It's just as well Rio Tinto has started talking about a Plan B. Friday's decision by Canberra to block the proposed takeover of Oz Minerals by China's state-owned Minmetals suggests that Kevin Rudd's famously China-friendly government is not averse to thumbing its nose at Beijing. This was a shock. The Oz Minerals deal was a less sensitive affair than either Chinalco's deal with Rio or Fortescue Metals' tie-up with Hunan Valin Iron & Steel, both still under review. Minmetals and Oz both sell exchange-traded metals such as copper and zinc, where prices are set daily by the market. Iron ore is different. Rio and Fortescue, Australia's number one and three players, are proposing to sell equity to customers with whom they negotiate long-term supply contracts at fixed prices. Treasurer Wayne Swan's “national security” argument seems spurious, too. Oz's flagship mine is at least 150km from the Woomera weapons testing facility.

 
Still, Mr Swan's reasoning implies that arms of the state cannot be disentangled from the state itself. Australia's competition regulator took a similar line on Wednesday, when it approved Rio/Chinalco while making clear its assumption that Chinalco, the Chinese government and Chinese steel mills should be considered a single entity. Reading between the lines: woe betide any combination threatening Australia's sovereignty.

If the market really believed Chinalco was Rio's best hope, the shares should have fallen in London on Friday. That they didn't suggests investors are warming to the alternatives Rio outlined on Thursday. A separate announcement this week – the closure of a pig iron plant for 12 months – shows that the company still has options for conserving cash. Metals prices in London are up about 13 per cent this month, strengthening the case for non-exclusive sales of debt and equity. Canberra may deliberate for months; Rio should waste no further time. Plan B should become Plan A.