China is closely watching global miner BHP's $38.5-billion US bid to acquire one of the world's biggest producers of potash and fertilizer, the government said Wednesday in its first official comment on the proposed takeover.

The cutting face of a potash borer, shown in PotashCorp's mine in Rocanville, Sask., in 2007. (Troy Fleece/Canadian Press)

Beijing is uneasy about seeing BHP Billiton Ltd., already a major iron ore supplier to Chinese steelmakers, gain control of Potash Corporation of Saskatchewan, expanding its control over key commodities that China needs. Potash, a mineral, is used to make fertilizer.

"China is highly reliant on potash imports," said Yao Jian, a Commerce Ministry spokesman. "We will be paying close attention to this deal."

PotashCorp rejected BHP's initial bid last month and said it has talked with other parties in what is likely to be a lengthy process.

"Potash is the critical factor in every country's agricultural production," Yao said at a regular news briefing. "Of course, this is attracting attention from the world potash industry and also from Chinese industry."

BHP is hoping to profit from what it expects will be rising fertilizer demand in China and India — the main markets for potash, along with the United States and Brazil.

The bid is sensitive for China because the communist government faces pressure to feed 1.3 billion people on limited farmland and sees food supplies as a matter of national security.

In a related matter, a Chinese magazine reported that state-owned petrochemicals and fertilizer giant Sinochem Corp. appears unwilling to make a rival bid for PotashCorp.

Sinochem would instead consider buying some of the Canadian company's assets such as its nitrogen or phosphates businesses, a senior Sinochem official was quoted telling Caijing, an influential Chinese publication.

Han Gensheng, who is in charge of Sinochem's overseas deals, was quoted by Caijing as saying even a bid of $10 billion would be too large for Sinochem, parent of China's largest fertilizer distributor, Sinofert Holdings.

Sinofert is partly owned by PotashCorp.

At the Commerce Ministry briefing, Yao said China has not officially expressed concern to Canada about the PotashCorp bid. Yao said his ministry's monopoly bureau told him, "We have had no official contact with them."

Chinese state media have warned that a concentration of control over potash production might force up prices for major grain producers, especially developing countries.

"A BHP potash monopoly will harm global interests," government-run China Central Television said in a Sept. 4 report. "Rising potash prices already are unbearable for Chinese farmers."

Beijing wants low prices

China regularly clashes with potash producers over prices. Contract talks with Canadian suppliers broke down this year after Beijing demanded a much lower price than the producers would accept.

PotashCorp rejected BHP's offer last month as "wholly inadequate" and company CEO Bill Doyle said this week it has talked with other parties. In a note to shareholders, Doyle said the company can hold out indefinitely for a better offer and the process "will be more like a marathon than a sprint."

BHP is likely to face an anti-monopoly review by China because PotashCorp owns a 22 per cent stake in Sinofert Holdings, Ltd., China's biggest potash producer and fertilizer importer.

Yao said Chinese regulators would review the bid if they receive a formal application. The head of a major Canadian pension fund said this month a Chinese investment fund is exploring a joint bid for PotashCorp. The fund boss said he rejected an invitation to join in a Chinese bid.

Yao declined to say whether Sinofert was involved in a possible bid.

Saskatchewan Resources Minister Bill Boyd expressed concern last week about a possible bid from a Chinese state company, which he said the government worries would want to overproduce potash and drive down its price. Canadian law allows the government to bar foreign acquisitions if they are not a "net benefit" to Canada.