China threatened to derail Rio Tinto's joint venture with BHP Billiton yesterday, saying the move had "an obvious colour of monopoly". This comes just weeks after Rio walked away from a $19bn (£12bn) deal with state-owned group Chinalco at the 11th hour.
Chen Yanhai, from China's Ministry of Industry and Information Technology, said the agreement could harm the domestic steel industry in a country that is the world's biggest iron ore importer. "The deal should be subject to Chinese anti-monopoly law," he said.
Rio was quick to point out that the joint venture was designed to share production and not marketing, saying it would not affect the price of iron ore.
A spokeswoman for the group said: "We will be engaging and co-operating with regulators in China, Japan, South Korea and Taiwan, as with other regulators around the world. We will do whatever is legally required, including making any necessary filings."
Rio had signed a deal back in February, which would have seen Chinalco take an 18 per cent stake in the group. It unravelled after shareholders lobbied against the move and the regulators warned the deal could face close scrutiny. Rio walked away from the deal at the beginning of June.
The group's management, led by Tom Albanese, moved quickly to secure additional financing to pay down debt. It decided to raise $20bn through a rights issue and the joint venture with BHP.
At the time, a professor of Chinese studies at the University of Nottingham warned that Rio would face a backlash from the Chinese after the agreement with Chinalco collapsed. First signs of that backlash emerged yesterday. Chinalco's response at the time was restrained; the group said little more than it was "very disappointed".
Professor Shujie Yao said it would be a "painful blow for Chinese esteem: Rio Tinto has been courting two lovers at the same time – one openly, and one under the table".
Rio and BHP said the production joint venture would comprise both companies' iron ore assets in Western Australia. They said the synergies should save more than $10bn, however the venture has strengthened concerns that the group has damaged relations with China, its most important client.
Australia's Trade Minister, Simon Crean, waded into the row, saying there were no monopoly concerns over the venture: "They will still operate as separate marketing arms. They will therefore be competitors and so there won't be any lessening of competition."
He said the collapse of Chinalco's offer would be an "eye opener" for the Chinese and showed the power that shareholders wield: "It's going to be an important learning curve for China."
Rio's shares went ex-rights yesterday after its decision to tap investors for capital, which sent them spiralling 23 per cent lower. This comes at a bad time for Rio as it is in late-stage negotiations to agree the price of its iron ore exports. China is holding out for a 40 per cent price cut, citing the financial crisis.