Barbara Grieve, the managing director of Australia-China Business Development who works to facilitate the interests of Chinese investments into the Australian resources sector, told Lawyers Weekly today that the collapse of the $19.5 billion Rio-Tinto/Chinalco deal, and the arrest of Rio Tinto employees, including Australian Stern Hu, over allegations of espionage, have raised concerns among her clients.

"There are questions from everyone I meet," she said while in Shanghai this week. "I think there is a strong misunderstanding because in Chinese propaganda they have their way of telling the story and it's very different to what Australia hears."

Grieve said the collapse of the Chinalco deal has been particularly difficult for her clients to understand - an issue she counteracts by asking them to compare the Australian reaction to such a deal involving a state-owned entity securing an Australian asset to the way they would feel if the Australian Government put in a proposal to buy Chinalco.

"I think, with a clear explanation, most of my Chinese clients understand this. However, I think there are major issues in the Chinese media about the idea that Australia is not welcoming Chinese investors and that Australia is upholding its protectionism."

Grieve believes misunderstandings have been further exacerbated by the Rio Tinto employee arrests in China and subsequent media attention, which has left the Chinese business community believing their government has achieved justice by incarcerating the accused

However, this week's news regarding Chinese coal producer Yanzhou Coal's bid for Queensland coal producer Felix Resources could be the catalyst needed to mend relations between the two countries and ignite a wave of further investment, said Grieve.

"I think any significant welcoming of Chinese investment sends a positive message to businesses in China," she said.

"Otherwise they are concerned that they are not welcome by and large in Australia - they think Australia has discriminated against China."

Grieve counselled lawyers involved in large resources deals between the two countries to do more to alleviate some of the cultural issues that emerge - particularly by seeking to understand the many differences between the two political systems.

"Australia is a law-governed country, but China is a people-governed country," she said. "Lawyers [need to] understand that China is people-governed - and not absolutely governed by law - then, hopefully, we can start to break down the barriers."

Recently, Australia China Business Council President Jim Harrowell told Lawyers Weekly that the collapsed Chinalco deal should not deter two-way trading and investment in China.

"China likes dealing with Australians and we should encourage it," he said. "I get very frustrated that sometimes we spend far too much time trying to find negative points in relation to China."

- Angela Priestley