China Commentary Slams Rio Tinto's "Perfidy"

A commentary by China's official Xinhua news agency on Wednesday slammed Rio Tinto's  "perfidy" for scrapping a deal with Chinalco, saying the agreement fell apart due to "possible political prejudice".

Rio ripped up its $19.5 billion deal with state-owned Chinese metals conglomerate Chinalco last Friday, opting to pay a penalty of $195 million to form a joint venture with its rival BHP Billiton instead.

The venture will link up their huge iron ore assets, which could throw up anti-trust complaints since Rio and BHP, along with Brazil's Vale, already control about 75 percent of the world's seaborne iron ore trade.

China's huge steel sector, the biggest customer, is deep in talks with Rio and BHP about iron ore prices for this year.

"Chinalco was once called a 'white knight' by a grateful Rio when the Chinese national aluminum manufacturer offered a $19.5 billion investment to the debt-ridden mining concern amid the economic slump," Xinhua said in the English-language piece.

"But Chinalco was quickly dumped when the mining market picked up. The perfidy of Rio , the world's third-largest mining company, seems somewhere between short-sightedness and possible political prejudice," it added.

"There is an old Chinese saying: 'A gentlemen's agreement is beyond the letter.' Honesty is the blood of business behavior."

Xinhua said the break up of the deal smacked of anti-China prejudice from Australia, whose Prime Minister Kevin Rudd is a Mandarin-speaking former diplomat.

"Chinese enterprises recently have been actively investing in Australia -- a normal market behavior. However, some Australian politicians and media have been wantonly shouting the so-called 'China threat' and putting pressure on the government to refrain from cooperating with China.

"This kind of prejudice will not only stall the pace of economic cooperation between China and Australia, but also hurt the interests of the Australian enterprises themselves."

Chinalco's planned investment, which would have doubled its holding in Rio to about 18 percent of the firm, had been hailed as a breakthrough for China, which has consistently punched far below its weight in overseas acquisitions. 

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Xinhua said the loss was Rio's.

"For Chinalco, the one-time failure in international trade will soon fade. Yet for Rio Tinto, it will take years to overcome the lost honesty and tainted image," it added.

Copyright 2009 Reuters. Click for restrictions.