AT A village called Jianshe, a few hours train ride south of...

AT A village called Jianshe, a few hours train ride south of Beijing in Hebei province, peasants are fossicking for nuggets of iron ore like the prospectors of old once looked for gold.

A 50-year-old man called Guo has left his small plot of corn and millet 100 kilometres away to strike it rich. He clambers over the foothills of a mountainside of waste rock that has been hauled out of an iron ore mine that is closed for the Olympics. Four of his younger and more nimble relatives traverse the heights above.

They are each equipped with a magnet on a stick and a sack or bamboo basket to carry their bounty. Guo rolls over a dark-grey lump of low-grade magnetite that is about the size of a watermelon and he can scarcely believe his luck.

"This will fetch a few yuan," he says, after testing it with his magnet to confirm he's not mistaken.

On a good day, each of these enterprising peasants will find 100 kilograms of ore and sell it to a local trader for a little over $US10 ($A11). Local miners say the magnetite in the area contains about 30% iron ore — about half the lowest grade that most Australian miners would bother digging up.

If commodities prices are about to fall, then nobody has told the Chinese steel makers and power generators that have been driving the boom for the past five years.

Hebei province produces a little over a fifth of China's total steel production. Last year, that was 107 million tones, or about 10% more than the total annual production of the US.

A significant proportion of Hebei's steel mills have been closed to ensure the Beijing sky stays blue throughout the Olympics. But many of the mills that remain open are still so desperate for iron ore that they are paying $US180 a tonne on the local spot market, a little more than twice what Rio Tinto recently secured for this year's benchmark contract price.

In Australian dollars, the spot market price is a fraction short of an all-time high.

Iron ore is Australia's second-most important export, behind coal. China's coal shortage is even more acute.

Chinese steel mills are feeding thermal coal into their blast furnaces because they can't secure enough coking coal. Chinese policymakers have just slapped an export tariff on coking coal exports — ensuring further price hikes in Australia's largest coking coal export markets in Japan and Korea.

There is also a critical shortage of thermal coal that has forced Chinese power generators to cut production and risk electricity shortages and blackouts across the country.

Australian iron ore and coal export prices are mostly locked in at record levels until next year and it would be a brave trader to gamble on prices falling in the year after that.

The overall commodities boom does appear to have peaked. But for Australia's mining companies, with their reliance on coal and iron ore, the next two years will feel more like a plateau than the bursting bubble that many analysts are talking about.

To the extent that "Australia is just a province of China", as a Chinese manager of a $US1 billion dollar hedge fund claimed in private conversation last week, then Australia's over-leveraged economy has some life in it yet.

FINALLY, after six months and two weeks, Federal Treasurer Wayne Swan has allowed China's biggest investment in any foreign country. But his conditional approval of Chinalco's purchase of 9% of Rio Tinto raises more questions than it answers.

The essence of Australia's significantly tighter new foreign investment regime was agreed by senior ministers including Mr Swan, Resources and Energy Minister Martin Ferguson and Prime Minister Kevin Rudd in a meeting shortly after the Chinalco share raid. They have since met a few times to iron out the historic policy shift — although they publicly maintain that there has been no shift at all.

From now on, Chinese state-owned companies can assume that any bid for control of a major Australian mining company is off limits.

And given that Mr Swan has forced Chinalco to give up any ambitions for a board seat (unless it receives prior government approval), it would be a brave Chinese investor that bids for a chunk of shares that might give it the voting clout to appoint a board director to any "strategic" Australian mining company. This is likely to apply not only to the likes of Rio, BHP and Forestcue, but also to a host of established Australian energy companies. The uranium sector springs to mind.

Chinese companies need to be doubly careful because the Australian Government could treat them all as "related parties" because of their common ultimate controller, the Communist Party of China.

Some senior government figures do not want a state-controlled Chinese company to buy a significant stake in BHP that might push China's share of any combined BHP-Rio share registry to more than 5%.

The attitude assumes that having a resources customer on an Australian mining company board could compromise the price-setting process. Evidently, the Government does not trust Australian boards to abide by their conflict-of-interest rules and nor does it trust the Tax Office to enforce the transfer pricing laws that are supposed to prevent any under-market pricing of Australian exports.

We don't yet know the extent to which the new restrictive stance towards Chinese state-controlled companies applies to other types of foreign investors, because we don't yet know what the Government is scared of. Will this new regime apply to all foreign-government controlled entities, to all resource consumers who want to buy into their suppliers, or to all foreign resource investors full stop? It's a mess.