Have Chinese investors grown weary of opportunities in the Australian resources sector following collapsed deals and allegations against Rio Tinto employees?

As Stern Hu - the Australian Rio Tinto employee incarcerated in China - faces the prospect of a significant jail term, some China experts are wondering just what impact such headlines might have on the future of Australia/China deal-making. Barbara Grieve, the managing director of Australia-China Business Development who works to facilitate the interests of Chinese investments into the Australian resources sector, says that her Chinese clients have raised concerns about opportunities in the Australian resources sector following collapsed deals and allegations against Rio Tinto employees.

She believes that the collapse of the $19.5 billion Rio-Tinto/Chinalco deal, and the arrest of Stern Hu over allegations of espionage, have raised concerns among her clients.

"There are questions from everyone I meet," she says. "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 says 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, says Grieve.

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

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

Corrs Chambers Westgarth, which is advising Yanzhou Coal on the proposed $3.3 billion acquisition, says that if the deal is completed it will be the largest ever Chinese deal in Australia's coal sector, sparking the funding capacity for continued future exploration and development of the area. It would also provide a confidence boost to other Chinese investors interested in the Australian resource sector.

But Grieve said the completion of such large deals requires the lawyers involved to do more to alleviate some of the cultural issues that emerge between Australia and China - 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 says. "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."