The Australian government Friday downplayed any responsibility for the collapse of a proposed US$19.5 billion deal between Rio Tinto Plc (RTP) and Aluminum Corp. of China, or Chinalco, and said the country remains open to foreign investment from China.

Analysts say the decision by Rio to end its Chinalco alliance, in favor of a rights issue and iron ore joint venture with BHP Billiton Ltd. (BHP.AU), clears the air for the Australian government to give the go-ahead to other less high-profile Chinese deals.

Already Friday, Prime Minister Kevin Rudd said he is meeting with Chinalco executives in Canberra to discuss "a range of other interests" in Australia beyond the Rio deal, suggesting the Chinese firm is down, but not out for the count.

Ian McCubbin, an expert in China business at international law firm Deacons, said the magnitude and complexity of the Chinalco proposal, which would have been China's biggest-ever overseas investment, "tended to overwhelm".

That set off a broader political debate on the merits of Chinese investment - to the detriment of other deals in the pipeline, he said.

With the Chinalco proposal no longer on the table, future deals can be judged on their own merits, rather than being caught up in a perceived "bilateral impasse" between Australia and China over Chinalco, McCubbin said.

Tensions have been simmering below the surface for months between Canberra and Beijing over the Chinalco deal, which would have given the state-owned company an 18% stake in Rio, the world's third-largest miner, and two board seats.

It raised concerns among some Australian opposition lawmakers about the potential for Chinalco, also a major buyer of Australian commodities, to influence prices. Rio owns iron-ore and copper mines in Australia and offshore. Some even argued that the proposed deal posed a threat to Australia's national security.

Canberra has in a sense dodged a bullet in that Rio's decision to abandon the deal comes just as Australia's Foreign Investment Review Board was poised to advise Australian Treasurer Wayne Swan whether or not to approve it by June 15.

While the government played its cards pretty close to its chest throughout the process, local media had speculated that Canberra behind the scenes was set to impose strict conditions on the deal designed to check Chinalco's influence over Rio. Those conditions could have made the deal unpalatable to both parties.

For its part, Chinalco largely directed its disappointment at the deal's collapse toward Rio, although it did indicate the deal would have needed amendments to appease regulators.

Chinalco Chairman Xiong Weiping said the Chinese group had worked hard to engage with Rio on potential changes to the deal terms to reflect the changed market conditions and feedback from shareholders and regulators.

"As a result, we are very disappointed with this outcome," he said.

Canberra will now never need to make public, or risk ruffling Chinese feathers, with its decision on Chinalco.

But Patrick Colmer, executive director of the Australian Treasury's foreign investment division, earlier this week provided a telling insight into the way Australia's foreign investment review process works.

Testifying to a Senate economics committee Thursday, Colmer told lawmakers that FIRB considers that any government-owned entity cannot operate completely independently of the foreign government in question.

Instead, it looks at the governance of the entity, seeking to satisfy the key question of whether it is operating independently, and "without direct or continuing government control", Colmer said.

Had the Chinalco deal gone ahead, only to be knocked back by Australian regulators, it would have revived memories in China of another failed natural resources foray: Cnooc Ltd.'s (CEO) US$18.5 billion attempt to take over Unocal Corp. of the U.S. four years ago.

Cnooc abandoned its bid after it was criticized by U.S. lawmakers, and China's state energy giants haven't acquired oil and gas assets in U.S. territory ever since.

To be fair, Australia has approved a string of smaller resources deals by Chinese companies in recent times, albeit with conditions attached.

But that can't mask a deep undercurrent of political concern about China's growing appetite for Australian resource and energy assets.

Australia so far is the most targeted nation by Chinese investors in 2009, with US$3.4 billion worth of deals announced so far, according to Dealogic.

Malcolm Turnbull, leader of the main opposition Liberal-National coalition, panned the Chinalco deal in a public speech, arguing that it would give Chinalco direct management control and a level of influence right down to the operating level of Rio's most important assets.

Barnaby Joyce, a Nationals senator, and independent senator Nick Xenophon, went a step further, sponsoring an advertising campaign against the deal.

Rio played down the role of regulators in scuttling its Chinalco alliance Friday.

It said the deal looked less valuable in the wake of recent market movements. The transaction also faced strident opposition from some institutional shareholders in London.

Swan told reporters the end of the deal is a "commercial matter between the partners", strongly denying any link between Australia's drawn out foreign investment review process and the deal's collapse.

Chinalco remains Rio's largest shareholder with a combined 9% stake.

Analysts say the collapse of the alliance is likely to strain relations between Rio and Chinalco. But Rio is too important as a producer of key commodities, namely iron ore, to provoke a serious backlash.

"China has to be realistic that the market moved in Rio's favor," one Sydney-based analyst said.

The decision to terminate the Chinalco deal also won't hamper progress on long-stalled free trade talks between China and Australia, Australian Trade Minister Simon Crean said Friday.

"In all of the discussions that I have had with China on the FTA, the Chinalco deal was not linked to the FTA by us, or by the Chinese," he told reporters.

-By Rachel Pannett, Dow Jones Newswires; 61-2-6208-0901; rachel.pannett@dowjones.com

(Elisabeth Behrmann and James Glynn in Sydney and Alex Wilson in Melbourne contributed to this story)