Australia has market-forces message for China

( dpa ) - Prime Minister Kevin Rudd arrives in China Wednesday intending to reinforce his message that market forces set the prices for Australia's in-demand resources rather than governments.

Rudd, who speaks fluent Mandarin, has made China the last stop on a 17-day world tour that has taken him to the United States and Europe.

The former diplomat's four-day visit is likely to be most his difficult assignment on the trip, because of tensions over commodity prices, curbing climate change and human-rights abuses in Tibet.

China has overtaken Japan as Australia's leading trade partner but is increasingly grumpy at the rising cost of importing the coal and iron ore that drive its steel mills.

Australian producers like BHP Billiton and Rio Tinto say that Beijing has sought to hold down prices on long-term contracts by keeping them out of its spot market for resources until a deal is done. The Chinese allege Australian producers have delayed deliveries to restrict supply and inflate prices for a long-term contract.

In London, the penultimate stop on Rudd's first overseas tour since becoming prime minister, the Labor leader lectured China on the workings of the free market.

In a speech at the London School of Economics, Rudd said that Australia was making good money on coal and iron ore but was exporting liquefied natural gas to China at one-third of the market rate, because the deal had been sealed in 2002.

"That's life in the commodity market," he said. " China did very well out of that deal. Ask a Chinese importer of iron ore today how they are going, and they will give you the reverse story."

Rudd has scheduled talks with Chinese President Hu Jintao and Premier Wen Jiabao, and it's likely that restrictions on Chinese government-owned companies taking strategic stakes in Australia's big miners will be discussed.

In February, state-owed Chinalco, in concert with US-based fellow aluminium company Alcoa, took a 9-per-cent stake in Rio Tinto in what was seen as an attempt to block BHP's proposed takeover of Rio.

China worries that a marriage of the world's biggest mining companies would give the new entity an unfair advantage in the marketplace.

Rudd will tell his hosts that governments have no role in the workings of a free market, and there are mechanisms to thwart attempts by Beijing to take strategic stakes in Australia's big resources companies.

Rudd's visit comes as speculation mounts that China is about to take a multi-billion-dollar stake in BHP. Such a move would have to be vetted by an Australian panel that reviews proposed purchases that could be deemed against the national interest.

While he has welcomed the prospect of Chinese investment in Australia's booming mining sector, Resources Minister Martin Ferguson said this week that such investments would be "considered in the same way as we would consider investments from North America, Japan and South Korea."

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