A rescue plan that would see China's state-owned Chinalco invest $19.5 billion in debt-laden Rio Tinto Ltd sparked political debate on Wednesday, with warnings the deal could make Australia a branch of Bejing's economy.

The government says a decision on the deal will be made in the national interest, but Green politicians oppose outright the tie-up, and some conservative politicians have warned of future problems from selling off a major resource asset.

Australia's longest serving treasurer, Peter Costello, who served from 1996 to 2007, said he believed the plan would be approved, citing the fact that Australia's treasury department has never recommended blocking such a foreign takeover.

While the final decision rests with the incumbent Treasurer Wayne Swan, Costello said: Our Chinese speaking prime minister (Kevin Rudd) will undoubtedly favour the proposal.

The Commonwealth Treasury will also be in favour of it...I cannot remember treasury ever recommending that I block or disallow the acquisition of an Australian company by foreign interests, he wrote in The Age newspaper.

Australian Prime Minister Kevin Rudd, a Mandarin speaking former diplomat, has made closer ties with China a cornerstone of his government since its election in November 2007.

But Greens Senator Bob Brown has launched a vocal campaign against the proposed tie up, saying it is hazardous for our open and democratic nation to have the Beijing dictatorship...take control of these companies and our resources.

This nation should not vest power over its future resource management in the hands of the brutally repressive Beijing bosses, Brown said in a statement on Wednesday.

There is a real danger of Chinalco's bid to control Rio Tinto today extending to the CIC's control over roads, public transport or privatised water corporations in Australia tomorrow, said Brown.

China's top aluminium maker, Chinalco, agreed last week to pay $12.3 billion for stakes in Rio's key iron ore, copper and aluminium assets and $7.2 billion for convertible notes that could potentially double its equity stake in Rio to 18 percent.

The deal, designed to help Anglo-Australian miner Rio Tinto, which trades on both the Australia and London stock exchanges, pay down some of its $39 billion of debt.

While the Australian government does not need parliament's approval for the Rio-Chinalco deal, the Greens' five senators may be crucial in passing future legislation in the upper house where the government lacks a majority.

On the day the deal was announced last week, the Australian government has said it would tighten foreign-ownership laws, treating convertible debt as equity. The Greens said they intend to have a say on the issue when it comes before the Senate.


Treasurer Swan said on Wednesday that Chinalco's bid would only be approved if it was in Australia's best interest - the standard government response to foreign takeover bids.

We will analyse these proposals seriously and in a considered way and take our decision in the Australian national interest, Swan told reporters.

Rio Tinto's activities span the world but are the strongest in Australia, where the company has 18 different operations.

Costello warned the government to carefully scrutinise the deal for fear Australia would become a branch office economy, adding Chinalco assurances about maintaining an Australian presence would be hard to police or enforce.

If a country wants to be seen as open for investment it needs to show that there are high profile global companies that operate in side their shores, wrote Costello. A country of branch offices will be seen as a branch office economy.

Costello said he refused to back a Shell bid for Woodside Petroleum in 2001 because it was not in the national interest, despite treasury recommending its approval.

Australia's conservative opposition has yet to announce a formal position on the resource deal. But opposition politician Wilson Tuckey, whose electorate includes a lot of Rio's Australian mines, says saving jobs is a priority but warns of future problems as a result of selling off major resource assets.

Mining firms across the Australian outback are laying off thousands of workers in the face of slumping minerals prices and cancelled orders. Rio may cut up to 5,000 jobs in Australia.

I think that the proposal between Chinalco and Rio Tinto is absolutely vital to the strength of the Queensland economy, said Queensland state premier Anna Bligh in urging the national government to approve the deal to save mining jobs. (Editing by David Fox)

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