China's state-owned steelmakers are reportedly looking to band together to buy a significant stake in Anglo-Australian mining giant BHP Billiton.

A senior official connected with the China Iron & Steel Association said: "Large Chinese companies like Baosteel, Wugang and Angang hope they can come together to take a stake in BHP."

The proposed investment would probably be financed by the China Development Bank.

BHP's chief executive Marius Kloppers has said that the emergence of Chinese investors on the share register was all but inevitable.

Details on how the steelmakers would proceed and what they hope to achieve remain unclear.

Nor will it be easy to convince Canberra politicians of the merits of Chinese state investment in the business.

Australia's chief finance minister, Wayne Swan, said he would set a high bar for Chinese state-owned corporations investing in the country, while insisting that he was open to foreign investment.

"It should be consistent with Australia's aim of maintaining a market-based system in which investment and sales decisions are driven by market forces rather than external strategic or political considerations," he said.

Lobbyists in Canberra say Australia's Labour Government, which was only elected late last year, is uncomfortable with large investments by Chinese governmentowned corporations.

Chinalco's raid on miner Rio Tinto's shares in February is still awaiting approval from Canberra.

Lobbyists say it will eventually be approved, but any larger investment would be discouraged.