The anger may have simmered slightly, but the emotions are still raw in Beijing after Rio Tinto's about-face on its proposed suitor, Chinalco.

The outburst that followed from Chinese officialdom, with accusations Rio Tinto had behaved like a vengeful woman, coupled with the recriminations and soul searching here and in China, has damaged Sino-Australian relations.

The events of a fortnight ago seriously embarrassed Beijing and resulted in an enormous loss of face for all involved.

The $US19 billion ($23.8 billion) deal, after all, would have been one of China's single biggest foreign investments. This was to be a grand statement, something far more significant than a mere commercial transaction. That significance only intensified the pain.

It didn't take long before that dry Australian wit began circulating lines such as, "That's our revenge for kidnapping Harold Holt." But there was no getting away from the seriousness of the situation and the setback it has caused in diplomatic relations.

One of the main architects of Chinalco's play for Rio Tinto was the dapper Xiao Yaqing, the youthful former Chinalco chairman who first moved on Rio early last year when he bought a 9 per cent stake in a clever effort to foil BHP's proposed merger with Rio Tinto.

When the controversial bail-out of Rio was announced early this year, Xiao's achievements were duly recognised when he was elevated to the Chinese Government's cabinet, a clear sign of the links between business and government in China.

And it is at this point the argument, which has become increasingly polarised in recent months largely on emotional grounds, becomes less clear in logical terms.

China feels aggrieved and has complained that it has been singled out for special treatment when it comes to foreign investment in Australia.

The Australian Government, and particularly the Prime Minister,

the Treasurer and the Foreign Investment Review Board, have been consistent only in their inconsistency, China argues.

The official line is that Australia welcomes foreign investment from anywhere, including China. But each time a Chinese Government-owned resources company tries to buy an Australian resources company, the review board starts throwing up all sorts of demands and gives the Chinese applicants the sort of going-over usually reserved for hardened criminals.

The China Minmetals takeover of OZ Minerals was thwarted by the review board, although a rejigged deal of most of OZ's assets was approved.

Fortescue Metal Group's attempts to sell a 17 per cent stake to Hunan Valin, a company owned by a Chinese regional government, was approved but was accompanied by strict guidelines, the sort of humiliating guidelines that don't accompany approvals to other applicants.

However, all this angst from China ignores a couple of salient facts.

China is a big investor in the Australian agricultural sector, power sector and in infrastructure. Our biggest individual foreign investor is Li Ka-shing who, although from Hong Kong, has close ties to Beijing. There have never been problems with the review board in any of these areas.

The Australian Government is not alone in its wariness of foreign government-controlled funds and companies taking control of key strategic assets. In the past five years the rise of sovereign wealth funds has been greeted with varying degrees of alarm in most Western countries, including the US, although much of that caution was thrown to the wind when Wall Street needed to be bailed out. Chinese money and Middle Eastern petrodollars were welcomed with open arms.

But for Australia mineral wealth is a key strategic asset, now and for future generations. And the Government has been right to think twice before allowing foreign governments to buy any of it.

Had Chinalco been a truly commercial operation, with a spread of private shareholders, it would not have attracted the same level of government scrutiny. But no matter who owned Chinalco, it still would have been a lousy deal for Rio Tinto shareholders and would never have been approved.

The debate about Sino-Australian relations has been a one-sided affair, involving a certain amount of self-flagellation on our part.

It should be remembered that China is one of the world's most unwelcoming nations when it comes to foreigners investing on its home soil. Foreign miners are banned from exploring for coking coal, gold, tin, tungsten and titanium within the country's borders. Copper is also apparently on a watch list.

Investing in China's financial sector involves negotiating an impossible maze of contradictory regulations that in effect serve to ban foreigners.

In an interesting twist, China's banking regulators - who have become increasingly xenophobic - are considering blocking Texas Pacific Group from selling its 17 per cent stake in Shenzhen Development Bank because of the massive profit it will extract.

TPG bought its stake for $US300 million when the bank was overburdened with bad debt and desperate for help. TPG now wants to cash out, with a potential sale to a Chinese firm for $US1.6 billion. No deal, the regulators say.

How is that for consistency?