Fears that the China Development Bank (CDB) may be poised to back a counterbid for Rio Tinto have sparked Japanese demands for a “global rule book” to control sovereign wealth funds (SWFs).

As host nation of the G7 meeting of finance ministers this week, Japan is expected to call on its six counterparts for unity in dealing with the growing power of SWFs.

The CDB is a state-backed lender with a mandate to use money from the China Investment Corporation sovereign wealth fund to make foreign acquisitions. BHP Billiton's decision to raise its own bid for Rio has raised the prospects of a Chinese counterbid financed by the CDB.

This prompted Hajime Bada, president of the Japan Iron and Steel Federation, to give warning yesterday that world markets were at risk of falling into “chaotic disarray” if the wings of the SWFs were not clipped.

“We need governments everywhere to come together to make rules that would prevent the disorder caused by these funds,” he said. “Some countries are using their state funds to dominate certain industries.”

Japanese steelmakers see the impending bidding war for Rio as a crisis in the making, with potentially devastating iron ore pricing power going to BHP Billiton or, worse, to an aggressive Chinese player with the financial backing of the State.

Caught between what it sees as “two worst-case scenarios”, the Japanese steel industry is pinning its hopes on government intervention. One of the key rules that Japan is expected to propose would lead to heavy limitations on the ability of SWFs to perform joint takeover bids for listed companies.

Mr Bada said: “The concept of a sovereign fund linking itself with companies is not a sound road map for future development.” He said that Japan was already feeling the effects of the iron ore trade becoming a sellers' market.

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