China said market forces were behind the failure of what would have been its biggest foreign investment deal, an Australian newspaper said Monday.

Chinalco's 19.5 billion US dollar cash injection into Anglo-Australian miner Rio Tinto collapsed last June, with Rio choosing instead to pursue a rights issue and a surprise iron ore joint venture with fierce rival BHP Billiton.

"Objectively speaking, the failure of the merger between Chinalco and Rio Tinto lies in the rapid recovery of the world resources market, including the related stock market, which was beyond everyone's expectations," an official report to China's State Council, seen by The Age newspaper, said.

The Chinese report said the collapse of the deal had exposed China's lack of experience and political acumen in relation to its investments abroad.

It made no mention of Canberra as an obstacle to the deal, which came under scrutiny because of concern about the potential for China to control Australian resources.

But it said BHP used its influence to sway public opinion against the merger while the Chinese side deliberately kept a low profile, losing "opportunities for positive publicity".

"BHP Billiton took full advantage of its skilful mass media propaganda and its lobbying capacity to arouse public emotions and influence the judgements of government policy-makers," the newspaper quotes the report as saying.

The report undermines speculation that the arrest in Shanghai of Rio Tinto executive Stern Hu and three colleagues for alleged industrial espionage last July was prompted by the failure of the Chinalco deal.

The Chinese analysis said it understood that Rio's decision to scupper the deal was driven by the fact it stood to gain by merging its western Australian iron ore operations with BHP Billiton.

"One important reason for blocking the vertical merger (with Chinalco) is conflict of interest, that is, when the major customer of Rio Tinto enters the board of directors, it will have certain rights to speak on product pricing which may harm the interests of Rio Tinto's other shareholders," it said.