My 2c.
From the Chinese perspective, their objectives seem to be, first and foremost, be a spoiler to the BHP-RIO merger because regardless what promises BHP had given them, in the long run, the merger will almost certainly make BHP and Vale into a duopoly in the iron ore market.
As a big consumer in this market, this is extremely bad news for the Chinese, especially when their country is going through a rapid pace of growth, the consumption of iron/steel will only increase in the next 10 or 20 years. The merger will certainly strengthen the bargaining power of both the producers whilst greatly reduce the consumers' - it will be most silly of them if they do not act and let it happen.
Secondly, preservation of their US$ reserve value by investing in commodity, in this case, RIO probably is one of the better way in achieving this goal. It makes a lot of sense especially when the USA has clearly indicated they intend to reduce interest rate to combat recession. The speculative end of the market is anticipating a target rate of 2 - 2.5% in 6 months time. The more they offload their US$ into hard assets, the better it would be.
With these considerations, one has to ask what is the chance of success for BHP?
In my view, in the current proposal, ZERO!
Barring any political pressure from the EU to the Australian government, on pure commercial considerations, China will not give up their holding in RIO and let BHP succeed in this merger. Not when they know the stake is this high and has such long devastating effect on their country as a whole. The Chinese communist central government will make sure the stake in RIO won't be given up so easily.
For that matter, the Chinese will probably raise their holding in RIO if BHP were to turn hostile and aggressive in their bid. Now that the Chinese' move is out in the open, the basic message is quite clear, especially to BHP - they want to have their say in the matter and they are not going to be a passive bystander. And they have plenty of cash! Over a trillion! Ok, may be not all of them, but at least there are 200 billions in stand by.
I can't see how BHP can succeed under this circumstance, especially when they are making an all script offer. In terms of cash or buying power, they are the weaker side. In terms of synergy, appealing to the share holders, etc, the Chinese and their partner are one happy RIO share holders and they won't sell!
Other possible scenarios:
1) RIO makes a reverse take over of BHP. With the Chinese backing, I won't rule this out. Especially when Gordon Brown has appealed to the Chinese to invest in UK in his recent visit to China, this will make a good test case for both governments.
2) BHP invites the Chinese to take a substantial stake in the company, in the process, buying over their stake in RIO. There may be added sweetener for the Chinese, like guarantee supplies for the next 20 years at certain control price increment.
(This has the potential of antagonizing the Japanese and the S.Korean).
3) Others, if you know, you can tell us.
Cheers.