Treasurer Wayne Swan could hardly knock back the Chinese investment in Rio Tinto just before the closing ceremony of the Beijing Olympic Games, especially since the application is for less than 15 per cent.

After Chinalco bought 9 per cent of Rio Tinto back in February with Alcoa, the two made a retrospective “voluntary submission” to the Australian Government as a sort of diplomatic move following the release of new guidelines indicating a more restrictive stance.

But unsurprisingly that new stance has not resulted in him actually knocking back Chinalco’s application to increase its holding from 9 per cent to 15 per cent, although it would undoubtedly be a different matter if Chinalco made a full bid.

A couple of important things to point out here: Chinalco’s holding is only in the plc part of the dual listed company (DLC), not the Australian end (Rio Tinto Ltd) in which its holding is zero; and the Australian Treasurer, for some reason, feels he has jurisdiction over that, which is interesting.

Anyway, the importance’s of this is that Chinalco can only block compulsory acquisition of Rio Tinto plc, not Rio Tinto Ltd, and they are two separate companies.

As BHP Billiton’s CEO Marius Kloppers has pointed out, if the Chinese aluminium firm wants genuinely to compete with his bid for Rio Tinto, it would have to offer all cash, and probably about $US200 billion of it.

Reports from China suggest that Chinalco has established “strategic co-operation” with several major domestic commercial banks in China and now has a credit line of 100 billion yuan. That’s about $US17 billion and while every little bit counts — it’s still just a little bit.

BHP’s 3.4 for one bid for Rio, officially launched in February, has a 50 per cent minimum acceptance condition, so 15 per cent is not enough to block even the bid for Rio Tinto plc entirely — only to block full compulsory acquisition.

And while it might be annoying for Marius Kloppers and his board to carry minority shareholders in a BHP-controlled Rio Tinto, it would almost certainly be worse for those minorities: they would have to service their debt from other cash flows, because they certainly wouldn’t be getting dividends out of Rio.

Meanwhile last week’s issues paper from the ACCC about the bid was surprisingly soft. Yes, it raised concerns about the combination of the two Pilbara iron ore businesses, but that was all. There was no problem with the thing that Chinalco and Alcoa are worried about — aluminium.

If the European Commission has a similar attitude, then Kloppers and chairman Don Argus are home and hosed. Even if iron ore had to be entirely excised from the merger and floated separately, it would still be worth doing.

Just before BHP’s profit result came out last week, the market ratio of the two companies dipped below 3 for the first time. At about 4pm on Monday it was 2.99 to one, having fallen steadily from above the formal bid ratio of 3.4 to one since February.

After the result, the ratio on the market ticked back to 3.01 to one and has since stayed there but, subject to this week’s Rio result, investors are signalling that 3.4 to one will do it.

So if Chinalco wants to block the takeover of Rio by BHP, it can’t rely on support from either the regulators or Rio’s shareholders, 70 per cent of whom are also BHP shareholders.

By far the most likely outcome is that Chinalco ends up being a large shareholder in the expanded BHP Billiton.