CITIC Group and Baosteel Group, which are said to be interested in Fortescue Metals Group, are two of the most politicised companies in China. Baosteel is China's leader in the steel industry and CITIC was anointed to make significant investments outside China, such as the $10 billion Sino Iron project, which has been described as the worst mining investment in Australia in the past decade.

What is almost certain is that CITIC and Baosteel, which is developing an iron ore project with Aurizon, won't bid against each other for Fortescue or other resource companies. It would be politically unpalatable in China and it's typically not what China Inc does.

While there would be a dozen companies in China capable of taking out Fortescue, only one would get the green light, say veteran China observers.

At the Stockbrokers Association conference on Thursday, Li Xinchuang, president of the China Metallurgical Industry Planning Association, firmed up speculation with comments that Fortescue would benefit from a Chinese investor, while saying he didn't believe the argument that there was a global oversupply of iron ore.

It's an argument made by Fortescue's founder Andrew Forrest, who has attacked BHP Billiton and Rio Tinto on their output, while saying relatively little about the world's biggest producer of iron ore, Brazil's Vale.

Indeed, Xinchuang called Forrest out on his claims by pointing out that Fortescue grew its production to a critical mass of 155 million tonnes over the past few years, which has significantly brought down the miner's cost base. Xinchuang noted that for all the iron ore miners it was a cost and volume game.

A Goldman Sachs note sent out this week described the view of voluntary production cuts, which were the implication of Forrest's megaphone politics, as "misguided" and "implausible" as it would go against the prevailing trend of improving efficiency, saying its own analysis indicated that mining productivity in the Australian iron ore industry is increasing by 4 per cent per annum, resulting in higher output and lower unit costs.

Goldman's warned that competition in the iron ore market would only intensify in the coming years. As a result it has a target on the iron ore price of $US40 a tonne in 2017. Citi is far more optimistic with its forecasts for an iron ore price at $US83 a tonne in 2017.

The price, which traded as high as $US198 a tonne in 2008, is now trading around $US63 a tonne.

Meanwhile, Li expects that China will grow its imports of Australian iron ore this year to just over 600 million tonnes, which he estimated was a 30 million to 50 million tonne increase on last year. China consumes about 60 per cent of the world's iron ore.

Li said China's total ore demand would be 1.119 billion tonnes for 2015 and 1.106 billion next year.

If a Chinese company were to buy into Fortescue then mining executives expect it would most likely be a direct stake in the company's mine assets.

What has been pointed to as a possible asset that a Chinese investor or other foreign acquirer might be interested in is the potentially attractive low-cost ore at the Solomon Hub that contains the Firetail and Kings mines.

A 40 per cent stake in such an asset might reap $2 billion for the company by some rough calculations. While this might provide some good news on paying down debt and giving the miner working capital for the longer term, it would mean that Fortescue shareholders would receive a smaller amount of profits from such mine assets because they would own less of them.

Owning a stake in mine assets is less risky from a foreign investor point of view because shareholders and debt holders have less claim over such assets in the worst-case scenario, which no one is suggesting.

From the Chinese point of view, an investment in Fortescue would be strategic because the production of the third-largest Australia iron ore player is needed to help keep the iron ore price down.

Li made the point that he saw a future for the industry's four big players but was less sure about some of the second-tier players.

Keeping Fortescue there is important for the Chinese also because additional volumes from Brazil's Vale won't be coming onto the market for a while, but when they do they could be shipped to China at a cost almost as low as that achieved by industry leader Rio Tinto.

A week ago, China signed billions of financing and investment deals with Vale, which will bring additional iron ore into the market.

Fortescue has always been an attractive proposition for the Chinese because it has its own rail and port infrastructure.

Fortescue's shares have gained almost 12 per cent this week on the speculation of a Chinese investor.

Analysts and mining executives say they expect acquisition and merger activity to pick up across the broader mining sector in the next 12 to 24 months. A stake in Fortescue, if it were to happen, is only a small part of that bigger story.

There will be distressed players not just in iron ore but in the coal and gold sectors. In coal there's expected to be quite a bit of activity, with speculation focused on Vale and Peabody's coal assets and potentially even Rio Tinto trimming some of its mines.

A lot of companies spawned at the time of high commodity prices will be swallowed up in what is the great circle of corporate life. The miners with low costs that are short on growth options will be picking off those that are cash starved but have good development options.