The Australian government welcomes inward investment from China and expects it to grow further in coming years but companies need to approach policy makers before deals are agreed and investments must maintain a market footing, an official said Thursday.

"If you talk to us early, before deals are signed, sealed and delivered, we can point out where there may be concerns," Patrick Colmer, head of Australia's Foreign Investment Review Board, said in a speech to a China-Australia investment forum in Sydney.

"It is much easier to engage earlier in significant projects," he said.

The comments are a firm message for companies to step up their cooperation with policy makers when considering deals and reminds China in particular that investments in Australia need to remain commercially driven.

The investment review board, a unit of Australia's Treasury, assesses foreign investment proposals but the final decision on approving such transactions is taken by Treasurer Wayne Swan.

One area of concern identified by Colmer is the need to maintain a market based system in Australia and he spelled out a preference for investments which do not involve acquiring an entire company but didn't rule out approving such takeovers.

"We are keen to see major projects maintain a listing as we believe listings are important for the development of good sound businesses," Colmer said.

"Our government has expressed a preference for projects that are joint projects in various forms. We are much more comfortable when we see investments that are below 50% for green field and below 15% for major producers."

The preferred solutions are different forms of cooperation and partnerships, while at the same time Australia needs to maintain its position as a reliable supplier of resources to all its customers, he said.

Among the criteria considered by FIRB in its assessments include the investor's independence from government, though total independence is not expected.

"We are looking for evidence it is a true commercially-focused investment," Colmer said.

"In general, that is our experience with foreign government investments. We haven't had significant concerns around any of those."

Colmer was speaking as FIRB continues to mull a string of investments, the largest of which is Yanzhou Coal Mining Co.'s A$3.54 billion offer to acquire coal miner Felix Resources Ltd., in what would be China's largest buyout of an Australian company to date.

Yanzhou has already had to resubmit its application, though Felix expects the transaction to be approved in time for a Yanzhou shareholder vote in mid-October and by Felix shareholders in early December.

Also being considered is a A$252 million offer by China Non-Ferrous Metal Mining (Group) Co. to buy a majority stake in miner Lynas Corp., which has already had to resubmit its investment application to FIRB three times since the deal was announced May 1.

Illustrating the Australian government's concerns, earlier Thursday the Defence Department said it objected to an investment by Chinese steelmaker, Wugang Australian Resources Pty Ltd., or Wisco, in Western Plains Resources Ltd. because the company's iron ore project is in a sensitive military testing zone.

Attracting inward flows is essential for Australia's economic growth but foreign ownership of the country's assets needs to be mutually beneficial, Colmer said.

"We are looking for a win-win situation," the FIRB director said.

Controversy around investments is not unusual though it is important to maintain public support. "We are trying to maintain an orderly flow of investment, while balancing a need to maintain public support for foreign investment," he said.

Australia has experienced "waves" of investment from various countries, including the U.K. and U.S. over recent decades, all of which have generated controversy and which make current concerns over China investment not unusual, the FIRB director noted.

"Generally it is something that proceeds without any due concerns," Colmer said.

Using FIRB's own data, it's likely that China was the third largest investor in Australia in the 2008-2009 fiscal year, after the U.S. and U.K.

"It's probably going to go higher than that in future years," Colmer said.

"We do welcome Chinese investment. The government is keen to see that continue. The government is also keen to maintain Australia's national interest."

Also, companies should stop attempting to heavy hand the government through legal interventions as it's not effective, he said.

"We are here, we are happy to work with companies, talk with us early, don't turn it into a legal (battle) and deal with us the way we like to deal with you, which is in confidence," Colmer said.

Meanwhile, China's Ambassador to Australia said the detention of Rio Tinto Ltd. employee Stern Hu will not damage relations between both countries and said it is a one-time, isolated incident.

"It will not affect any relationship between China and Australia," Ambassador Zhang Junsai told reporters.

-By Enda Curran, Dow Jones Newswires;

61-2-8272-4687; enda.curran@dowjones.com

(David Winning in Sydney and Alex Wilson in Melbourne contributed to this article)