Chinese authorities have launched an anti-monopoly investigation into the proposed merger between Rio Tinto and BHP Billiton, the Economic Information Daily reported on May 6, 2010. [Full coverage: Iron ore talks for 2010]

China can launch the probe because international protocols make anti-monopoly laws applicable outside their home countries. The two mining giants will now have to cooperate with China, as well as with separate investigations initiated by Australia and the European Union.

An expert said that China's investigation will focus on monopoly agreements and concentration of business that the merger is likely to generate. If the probe proceeds, China's National Development and Reform Commission will likely get involved.

"The companies cannot avoid probes into monopoly agreements and the abuse of market position that their merger could give rise to. These are things China can legitimately examine," the expert said.

A source close to BHP said the Australian mining company had formed a special team to deal with Chinese authorities.

"From the end of last year, the team has been in touch with the Ministry of Commerce. They have asked BHP a lot of questions. On the other hand, BHP has had a chance to learn the procedures of the Chinese watch dog," the source said.

Since the news of the proposed merger surfaced in 2008, China has been fearful of the consequences of the deal. If the merger were to go ahead, the combined company would produce almost the same amount of iron ore as the world's largest supplier, Companhia Vale do Rio Doce of Brazil. Inevitably, the global iron ore market would become more monopolized and the price of iron ore would be affected.

"China is one of the biggest consumers of iron ore in the world. About 40 percent of its iron ore imports come from BHP and Rio Tinto. The BHP-Rio Tinto merger, if it happens, will substantially affect the price mechanism of the global iron ore market and have a huge negative impact on the Chinese iron and steel industry," a senior manager of a large steel company said.

Professor Wu Hongwei from Renmin University of China believes the possible merger will limit fair competition, harm consumer rights and threaten the public interest. He said China should cooperate with international anti-monopoly organizations, especially the International Competition Network, to counteract the proposed merger. The Australian Competition and Consumer Commission (ACCC) announced on April 7, 2010 that it was postponing its review of the proposed BHP-Rio Tinto merger. So far, the EU has not released any outcome of its review.