Espionage Charges in China May Be Linked to Negotiations Over Iron Ore Prices
China s detention of four employees of the Anglo-Australian mining giant Rio Tinto on spying charges this week is tied to evidence that they obtained confidential state documents during negotiations with Chinese steel makers over iron ore prices, people with direct knowledge of the case said Friday.
By DAVID BARBOZA
Published: July 10, 2009
SHANGHAI â€” Chinaâ€™s detention of four employees of the Anglo-Australian mining giant Rio Tinto on spying charges this week is tied to evidence that they obtained confidential state documents during negotiations with Chinese steel makers over iron ore prices, people with direct knowledge of the case said Friday.
Stern Hu, Rio Tintoâ€™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 Tintoâ€™s iron ore negotiations with Chinese steel mills have also been detained and accused of violating Chinaâ€™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 Chinaâ€™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 worldâ€™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 Chinaâ€™s state-owned companies.
Although China has accused Rioâ€™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.
This week, Rio Tinto and Australian officials said they were shocked by the accusations. In a statement issued Friday, Rio Tinto said, â€śWe are not aware of any evidence that would support these allegations.â€ť
Rio Tinto officials say that they have not been informed by China of any charges and that they have had no contact with their four employees since they were detained.
The Australian government on Friday questioned whether Chinaâ€™s state security law was being invoked too broadly to cover business dealings.
At a news conference, the Australian foreign affairs minister, Stephen Smith, said, â€śFrankly, itâ€™s difficult for a nation like Australia to see a relationship between espionage or national security and what appear to be suggestions about commercial or economic negotiations.â€ť
The investigation comes at a particularly thorny time, because China is still in tense negotiations with some of the worldâ€™s biggest iron ore producers, including Rio Tinto, over the price of iron ore imports. Those negotiations could determine the value of tens of billions of dollarsâ€™ worth of iron ore imports into China this year and next year and also could affect global prices.
Iron ore prices are negotiated on a yearly basis, to give the market participants a degree of certainty in a business that demands major outlays to underwrite the extraction of the ore. In a down economy, some of the major steel-producing nations, like Japan and South Korea, have already accepted a price 33 percent lower than last yearâ€™s.
China, which imports about half the worldâ€™s supply of iron ore each year, has dug in its heels and is holding out for an even larger reduction, of as much as 45 percent. For Australia, which sends about 80 percent of its ore to China every year, that price differential is of paramount importance.
Allegations of spying are also threatening to create more friction between China and Australia since Rio Tintoâ€™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 countryâ€™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.
â€śThe 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,â€ť Michael Danby, a federal minister with the Australian Labor Party, told the Australian Broadcasting Corporation on Friday.
Bettina Wassener contributed reporting from Hong Kong, and Chen Yang from Shanghai.