Foreign Investment Review Board (FIRB) has asked China's state-owned Baosteel to resubmit its application to acquire a 15 per cent holding in coal, iron ore and manganese explorer Aquila Resources Ltd.

Baosteel, China's largest steelmaker and third largest steel producer in the world, had proposed a strategic investment of a 15-per cent stake in Aquila Resources in August, worth $240 million to secure supplies of iron ore, coking coal and manganese. (See: Baosteel acquires 15-per cent stake in Australian iron ore miner Aquila Resources)

Through the proposed deal, Shanghai-based Baosteel would get a board seat in the Perth-based Aquila and had said that its investment would help the miner to fast track the development of its key iron ore, coal and manganese projects.

It also said that it would assist Aquila in sourcing low-cost financing from Chinese institutions for a number of the company's projects, including the strategic West Pilbara Iron Ore Project.

Baosteel was asked to resubmit its application by the FIRB this week, which the Chinese steelmaker has done. But no explanation was given as to why the regulator had made the request.

Deals between state-owned Chinese companies and Australian counterparts in the resources sector have evoked widespread political debate and criticism in Australia.

Relations between the two countries have come under strain following the arrest of Rio Tinto executives in China on charges of commercial espionage in July, (See: China arrests four Rio Tinto employees)  and Australia granting visa to Chinese dissident and Uighur leader Rebiya Kadeer.

While delivering a speech at a conference in Sydney late last month, Patrick Colmer, FIRB director  laid down new ground rules for Chinese investments in Australia.

Colmer seemed to say that overseas investment in big Australian companies should be below 15 per cent, while investment in new or greenfield projects should be below 50 per cent.

Although more than two weeks have passed since he made that statement, the FIRB website has not posted any new rules on foreign investment in Australia. Analysts are now trying to interpret the statement, which has not been backed by the FIRB officially.

Analysts feel that Australia is trying to curb Chinese investment in the Australian minerals without making a noise about it, but whetting out Chinese investments on a case by case basis.

FIRB is currently considering at least six investment proposals from Chinese state-owned enterprises, including a $2.9-billion bid from China's fourth-largest coal miner, Yanzhou Coal Mining Co Ltd  for Felix Resources. (See: Yanzhou Coal to acquire Felix Resources for $2.9 billion)

Last month, the FIRB had asked Yanzhou Coal to resubmit its takeover application.

Last month, the Australian government rejected  China's state-owned Wuhan Iron and Steel's (WISCO ) proposed joint venture with Australian iron ore miner, Western Plains Resources Ltd (WPG), since one of the WPG mines was located in the Woomera weapons testing site. (See: Australia rejects large mining deal with China)

Under a deal announced on 12 June 2009, WISCO had agreed to take an approximately 10-per cent stake in WPG for $3 million and pay $45 million to acquire a 50-per cent participating interest in the Hawks Nest iron ore mine as well as a board seat on WPG.

A day after the Australian government rejected WISCO's proposal, the FIRB put the brakes on state-owned China Nonferrous Metal Mining Group's plans to take a 51.6-per cent stake for $222 million and 4 board seats in rare earth miner Lynas Corp. (See: Australia rejects another Chinese investment)

China Nonferrous Metal Mining Group then terminated the proposed investment after the FIRB imposed stiff conditions.