CHINA is moving to strengthen its grip on key Australian resource assets with steelmaker Hunan Valin Iron & Steel last night agreeing to deals giving it a 15 per cent stake in Fortescue Metals.

Hunan will invest about $1 billion in Fortescue through the issue of new shares and the acquisition of a portion of the Harbinger Capital Group's holding.

Fortescue chief executive Andrew Forrest said the deal with Hunan had been years in the making and would assist his efforts to raise more than $3billion from mainly Chinese state-owned interests to help him increase his Pilbara iron ore exports to near the levels shipped by BHP Billiton.

Mr Forrest, in Hong Kong to sign the Valin deal, said Fortescue was in talks to raise "several billions" from China's $US200 billion sovereign wealth fund and had similar proposals from non-Chinese interests.

He would not discuss the nature of the proposals, but said the aim of any further raising would be to not dilute shareholders' interests again.

As well as the 225 million new shares issued by Fortescue, Valin will buy 275 million shares from New York hedge fund Harbinger, the biggest shareholder after Mr Forrest, at about $2.30 each.

That will reduce the New York hedge fund and long-time investor's stake to 5.2 per cent if a planned institutional bookbuild is successful.

Mr Forrest said Valin's chairman, Xiaowei Li, would join the Fortescue board. But, in a dig at Rio Tinto's proposed $US19.5 billion rescue deal with Chinalco, he said there would be no Valin representation on management or board committees and no iron ore marketing joint ventures.

"We believe the Australian Treasurer will be able to hold this transaction up as a model for Chinese investment and be able to fully encourage Chinese investment into Australian companies," Mr Forrest said.

Valin has agreed not to raise its stake in Fortescue and Mr Forrest said Harbinger's Philip Falcone had agreed not to sell any more of his firm's stake unless a takeover offer was recommended.

Fortescue is also understood to be trying to raise $500 million through an institutional bookbuild.

If this does not proceed, Valin will hold a 16.5 per cent stake.

The Chinese investment in Fortescue, Australia's third-biggest iron ore exporter, comes as Mr Swan weighs up Chinalco's bid to take a stake in Rio Tinto and its iron ore operations, which are the country's largest.

The Hunan deal will require Foreign Investment Review Board approval. Valin is understood to have made an application about a week ago. CIC's investment, if talks are successful, would be expected to fund the $3 billion expansion of Mr Forrest's operations to 120 million tonnes a year, which is just less than the size of BHP's operations.

Fortescue's operations are expected to become cash-positive this quarter but there are indications it may need Valin and the institutional funds to meet its current plans.

The company yesterday said disputes over its suspension of shipping contracts when iron ore demand slumped late last year could cost it $US171 million.

It also delayed an expansion to its Pilbara iron ore operations to 55 million tonnes a year from 2009 to the first half of 2010.

The biggest part of the funding drive will be provided by CIC in what Fortescue will only say is a "hybrid funding package". It gave no time frame.

Details are yet to be finalised but it would remove any doubt about the company's abilities to fund expansion.

Valin will buy its newly issued Fortescue shares at $2.48 each, a 12 per cent discount to the $2.83 they traded at before being suspended on Monday.