The China Investment Corporation (CIC), the country’s US$200 billion sovereign wealth fund, is planning to create a consortium with domestic steelmakers to launch a counter-bid to Australia-based BHP Billiton’s US$150 billion takeover bid for mining company Rio Tinto, according to the South China Morning Post (subscription required). The Post was drawing on a China Business report that cited unidentified sources. [China Business is a business weekly published by the Chinese Academy of Social Sciences.]

Apparantly, the fund is looking for domestic steelmakers Baosteel, Shougang Group and Angang Steel to join with it to put forth a US$200 billion offer.

A CIC spokesperson denied the fund was preparing a bid in reponse to the report, according to BBC Business, but the story does not appear too far-fetched. Despite Rio Tinto’s rejection of the original approach from BHP, and despite BHP's assurances it will let the market decide prices, the prospect of the merger going ahead has alarmed policymakers and steel miners in China. The idea of a counter-bid has already been touted, not least in a News in Focus feature in the China Securities News, translated here in The China Perspective (subscription required).

Published late last week, the writer also argues that China should lobby the EU’s anti-trust unit to block the merger.

Expect many more twists and turns on this issue in the days and weeks ahead.