argue that the production joint venture will allow them to mine and transport ore more efficiently.

They propose keeping their marketing arms separate, in an attempt to assuage European regulators' concerns. The likelihood that European regulators would not sign off last year scuttled BHP's attempt to take over all of Rio Tinto.

But in China, the question of monopoly has a personal edge. Rio turned to Chinese state aluminum giant Chinalco after its fight with BHP left it saddled with debt in a falling market; but Chinalco's bid to raise its stake in Rio collapsed last month, as the Australian government delayed approval, and Rio and BHP inked the Pilbara joint venture.

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