MELBOURNE, Mar. 15 -- Australia on Monday welcomed a report by China clearing Rio Tinto (RIO.AX: Quote) and the Australian government of blame for the collapse of a $19.5 billion tie-up between Chinalco and Rio Tinto last June.

An Australian newspaper reported from Beijing that a detailed report to the State Council, or China's cabinet, blames economic forces and a powerful public relations campaign by BHP Billiton (BHP.AX: Quote)(BLT.L: Quote) for the failure of what would have been China's biggest offshore investment.

"Objectively speaking, the failure of the merger between Chinalco and Rio Tinto lies in the rapid recovery of the world resources market, including the related stock market, which was beyond everyone's expectations," the Chinese report said, according to The Age newspaper.

Australian Trade Minister said the report should help heal Sino-Australian relations, soured over the failed bid, and that Australia continued to welcome foreign investment to help expand its iron ore production.

"That's an important concession if it's true and we welcome that, and hope that not only was it a learning process but it provides the basis for moving forward with our relationship with China on a more solid footing," Crean told reporters.

Chinalco had agreed on a $19.5 billion equity and asset tie-up to help rescue Rio Tinto (RIO.L: Quote) from its debt woes in February 2009, which the Anglo Australian miner abruptly called off in June opting instead to raise money through a rights offer and form an iron ore joint venture with BHP.

The collapse of the deal damaged relations between Australia and China and a month later China arrested four Shanghai-based Rio Tinto staff, including Australian citizen Stern Hu, on allegations of spying and bribery, deepening the rift.

The Chinese government's report says the deal failed because Chinalco did not do enough to engage other Rio shareholders or to fight the public relations war in Australia, the newspaper said.

The report says Rio kept Chinalco informed about its talks with BHP, and the State Council accepted that as global conditions improved it made more sense for Rio to link up with BHP in an iron ore joint venture than to tie up with Chinalco, a customer.

"One important reason for blocking the vertical merger is conflict of interest, that is, when the major customer of Rio Tinto enters the board of directors, it will have certain rights to speak on product pricing which may harm the interests of Rio Tinto's other shareholders," it says, according to The Age.

The report concludes that China underestimated the backlash to the deal and the effectiveness of a campaign led by Rio's rival BHP against the Chinese state-owned company owning key resources in Australia.

It also outlines several mistakes China made which led to it losing the public relations war in Australia, including launching two other resources bids at the same time, Chinalco not lobbying enough, and not communicating with Rio Tinto's key shareholders.

It also says Chinalco tried to grab too much in the one deal, seeking a bigger equity stake and joint ventures in assets.

Rio Tinto had no immediate comment on the report and BHP declined to comment on it.