The NY Times reports that 4 employees of Rio Tinto, including their chief iron ore negotiator based in Shanghai were arrested for allegedly stealing secrets related to the Chinese negotiation position:
Stern Hu, Rio Tinto’s top iron ore negotiator with China and an Australian citizen, was detained in Shanghai on Sunday on suspicion of spying, stealing state secrets and causing economic harm to the nation, in a case that has rocked the Chinese steel and iron industry. Three other Chinese employees who had some role in Rio Tinto’s iron ore negotiations with Chinese steel mills have also been detained and accused of violating China’s state secrets law.
Now, several other executives in the iron ore trade in China are also under investigation and at least one Chinese executive has been detained, possibly for passing state secrets to the Rio Tinto employees, according to China’s state-run news media and people familiar with the investigation.
Early Friday, Eastday.com, a Web site partly controlled by the Shanghai government, said that the investigation was linked to the pricing of iron ore and that the Chinese authorities were looking into whether Rio employees paid bribes to Chinese officials in exchange for confidential government documents in an effort to gain an edge in negotiations over iron ore contracts.
The case could pose serious challenges for Rio Tinto, one of the world’s biggest mining companies, as it tries to complete the negotiations this year with China.
The case also seems likely to turn into a larger dispute between China and Australia about the nature of the Chinese state secrets law and whether it should apply to foreigners doing business with China’s state-owned companies.
Although China has accused Rio’s executive, Mr. Hu, of spying on the country, there is growing evidence the case is centered on his role as lead negotiator for Rio Tinto in its dealing with Chinese steel companies.
The Chinese rely on Australia for a wide array of raw materials, and in turn, the Australians rely on China for processed goods and the like. Australian PM Kevin Rudd is a fluent Mandarin speaker and has made a conscientious effort to reach out and embrace the Chinese. Australian business interests have as well. But, maybe not enough:
Allegations of spying are also threatening to create more friction between China and Australia since Rio Tinto’s decision last month to scrap a planned $19.5 billion deal with Chinalco, a Chinese state-owned company. Some Australians see the arrests of the Rio Tinto employees as retaliation.
Relations had begun to fray earlier in the year because many Australians had grown worried about the prospect of China taking a big stake in Rio Tinto and other Australian companies and gaining control over some of the country’s most valuable resources.
Chinese officials have also grown angry because of what they see as protectionist or anti-Chinese sentiment behind efforts to block Chinese companies from securing long-term supplies of raw materials.
“The message this sends to any Australian or international business executive is that you can lose more than your business deal if you cross these people,” Michael Danby, a federal minister with the Australian Labor Party, told the Australian Broadcasting Corporation on Friday.
It’s not just buyer beware anymore, it’s seller beware too.
Following this one closely in the Oz papers. It is now apparent to all but the totally blind, that you are dealing with China Inc which can draw upon the full resources of the CPs security/repressive apparatuses when things go pear shaped.
One response would be to have Chinese buyers be made to come to Australia when undertaking negotiations. Surely Rio Tintos Shanghai office must be bugged to the eyeballs, and there would be the guaranteed employee/mole in place.
1. These arrests are designed to force all Chinese iron ore buyers into a cartel.
2. Think about this one. Hu Jintai’s premature departure from the G8 gabfest. Recall about three years ago there was a major corruption case in Shanghai, where one of the Politburos Shanghai honchos got clobbered, clearing the way for a change in policy focus from coastal urban centres to rural inland China and the so-called harmonious society. Sounds bizzare I know, but these arrests would be deliberate payback by the demoted Shanghai power set.