Rio keeps its comrades close

A week ago China appeared to signal its willingness to re-engage with Rio Tinto by largely absolving it of blame for the implosion in the proposed strategic alliance with Chinalco. Today Rio's Tom Albanese made it clear he is also keen to forget the past and develop a more balanced relationship with his biggest customer.

In Beijing for the China Development Forum, Albanese talked about Rio's long history in dealing with China but referred directly to "some difficulties" experienced in the past year – a reference to the abandonment of the ambitious and all-encompassing alliance with Chinalco negotiated under extreme pressure that was derailed by the recovery in equity markets and the proposed Pilbara iron ore joint venture with BHP Billiton. He also made passing reference, but no meaningful comments, about the arrest and detention of Rio's Stern Hu and his colleagues, whose trial started today.

However, most of his speech was about the future and the future relationship between Rio and China. The fulcrum for that relationship is Chinalco, which remains Rio's biggest shareholder and, as outlined by Albanese, the nature of the relationship is familiar.

Indeed it is the outline of the original strategic alliance, without the controversial bits – the equity in Rio's iron ore business and other key operations, the joint marketing committees, the embedded Chinalco staff, the board and board committee representation and the other layers of engagement Chinalco wanted.

The new alliance has a foundation stone in the form of the memorandum of understanding signed between Rio and Chinalco last week to jointly develop the massive Simandou iron ore project in Guinea (Rio Tinto's China play, March 19).

Albanese talked of two ideas for cooperation between China and his group. One, and he cited Simandou as an example, was to help China earn what he termed a "licence to operate" – the consent of locals – by helping it develop leading practices on environmental and safety issues and community engagement.

He wasn't so impolite so as to refer to China's reputation for exploitation in Africa, nor the sensitivities towards Chinese ownership of strategic resources in developed countries that flared in response to Chinalco's attempt to embrace Rio.

Essentially Albanese was inviting China to partner with Rio, with China providing the capital and Rio the acceptance that comes with its reputation as a good corporate citizen wherever it operates.

His other idea was to bring Rio's exploration expertise and technology and development expertise to bear within China.

Access to China's capital and access to China's domestic resource potential were the two key attractions to Rio of the Chinalco alliance. Rio saw a 'special' relationship with China, through a relationship with Chinalco, as a source of competitive advantage and still does.

Reports of the conclusions of China's post-mortem of the Chinalco deal suggest the Chinese, too, understand that the continuing Chinalco shareholding in Rio, and Rio's own desire to heal the wounds created by its decision to abandon that deal once it had a better option, offers a different route to a similar conclusion.

The analysis of what went wrong pointed to the recovery in global markets, and China's own lack of experience, talent and political sophistication, rather than Rio as the primary reasons for the failure. That cleared the ground for the Simandou announcement and has enabled Albanese to dwell more on the future than on the past.

A continuing and close relationship with one of the world's biggest resource groups, one supported by the Chinalco shareholding and, over time, cemented by joint venture and funding relationships – and Rio dollars in the ground in China – would create a more evenly-balanced and less politically sensitive alliance that would nevertheless provide China with influence while potentially giving Rio access to cheap and limitless funding and China's own resources.

It would be a much more subtle, sophisticated and mutually beneficial way to bring Rio within China's orbit but on more conventionally commercial and transparent terms that would be acceptable to Rio's shareholders and political constituencies, albeit disconcerting for its competitors.