Chinese takeover of Australia mine approved despite row

SYDNEY, Oct 23 - Australia approved a Chinese takeover of a coal mine on Friday despite recent opposition to China's efforts to buy key stakes in Australian commodities firms and the arrest of an Australian mining executive in China.

Australia will allow Chinese firm Yanzhou Coal Mining Co's $2.9 billion takeover of coal-miner Felix Resources Ltd, but said the local firm's assets must be run by an Australia-based company.

The deal is also conditional on listing the local unit on the Australian market and trimming Yanzhou's holding, but it is not seen changing Australia's declared bias against takeovers of greenfield resource projects or major mining companies.

Australia was one of the first countries to formally recognise China in 1972. China is now Australia's second-largest trading partner, with two-way trade last year worth $53 billion.

But relations have been tense after Chinese state-owned metals firm Chinalco failed in a $19.5 billion bid for a stake in Rio Tinto and the arrest of four Rio employees of suspicion of corporate espionage.

A decision by Australia's government in July to grant a visa for an exiled Uighur activist further soured ties.

"I won't say this is a dramatic shift in government policy," said Ian Ramsay, a law professor of University of Melbourne. "We are seeing government policy evolve in relation to foreign investment decisions and that is certainly the case in relation to investments by Chinese companies in Australian resources sector."

Chinese state-owned companies have been looking to buy up Australian mining assets to secure supplies of raw materials for its rapidly growing economy, the world's third largest.

But bilateral ties have also been strained by Canberra's opaque and sometimes lengthy process for vetting foreign investments, with some high-profile deals falling through before a decision is reached or after strict conditions have been imposed.

"The government is looking for an acceptable middle ground. This does send a pretty positive message and I say this because these are not unduly onerous undertakings," Ramsay said.

Felix, which has mines in Queensland and New South Wales states, produced 4.8 million tonnes of coal in the year to June. Analysts expect the deal to boost Yanzhou's output by about 10 percent.