Also, under the provisions of supplementary rules and guidelines passed by State Council in early August, the authorities will review any merger creating a company with more than 10 billion yuan (HK$11.44 billion) in annual global sales and in which the two parties each had sales of more than 400 million yuan on the mainland.

BHP, the world's biggest mining firm, had global turnover of US$47.5 billion last year, of which US$4 billion came from the mainland.

'BHP alone provides about 40 per cent of mainland iron ore imports and about 20 per cent of alumina imports. Apparently, if BHP buys Rio, it will hurt mainland steelmakers and iron ore traders,' said Mr Mei.

With mines across Australia's ore-rich Pilbara region, Rio and BHP are the world's second- and third-largest iron ore producers, respectively, behind Brazil's Vale. The three companies control 75 per cent of the global seaborne traded iron ore market.

A combined BHP-Rio would create mining behemoth with a market value of US$350 billion and controlling between 27 and 36 per cent of global seaborne traded iron ore, 23 per cent of coking coal, 13 per cent of copper and 17 per cent of aluminium.

China, the world's largest steel producer, needs to import half of the iron ore it consumes and is the world's largest buyer of the mineral. However, as global sales are mostly controlled by the three big producers, it has little say in setting prices.

Steelmakers unwillingly accepted price increases of between 65 per cent and 96.5 per cent for contract iron ore this year, the sixth consecutive annual rise. This year, the long-standing practice whereby all suppliers agree on the same percentage increase was broken by Australia's Rio Tinto and BHP Billiton, which asked a premium to reflect the lower freight costs for shipping iron ore to Asia from Australia compared with Brazil.

The mainland's fragmented steel industry had tipped the balance of power to iron ore suppliers, said Daiwa Institute of Research steel analyst Helen Lau.

'If the merger between BHP and Rio succeeds, it will further enhance the bargaining power of the enlarged group while steelmakers all over the world will suffer,' said Ms Lau. 'It's not only a problem for mainland mills, but a problem for the global steel industry.'

BHP has submitted its monopoly proposal on its takeover bid for Rio to the Ministry of Commerce, and the ministry is seeking a response from the steel industry.

The China Iron and Steel Association, which represents steel mills that produce about 80 per cent of mainland crude steel, reiterated its objections to the takeover and has informed the ministry of its views.

'BHP, Rio and Vale already control the global [iron ore] market, and if two of them merge, things will certainly get worse,' the association's deputy chairman Luo Bingsheng told reporters.

Mr Luo said the deal would breach fair-trade practices as the combined entity would have excessive power to set prices for iron ore and other raw materials.

BHP has also submitted its merger proposal to antitrust authorities in Australia, Canada, the European Union, South Africa and the United States, and is preparing to file with the authorities in Japan and South Korea.

The United States, where the proposed deal would have less impact, cleared the bid in July, but other countries have yet to announce their decisions. Ms Lau said imports only accounted for a small part of US ore consumption as it had its own resources and 70 per cent of its steel was made from scraps.

The European Commission in July extended its antitrust review and has set December 9 as the date for its ruling. The commission's initial investigation indicated that the proposed takeover raised serious doubts about its compatibility with the single market.

There were particular concerns about the markets for iron ore, coal, uranium and aluminium and mineral sands, because the takeover could result in higher prices and reduced choice for buyers, it said.

In Australia, where a ruling is due on October 1, the Australian Competition and Consumer Commission on August 22 in a nine-page 'statement of issues' highlighted the likely impact of the deal but saw no major competition issues for copper, gold, uranium, bauxite or alumina.

Nevertheless, Zou Zhendong, a senior partner at Sinowing Law Firm, said there had been cases in which an antitrust regulator had succeeded in blocking a merger between foreign companies or forced them to change the deal's structure such as selling part of the assets in order to fulfil certain requirements.

In 2001, the EU rejected General Electric's planned US$42 billion acquisition of Honeywell International, the first time a proposed merger between two US companies was blocked solely by European regulators after US regulators approved the deal.

'The extension of EU's investigation will also affect the proposed merger as the deal will take longer to complete, which will have an indirect influence on BHP's commercial decision,' said Mr Zou.

If BHP insisted on going ahead and successfully bought Rio, Beijing could take other administrative action, such as restricting the company's investments in China, he said.

Beijing could impose penalties on companies that violated monopoly agreements and abused their dominant market position, he added.

According to Article 46, the authorities have the power to order companies to cease anti-competition activity and impose a fine of between 1 and 10 per cent of total annual turnover and may confiscate illegal gains.

However, Xu Xiangchun, the chief information officer of steel data provider Beijing Ganglian Maidi e-Commerce, said mainland mills should not set their expectations too high as the country's anti-monopoly legislation was new, and the authorities had little relevant experience in such a complicated merger.

'It is difficult to predict what the effect China's antitrust investigation will have on the proposed merger,' Mr Xu said.