Michael Wei and Lucy Hornby

China may launch an antimonopoly probe into BHP Billiton's $39 billion (25 billion pound) bid for Canada's Potash Corp

, the China Business News said on Wednesday, citing a source familiar with the matter.

China will also review the merger of two Russian potash firms -- Uralkali and Silvinit -- given the major impact the two deals would have on China, the paper cited the unnamed source as saying.

The report was another indicator that China, as the world's biggest importer of fertiliser, is wary of further concentration in the market, following BHP Billiton's launch of a hostile bid for Potash Corp

last month.

But it was unclear what steps, if any, Chinese regulators could take in opposition to the bid.

BHP declined to comment on the Chinese newspaper report, and China's Ministry of Commerce was not immediately available to comment.

BHP has said the deal only needs approvals from regulators in Canada and the United States, where Potash Corp sells around half its production.

China buys around 7 percent of the output of Potash Corp, which controls around one-fifth of world production of the key crop nutrient. Potash demand in the country has been growing by around 5-8 percent a year, faster than other fertilisers.

BHP Billiton does not currently produce any potash but does have potash resources it could develop in the future, including the massive Jansen project in Canada. The mine would begin producing in 2016 at the earliest, if the company approves development in 2011.

China's largest fertiliser distributor, Sinofert Holdings Ltd <0297.HK>, said last week it was worried about the impact that a BHP deal would have but would not say if its parent, Sinochem, was planning a rival offer.

Government departments and state-owned Sinochem Group have held meetings recently to review the possible impact the two high profile acquisitions could have on China and about possible countermeasures, according to the source quoted by China Business News on Wednesday.

CHINA CONCERNS

BHP may yet have to submit paperwork on the deal to China's anti-monopoly regulators.

According to Chinese law, its regulators have jurisdiction over a foreign merger if two of the parties each have over 400 million yuan ($58.7 million) in sales in China in the last fiscal year and if their worldwide sales exceed 10 billion yuan. The BHP Billiton bid for Potash Corp appears to meet that criteria.

BHP Billiton may argue that since it currently does not produce potash, a takeover of Potash Corp would represent a change in ownership hands but no increase in market share.

However, Chinese regulators when evaluating the deal could take into account future production from deposits that BHP owns, including the Jansen mine, in projecting future market dominance.

China's ability to enforce rulings in cases where neither party to the merger has operations or assets in China is so far untested.

The test case is in fact BHP's proposed merger of its Australian iron ore operations with those of Rio Tinto. Chinese authorities have yet to rule on that merger, although Chinese officials and the steel industry are adamantly opposed.

A Chinese fertiliser expert said there is concern about BHP getting control of Potash Corp adding to its own large potash reserves.

So in terms of buying this resource, or negotiating, the Chinese government and people don't want to see this kind of concentration, Chen Li, a fertiliser expert at China National Chemical Information Centre, told Reuters Insider television.

But this is a market operation, and no-one can block it. So we can only rely on our own efforts to overcome the difficulties if the takeover succeeds, she said, referring to efforts to raise output in China and at Chinese-owned assets overseas.

Industry analysts have mentioned Chinese companies or the government's sovereign wealth fund as possible counter-bidders against BHP.

On Tuesday, the Canadian province of Saskatchewan, the home of takeover target Potash Corp, said it would have lots of concerns about a Chinese sovereign fund or state-owned company buying part or all of the company.

Potash Corp shares last traded at $147.25, 13 percent above BHP's offer on bets that BHP will have to raise its offer or another company or consortium will enter the fray.

BHP shares jumped 2.3 percent to A$37.91 in line with the broader Australian market <.AXJO>.

(Additional reporting by Ken Wills in BEIJING and Sonali Paul in MELBOURNE; Editing by Lincoln Feast)

Canada China