The Irony of Rio

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The fallout from the failed (perfidious) Rio / Chinalco deal continues to come and, as we Twittered here, the irony (pun intended!) is that China’s failure to secure the deal is related to China’s success in stimulating the economy:

– China stimulation a cause of deal frustration RT @caijingonline: Rio Tinto\’s Chief Disappointed… 8:02 AM Jun 19th from TweetDeck

We already reported on official reactions to the failed Rio / Chinalco deal “The Perfidy of Rio”. The story has since taken an interesting turn, with the anti-monopoly law (AML) being raised as a potential block to the joint venture with BHP:

– AML impact? RT @Reuters_Biz: China says Rio-BHP ore JV smacks of monopoly PM Jun 17th from TweetDeck (Below from Reuters)

“The potential deal has an obvious color of monopoly. The joint venture is likely to have a big impact on the Chinese steel industry as China is the world’s biggest iron ore importer,” said Chen Yanhai, an official from the Ministry of Industry and Information Technology (MIIT), according to CCTV.

“The deal should be subject to Chinese anti-monopoly law,” Chen, the head of the raw material department of MIIT, added.

… According to China’s anti-monopoly law, all business combinations must be cleared by the ministry if the joint global revenue of the companies involved exceeds 10 billion yuan ($1.46 billion) or 2 billion yuan in China.

But a review would not be needed unless two or more of the firms each had more than 400 million yuan of revenue in China during the previous accounting year.

In the year ended June 30, BHP Billiton’s revenue in China was $11.7 billion while Rio Tinto’s was $10.8 billion, according to the companies’ websites.

BHP and Rio would be discussing the potential regulatory issues with Chinese officials, BHP spokesman Ruban Yogarajah said.

“We’ll be engaging with them as with other regulators around the world and we’ll do whatever is legally required.”

Chen also said that if the tie-up was found to be monopolistic, China might have to seek new policies and regulations to enable Chinese companies to have a bigger say in iron ore price talks, according to CCTV.

Clearly there is politics and commercial positioning going on here, and there have already been suggestions that China is using the anti-monopoly law in a protectionist manner (see what happened to Coke here).

This particular issue may pass, but the protectionist trend is one to watch with care.

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