We really do live in a globalised world when the American CEO of London-based Rio Tinto earns $US12.6 million in 2007 largely because of soaring Chinese demand for Australian iron-ore.

However, Rio Tinto and Tom Albanese would make a whole lot more if they were able to sell additional Western Australian iron ore to the Chinese that’s based on spot prices rather than long term contracts.

Fairfax’s John Garnaut produced a cracking scoop for The Smage today when he revealed that the Chinese steel makers have been colluding since January 1 to reject BHP and Rio Tinto spot price shipments from Australia.

The language of “blackbans” and “boycotts” has already been wound back to “delays”, but something is clearly afoot here.

Soaring coal and iron ore revenues are the single biggest contributor to Kevin Rudd’s bursting budget surplus, but just how far should Rio Tinto and BHP go?

It is logical commercial behaviour when the spot price is often double the contract price, but the Chinese have clearly had enough of hugely enriching the BHP and Rio shareholders and executives.

The cost of China’s huge industrialisation process gets a whole lot more expensive when the likes of Rio demand contract increases exceeding 65% and simultaneously cut contracted supply volumes by 10% to cash in on the spot market.

Ironically, Rio has been forced into embracing more spot price deals to try and talk up its share price and fend off BHP’s advances. The BHP takeover bid has certainly added to Albanese’s pay, as did the $15.5 billion Chinese raid on Rio through Chinalco.

All of this is a heady mix for Kevin Rudd as he prepares to visit China next month. And the PM finally faced some tentative questions in the Parliament yesterday about his sponsored travel arrangements with Beijing Austchina Technology.

Here’s one obvious question for Rudd to raise: If the Chinese won’t issue permits to ships carrying Australian iron ore, why should the Australian Government approve Sinosteel’s $1.2 billion takeover bid for wannabe iron-ore player Midwest and Sinopec’s $600 million bid for control of AED Oil’s Puffin oil field in the Timor Sea?

Surely, this needs to be a two-way street. Then again, similar moans from the Japanese ended when Mitsubishi bought a 50% stake in BHP’s huge central Queensland coal mines. Maybe the Chinese simply want an ownership position similar to what their great Asian rivals have got?

Listen to this morning’s discussion about the credit crash and China with Deborah Cameron on 702 ABC Sydney.