China, the world's largest steelmaker, and its main supplier of iron ore in Australia have broken off talks aimed at settling a dispute over rising prices. The collapse in negotiations has added to simmering tensions between Beijing and Canberra following the detention of four employees of Australia's biggest iron ore producer, Rio Tinto.
Talks between China, the world's largest steelmaker, and Australian iron ore giant Rio Tinto have been deadlocked over how deeply to cut prices following two years of sharp increases.
Beijing has been pressing for price cuts of up to 40 percent following price increases of more than 100 percent.
Major suppliers had agreed in May to a 33 percent cut in iron ore prices with Japanese and Korean steel mills. But China has refused to accept the new benchmark.
Without a contract, Chinese mills have been forced to buy iron ore at the new benchmark price.
Tensions over the talks rose when four Rio Tinto employees, including lead iron ore negotiator Stern Hu, were detained in China in July and later charged with bribery and commercial espionage. Company officials have denied a link between the incident and the collapse in the talks.
Some analysts say Rio Tinto's decision to suspend talks with its Chinese buyers will exacerbate simmering diplomatic tensions between Beijing and Canberra, which were again strained recently when the Australian government granted a visa to an exiled Chinese ethnic Uighur activist.
Analyst Malcolm Cook, from Australia's Lowy Institute for International Policy, believes that bilateral relations are being severely tested.
"The differences [are] pretty much across the whole spectrum, including the size of the countries and also the economic relations between Australia and China are growing so fast that it means those critical differences are becoming more of a problem and we confront them more frequently as we are finding out these last couple of months," he said.
China is Australia's biggest trading partner. The government in Canberra has had to tread delicately as it seeks to resolve its differences with Beijing without harming lucrative export earnings.
In the past decade-and-a-half, economic growth in Australia has been driven in large part by China's voracious appetite for minerals.
Since last year's global financial crisis, there are signs China's economy is beginning to revive once again. The hope in Australia is that the ripples of recovery will spread to its shores.