China buying into BHP? It's the thought that counts

By Tom Miles

HONG KONG (Reuters) - Since Chief Executive Marius Kloppers said last week he had no doubt Chinese money would one day show up on BHP Billiton's share register, investors have piled in, expecting Beijing's cash sooner rather than later.

There is, however, no firm evidence of Chinese buying and Chinese sources say top officials, who would need to approve such a move, are tied up with the emergency response to Monday's devastating earthquake in Sichuan province.

But traders have followed Kloppers' "when, not if" script and lapped up a rumour on Wednesday and a thinly-sourced media report on Friday, driving up shares in the world's top miner to a record. BHP stock has risen 49 percent in eight weeks.

Many analysts say they are surprised China has not bought into BHP (BHP.AX: Quote, Profile, Research) (BLT.L: Quote, Profile, Research) already, since it is a powerhouse producer of the commodities, such as iron ore, coal and oil, that are desperately needed for China's rapid economic evolution.

"By buying BHP and Rio shares or investing in joint ventures, particularly in iron ore, Chinese steel producers and the Chinese government could hedge against rising commodity prices," CLSA analyst Matthew Whittall said in a note to clients.

And since BHP is trying to take over its main rival, Rio Tinto (RIO.L: Quote, Profile, Research)(RIO.AX: Quote, Profile, Research), it is logical for China to target both companies to hedge against an eventual merger.

"If you wanted to be sure of a seat at the table in the global mining game, it would make sense to have 10 percent of the world's largest miner," said one senior investment banker involved in the sector, who declined to be named.

Chinese aluminium giant Chinalco already bought 9.3 percent of Rio earlier this year in collaboration with U.S. partner Alcoa Inc (AA.N: Quote, Profile, Research), a stunning move that appeared to throw a $14 billion banana skin in the path of BHP's takeover bid.