China's bid to buy the West: backed by huge foreign-exchange reserves, an investment fund operated by the Beijing government plans to buy Western companies, essentially nationalizing Western industry.(CHINA)(Cover story)

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Rio Tinto is one of the largest, Western-based, multinational companies few people have ever heard of. Despite its relative anonymity, the company is nonetheless one of the most successful mining companies in the world with diverse and extensive holdings worldwide.

The company owns iron, copper, coal, and diamond mines around the globe, including in Canada and the United States. It also operates profitable uranium mines in Namibia and Australia. In November the company acquired major Canadian aluminum producer Alcan for more than $38 billion. Clearly, UK-based Rio Tinto is a company of immense strategic value as an important supplier of raw materials to industry. But, due to a large amount of debt, the company is up for grabs, and it just might wind up owned by the government of China.

Last November, the world's largest mining company, Australia's BHP Billiton Ltd., bid $137 billion for Rio Tinto, an offer the UK company rejected as undervalued. According to press reports, now the government of China may be interested in buying the company. Bloomberg News reported on December 10: "Blackstone Group LP is planning a bid for the mining company that may include China's sovereign wealth fund." Both Blackstone, itself partially owned by China's sovereign wealth fund, and China have denied the reports. But in the shadowy world of mega mergers and acquisitions, such denials are often meaningless. Indeed, Rio Tinto is just the type of Western company the Chinese government has been coveting.

In fact, BHP Billiton's offer for Rio Tinto was a shock to the Chinese, who have been battling Billiton's market dominance in a bid to lock up energy and mineral resources. When the Billiton offer was announced, Fang Xiaodong, a top manager with China's largest steelmaker, the state-owned Baosteel, insisted that the government of Australia block the deal. Fang complained about anti-trust concerns, but the most likely reason for China's concern was that the new, larger firm would lock too many resources away from Beijing's grasp.

Rio Tinto, if it ends up in the hands of the Chinese government, would only be the tip of the iceberg. After years of a profitable trade imbalance with Western nations, principally the United States, Beijing has the financial wherewithal to put itself into a position from which it can command the economy of America and, to a large extent, the world. As part of the process, it has the ability, and likely the desire, to purchase controlling stakes in many of the most important private companies in America and the West, effectively putting them under the control of Beijing.

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