China has moved to block the proposed proposed BHP Billiton bid for Rio Tinto. According to this report, on Mineweb.com, after first having the state-owned Aluminium Corporation of China (Chinalco) team up with US aluminium producer Alcoa to buy a stake in Rio (the Mineweb article says the stake is 12%), thus making a hostile takeover impossible, the Chinese government wants to invoke its newly formulated anti-monopoly law to block the proposed merger altogether.

China’s fears are to do with the control of iron ore supplies and not diamonds. China says the proposed merger would put fully a third of the world’s iron ore supplies into the merged entity’s hands.

How far would the Chinese government go to ensure the merger doesn’t take place? That is the key question. Despite protestations that its stake in Rio is only a strategic investment and it has no plans to take over the mining giant completely, Chinalco could well be used as an instrument to further Chinese strategic concerns.

That means, of course, that a little over a fifth of the world’s diamond supplies too could be in Chinese hands. We could see a rush to set up offices in Shanghai soon!